Sintax Reform Law

Don’t expect sharp drop in smoking with new sin tax bill — economist SIEGFRID O. ALEGADO, GMA NewsDecember 12, 2012 7:52pm
The sin tax reform measure will definitely raise the prices of cigarettes and alcoholic beverages, but there won’t be an immediate and marked decrease in the number of smokers kicking the habit just because a stick of Marlboro Lights – for instance – has become more expensive.

But government officials are confident that the measure, awaiting President Benigno S. Aquino III’s signature, will eventually curb cigarette consumption.

“The sin tax law will increase taxes for cigarettes and alcoholic drinks. It will have the effect of increasing the price of smoking and drinking,” Finance Assistant Secretary Ma. Teresa Habitan noted in a text message to GMA News Online on Wednesday.

How exactly will this measure impact on Filipinos who crave for the nicotine rush? Economic theory explains.

“People will not reveal exact changes in consumption [of cigarettes] until the sin tax bill has been fully implemented,” University of Santo Tomas economist Alvin Ang said in a phone interview.

Theoretically, any form of price increase stemming from new taxes or not takes time to be realized by consuming public, the economist noted.

Targeting the poor

Ang said such taxes target price-sensitive sectors, particularly the poor and youth. “In time, those who could not afford cigarettes will lower consumption or quit all-together,” he said.

Habitan noted the rationale behind the reformed sin tax measure is to curb smoking and drinking in these segments while providing additional funds for health programs.

“These are not basic commodities – cigarettes and alcohol are pleasure goods, which have bad health effects if consumed excessively,” she said, noting consumers buy sin products because these are cheap.

Filipinos spend around 0.8 percent of their total expenditure on tobacco, statistician Jose Ramon Albert wrote in his article “What is So Sinful About the Sin Tax?” which is posted on the National Statistical Coordination Board’s website.

What is worth noting is that the poorest 30 percent of Filipinos spend more on supporting the habit, with 1.6 percent of their total expenses going to cigarettes, he added.

In an earlier Senate hearing, Health Secretary Enrique Ona has said the Philippines is the top smoking country in South East Asia.

Filipino smokers on the average consume 1,073 sticks annually, compared to Indonesia (974), Vietnam (887), Malaysia (646), Thailand (634), Laos (544), Cambodia (447), Singapore (406), and Myanmar (209), Ona noted.

Finance officials had blamed the situation on a complicated four-tier excise tax structure with rates based on prices of brands in 1996.

The system allowed consumers to go for cheaper cigarettes. “Consumers look for cheaper alternatives if they could not afford certain goods,” Ang said.

The tax rates were also unadjusted for inflation, making cigarettes cheaper each year, he added.

In its version submitted to Congress, the Aquino administration batted for the collapse of the four-tier system into two with higher rates for the first two years of implementation and a unitary P30 tax in the third year. The government also wanted sin taxes indexed to inflation in a way that the excise tax is partly influenced by the movement of commodity prices.

But Congress a approved version with a two-tiered rate for both tobacco products and fermented liquor, and gradually increasing to settle at a single P30 rate by 2017.

“The excise tax incidence for tobacco products jumps from a measly 29 percent in 2012 to a respectable 63 percent by 2017, close to the international standard recommended,” Finance Secretary Cesar Purisima said in a statement Tuesday.

The bill ratified by Congress late Tuesday also indexed a 4 percent annual increase in tax rates during the sixth and succeeding years, meaning the excise tax on cigarettes will rise at a fixed percentage regardless of a faster or slower inflation.

The Finance Department has said the Executive version of the “sin” tax bill will cut down cigarette consumption in half – from 5.45 billion packs (prior to the new law) to 2.8 billion in the first year of implementation, 2.6 billion in the second, 2.51 billion in the third, and 2.5 billion in the fourth.

Ang said the targets “could still be achieved, but at a later date.”

While the 4 percent would not capture exact changes in prices of cigarettes, what the indexation does is “assure that sin products will not become more affordable in the future.

“Regardless of inflation, it will be sure that tax on sin products will increase,” he said. “If the intention is to lower consumption, it is a good measure,” Ang added.

Indexing will help prevent “exposing the poor and the young to the harmful effects of smoking and excessive drinking,” said Purisima.

The approved sin tax bill “remains a good measure. It only has to be implemented well,” Ang said. —VS, GMA News SOURCE :

http://www.gmanetwork.com/news/story/286143/economy/finance/don-t-expect-sharp-drop-in-smoking-with-new-sin-tax-bill economist

Taxes on alcohol and cigarettes don’t discourage consumption and hit the poor hardest · “Sin taxes” on cigarettes and alcohol are designed to boost revenue, not improve public health · Minimum alcohol pricing will exacerbate poverty and entrench inequality without discouraging binge drinking · Most of the costs of drinking and smoking fall on individual consumers, not the public. There is no economic justification for increasing taxes on smokers and drinkers. In a report released today, “The Wages of Sin Taxes”, the Adam Smith Institute condemns the government’s decision to increase taxes on cigarettes and alcohol this year and to introduce minimum alcohol pricing. The report argues that ‘sin taxes’ (taxes on commodities seen as harmful to health) are ineffective in reducing consumption and are not necessary for recouping lost revenue. The taxes are highly regressive and force the poor to pay for the government’s mishandling of public finances. The taxes don’t work

Cigarette taxes are now so high that increases drive smokers to the black market instead of discouraging consumption or raising more revenue. Sin taxes are more likely to deter moderate users than heavy users, whose demand for cigarettes and alcohol is relatively inelastic. A heavy smoker or an alcoholic is unlikely to reduce consumption because of a price rise, making sin taxes an unreliable way of reducing consumption or improving public health. The victims of cigarette and alcohol duty

Sin taxes hit moderate and heavy users alike. Research has shown that previous rises in cigarette tax have made only 2.3% of smokers quit, with the other 97.7% just paying more in tax. Taxes on cigarettes and alcohol are regressive and hit the poor hardest. The average smoker spends £1660 a year on cigarettes – 20% of the bottom 10%’s income. Sin taxes are the most regressive indirect taxes, as they tend to target products that are disproportionately consumed by the poor. Minimum alcohol pricing is also deeply regressive, only affecting the cheaper drinks consumed by the poor. Punishing poor people for enjoying a drink or a cigarette exacerbates poverty and treats the poor like children who need to be controlled by the state. The public cost of smoking and drinking

Taxes on cigarettes and alcohol have often been justified by studies that claim to estimate the “social cost” of these vices. These studies include intangible costs borne by individual consumers, such as “emotional distress”, lost years of life, and individual expenditures on cigarettes and alcohol. These are personal costs, not social costs. They also fail to include the economic benefits the alcohol and cigarette industry gives to the UK in terms of employment and government revenue. Most of these studies should be relegated to the bin of junk statistics. In fact, smokers and heavy drinkers do not cost the state more. Though smokers may cost more during their working lives, but non-smokers require greater expenditure in pensions, nursing care and welfare payments. Chronic diseases associated with old age are far more expensive than the lethal diseases associated with smoking and alcoholism. Smokers and drinkers are not a burden on the state, and the myth of saints subsidising sinners should not be used to justify tax rises. The appeal of ‘sin taxes’

Despite the fact they hurt the poor and do not change consumer consumption, sin taxes have always been popular with governments as a source of revenue. Sin taxes and minimum alcohol pricing should be recognised for what they really are – stealth taxes and paternalism designed to control the poor. Chris Snowdon, author of the report and Adam Smith Institute fellow, says: “Campaigners for sin taxes and minimum pricing often claim that “healthy citizens” are forced to bear the cost of other people’s lifestyles. In fact, the evidence shows that smokers take less from the communal pot than the average Briton and the money raised from alcohol duty comfortably pays for any burden drinking places on public services.

If the aim of policy is to make individuals pay their way, the government should slash the beer tax and subsidise cigarettes. We are not seriously suggesting the government does this, but if politicians insist on increasing taxes on these products, they should admit that the purpose is to raise revenue. Essentially the government is forcing the people who are least likely to live to extreme old age to pay for the escalating costs of an ageing population. “As we show in the report, amongst EU countries there is no relationship between alcohol prices and alcohol related harm, nor is there an association between cigarette prices and smoking rates. The only significant effects that sin taxes have are to make the poor poorer and black marketeers richer.” SOURCE: http://www.adamsmith.org/news/press-releases/taxes-on-alcohol-and-cigarettes-don%E2%80%99t-discourage-consumption-and-hit-the-poor

IN:REVIEW Sin Tax Law
]anuary 10, 2013 By Michelle Lojo of DSLU
Late last year, President Benigno Aquino III signed Republic Act No. 10351, otherwise known as the sin tax reform bill. The law increases taxes on alcohol and cigarettes. The law, on average, increases the prices of cigarettes sold by pack from P11.50 to P23.50 and will continue to increase each passing year as per evaluation. Even with the increase in prices of cigarettes, Malacanang reports that the prices of cigarettes in the country are still low compared to the prices among other Asian countries where prices of tobacco products can rage up to P50 per pack.

The National Youth Commission (NYC), along with other survey companies released results that predict that the number of young smokers decrease consumption once cigarette prices increase, along with the decrease of cigarette consumption per day by smokers. The law is also considered a tool that would discourage smoking.

The original sin tax bill, which had been pending since the 1997 Congress, is seen as more of a health measure, as compared to the signed law, which would bring more income to the government.  Aquino explains that the signing of the Sin Tax Bill into Law is a means of giving health benefits to Filipinos, regardless of stature. The expected revenues from the increased tax will be used to fund health benefits for the poor and aid in renovating and constructing new hospitals. He deemed it an early gift to the Filipino people, emphasizing that life of each Filipino is sacred.

The Sin Tax Law has been in effect since January 1, 2013 with many cigarette vendors already abiding by it. But PMFTC, Inc., a major tobacco company in the country, released a statement that they have not increased the prices of their products and advise sellers of their products to sell at current recommended prices. SOURCE: http://thelasallian.com/2013/01/10/in-review-sin-tax-law/

Sin tax bill signed into law
By Aurea Calica (The Philippine Star) | Updated December 21, 2012 – 12:00am MANILA, Philippines – President Aquino signed yesterday the sin tax reform bill into law, paving the way for higher cigarette and liquor prices in the coming weeks. After signing Republic Act No. 10351, Aquino thanked lawmakers who fought to have it passed amid strong lobby against the measure from what he described as groups “with deep pockets.” “Many believed it was impossible to pass the sin tax bill” as those blocking its passage were “strong, noisy, organized,” the President said. But he said it was ultimately hard work and unity that prevailed and made the day for the sin tax measure. “Today, we sign, finally, a law that serves as an early Christmas gift to millions of Filipinos who will be covered by the universal health care program, who will benefit from new public clinics and hospitals that will be built, and who will be discouraged from smoking and drinking,” the President said in his speech during the signing ceremony at Malacañang.

“We have proven: nothing is impossible for Filipinos who are sailing in the same direction, whose hearts are in the right place, and who are ready to fight for their principles,” he said. n its first year of implementation, the measure is expected to generate for the government additional revenues worth P33.96 billion, of which P23.4 billion will come from cigarettes, P6.06 billion from distilled spirits and P4.5 billion from fermented liquors. The sin tax bill had been pending in Congress since 1997 and the President said many had thought it would already be impossible to have it passed due to conflicting interests. The bill will significantly increase the prices of cigarettes and liquor in the country. The prices of sin products in the Philippines are significantly lower than those in other countries. Contrary to claims by lobby groups, Aquino said tobacco farmers would benefit from the measure in terms of assistance and access to alternative livelihood. The President thanked Senate President Juan Ponce Enrile for showing respect for the passage of the measure despite his being against it. He also praised Speaker Feliciano Belmonte Jr. and Sen. Franklin Drilon for their efforts in ensuring the bill’s passage.

Aquino said Finance Secretary Cesar Purisima, Health Secretary Enrique Ona and Bureau of Internal Revenue Commissioner Kim Henares should also be credited for convincing lawmakers to consider the measure. He called Henares the “lead fighter in the trenches for this endeavor.” Aquino said that based on the enacted measure, “taxes will be uniform and will open the doors for healthy competition in the industry and avoid monopoly.”

Eighty percent of the incremental revenues after deducting the support for tobacco farmers under RA 7171 will be allocated for universal health care under the National Health Insurance Program, and 20 percent will be allocated nationwide for medical assistance and health enhancement facilities program. Under the sin tax law, the proper tax classification of alcohol and tobacco products will be determined every two years, removing the price/brand classification freeze. This is meant to simplify the current multi-tiered structure to prevent downshifting to lower priced brands. To prevent the excise taxes from getting eroded by inflation, the excise tax rates will be increased by four percent every year effective 2016 for distilled spirits and 2018 for cigarettes and beer. Officials said the law conformed to the World Trade Organization ruling on distilled spirits and tobacco. Drilon leaves chairmanship

Drilon, meanwhile, has given up his role as acting chairman of the Senate committee on ways and means after helping ensure passage of the sin tax reform measure. Sen. Ralph Recto reassumes the chairmanship of the committee. Drilon took over the chairmanship of the committee from Recto last October after the latter decided to give it up in response to allegations that he was defending manufacturers of cigarettes and alcohol. Recto decried what he thought was lack of support from finance officials for his version of the sin tax bill. He had been pilloried by various sectors for pushing for lower tax rates for cigarette and liquor. Apart from the sin tax bill, Drilon also sponsored the bill removing the common carriers tax on foreign airlines and marine vessels. “These two important measures, I believe, is a major work that the committee on ways and means undertook for the past two months.

Having said that, we believe it is time that we relinquish the acting chair as the only purpose of our having assumed the acting chair is to work first on the sin tax reform measure and second, on this long-pending common carriers tax,” Drilon said. Sen. Ferdinand Marcos Jr., for his part, insisted that the sin tax reform measure will promote smuggling of tobacco in the country. He said the government is unlikely to realize its revenue target. Tobacco farmers belonging to the Philtobacco Growers Association (PTGA) also expressed disappointment over the passage of the measure. “We are in mourning because this is the beginning of the demise of the tobacco industry in the country,” said PTGA president Saturnino Distor. The group believes the excise tax law favors imported brands. ‘Game changer’

For Health Secretary Enrique Ona, the Sin Tax Reform Law is a “game changer” that will drastically alter the landscape of the country’s health care system. “The enactment of this law is a victory in our campaign to protect our people, especially the young and the poor, from the ill effects of smoking and excessive drinking,” Ona said in a statement in reaction to President Aquino’s signing the measure into law. Ona added that by increasing the prices of cigarettes, “the number of young and poor people smoking and drinking excessively will be reduced significantly.” This in turn, he said, will result in “lower incidence of smoking related non-communicable illnesses such as lung cancer, heart attack, strokes and chronic lung disease, as well as diseases associated with excessive drinking such as liver diseases and trauma secondary to drunk driving.” Part of the revenues from tobacco and alcohol products will be used to enroll into Philippine Health Insurance Corp. (Philhealth) the poorest 20 percent of the country’s population and upgrade and modernize hospitals and other healthcare facilities, among others.

“The Department of Health is grateful for the invaluable dedication of Sen. Franklin Drilon, acting chair of the Senate committee on ways and means, and Representative Isidro Ungab, chair of the House committee on ways and means and bill sponsor in their respective chambers, in ensuring that this critical health measure is passed,” Ona said. “We also recognize the support of our health champions in the Senate and the House of Representatives as well as the Department of Finance, Bureau of Internal Revenue and our partners in the academe, medical societies, patients’ groups and other members of civil society,” he said. Based on DOF projections, the law is estimated to generate cumulative incremental revenue of P184.31 billion from 2013 to 2016, of which P146.7 billion is estimated to be earmarked for health. With Sheila Crisostomo, Marvin Sy, Christina Mendez SOURCE: http://www.philstar.com/headlines/2012/12/21/888415/sin-tax-bill-signed-law Definition of ‘Sin Tax’

A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. These type of taxes are levied by governments to discourage individuals from partaking in such activities without making the use of the products illegal. These taxes also provide a source of government revenue.

Investopedia explains ‘Sin Tax’
Sin taxes are typically added to liquor, cigarettes and other non-luxury items. State governments favor sin taxes because they generate an enormous amount of revenue and are usually easily accepted by the general public because they are indirect taxes that only affect those who use the products. When individual states run deficits, the sin tax is typically one of the first taxes recommended by lawmakers to help fill the budget gap.

SOURCE: http://www.investopedia.com/terms/s/sin_tax.asp#axzz2Hs1W31jW