Philippine president signs sin tax bill into law

“Today, we signed, finally―I repeat, finally―a law that will serve as an early Christmas gift for millions of Filipinos,” Philippine President Benigno Aquino III yesterday said after he affixed his signature to Republic Act No. 10351 (An Act Restructuring the Excise Tax on Alcohol and Tobacco) in the Palace.

The president said he signed the “sin tax” law, projected to generate 33.96 billion pesos (US$825 million) in revenue in the first year of implementation, to help liberate “more Filipinos from the vices of smoking and drinking”.

The law raising taxes on tobacco and alcohol will be implemented starting January 1.

Aquino said the law was a victory against the powerful tobacco lobby and would provide extra funds for better healthcare and facilities.

“The enemy was strong, noisy, organised and had deep pockets… but as I have always said, there is nothing that can stop Filipinos who are marching in the right direction,” the president, himself a smoker, said in a speech at the signing ceremony.

The tobacco lobby included lawmakers representing tobacco-growing regions as well as powerful cigarette companies that enjoyed one of the lowest tobacco taxes in Southeast Asia.

The country has the highest incidence of smoking in the region, with tobacco-related diseases costing the country 177 billion pesos last year, according to the government.

Health Secretary Enrique Ona described the new law as “a game changer” and a “victory for the health of the Filipino people”.

Ona pointed out that the new law would discourage smoking in the country while injecting 146.7 billion pesos into the country’s public health sector.

The president said the increased revenues would benefit more people under the universal healthcare programme and enable Filipinos to avail themselves of new and/or improved clinics and hospitals.

He also delighted in the possibility of more and more Filipinos eventually quitting smoking and binge drinking because of higher excise taxes on cigarettes, distilled spirits and fermented alcohol.

“The fundamental principle of this law is unequivocal: We want health benefits within reach of everyone, rich or poor, because every Filipino’s life is sacred. We will elevate the quality of public health of our nation. This will be the key to the nation robustly benefiting from the opportunities (afforded by an) improving economy,” he said.

Witnessing the signing of RA 10351 were leaders of both chambers of Congress led by Speaker Feliciano Belmonte Jr. and Senate President Juan Ponce Enrile, members of the Cabinet, civil society partners and healthcare advocates, industry leaders and members of the business sector, representatives from the World Health Organisation, and officials of the United States Agency for International Development and the World bank.

Level playing field

According to the president, the law will level the playing field for the tobacco industry.

“It’s unjust to have varying taxes slapped on similar products. We are correcting this. In the coming years, there will be unitary taxation which will open the door for a healthier competition in the industry, and avoid monopoly,” Aquino said.

He was referring to the law’s intent to have a gradual shift to unitary taxation to simplify the current multitiered structure for easier tax administration.

Aquino reiterated that tobacco farmers need not worry about the law’s impact on their livelihood.

“The benefits you have received in the past will not disappear,” he said, noting that the government would actually increase the tobacco-producing provinces’ share of the tobacco excise tax.

Expressing his “wholehearted gratitude,” to those who had championed the measure, the President had a roll call of lawmakers, starting with Sen. Franklin Drilon (chairman of the Senate ways and means committee), Belmonte, House Majority Leader Neptali Gonzales, Davao Rep. Isidro Ungab (chair of the House ways and means committee) and members of the Cabinet.

Aquino also thanked Enrile, who was seated beside him at the table, despite his staunch opposition to the law. “You have proved that through continued cooperation between different agencies of government, we will march forward toward a society that is fair, just and progressive,” he said.

Revenue regulation

Internal Revenue Commissioner Kim Henares explained to reporters that although the law would be effective immediately upon publication, there would no adjustment of prices before the new year.

“We will also be coming up with a revenue regulation and it will be published before the end of the year,” she said.

There are different classifications for alcoholic products: distilled spirits, fermented liquors and wine; and, in the wine category, sparkling wines, still (nonsparkling) wines and champagnes.

Henares said all these would have different tax classifications, with prices progressively increasing in the years to come.

For the distilled spirits, in the first two years (2013 and 2014), the specific tax is 20 pesos plus 15 per cent of net retail price per proof.

Come Jan 1, 2015, the specific tax will be 20 pesos per proof litre plus 20 per cent of net retail price. Then, in 2016, the 20 pesos per specific portion will again increase, and so on.

It’s the same thing with beer. “It (tax) will become unitary by Jan 1, 2017, and then it will go up 4 per cent every year thereafter. And (for) the wine, the rate every year will (also) increase by 4 per cent,” said Henares.

Increases ‘ad infinitum’

Asked if the increases would taper off at a certain point in the near future, Henares said, “No, it’s in ad infinitum.”

She said there was no sunset provision for the increase of 4 per cent. “It’s 4 per cent per annum forever, or until the law is amended.”

“So the ad valorem component increases while the price of the product increases. That’s the continued increase of 4 per cent per annum plus the 20 per cent of net retail price,” she added.

For the cigarettes, there will be a specific rate and it will become unitary on Jan 1, 2017. Then, after that, every year it will go up by 4 per cent.

Henares said the new law would not encourage smuggling of sin products, especially cigarettes, because their prices―even with the new excise taxes―would be much cheaper than those in neighbouring countries.

“The other thing is … the law still provided that 15 per cent of whatever excise tax is collected from tobacco products will be given to the tobacco-producing provinces to help the tobacco farmers,” she said.

“(I)f we collect the 33 pesos and a half billion (pesos), it will be around 6 billion pesos more than what they are already receiving now,” which was about 4 billion pesos, she added.

“So, if you look at it, our (tobacco) farmers―there are 50,000 farmers―are supposed to be sharing a pot of 10 billion pesos.”

In a statement, Ona said: “With higher prices, the number of young and poor people smoking and drinking excessively will be reduced significantly, resulting in a lower incidence of smoking-related noncommunicable 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.”

The health secretary said the additional revenues that government would collect under the law would be used to fund the expansion of PhilHealth “to the second poorest 20 per cent of our population,” which is composed of around 5.6 million families.

He said the additional taxes would also be used to expand health programmes for tobacco and alcohol control, elimination of public health threats such as filariasis, malaria, schistosomiasis and rabies, the expansion of existing immunisation programmes, and additional hiring and deployment of doctors, nurses and other healthcare professionals.

With reports from Philip C. Tubeza, Cathy Yamsuan and AFP

*US$1=41.1 pesos