Manila, Philippines –I welcome the enactment of Republic Act 10351, which raises taxes on cigarettes and alcohol. It will generate additional revenues, starting with P33.96 billion in 2013. And in 2014, the new tax law will generate P42.82 billion, increasing to P50.63 billion in 2015, P56.86 billion in 2016, and P64.18 billion in 2017, or a total of P248.49 billion in five years.
Of the total revenues expected for the first year of implementation, P23.4 billion will come from cigarettes, P6.06 billion from distilled spirits, and P4.5 billion from fermented liquors.
The new excise tax for cigarettes adheres to the commitment of the Philippines to the World Health Organization (WHO) to increase the ratio of tax to price from the current 29.1 percent to 52.5 percent in 2013 and 63 percent by 2017.
The WHO noted that prior to the signing of RA 10351 last December 20, the tax on the most-sold brand in the Philippines was only about 22%. The higher prices resulting from the new tax law will help the Philippines catch up with other countries in terms of cigarette prices.
The WHO also said that Australia recently passed legislation that increased the cost of cigarettes to US$19 for a pack of 30 sticks. Cigarettes sold in the Philippines are among the cheapest in Asia, with the most popular brands costing an average of less than $0.50 (P20) per pack. In contrast, in the Lao People’s Democratic Republic cigarette prices recently doubled to about one US dollar (P40) per pack. In Malaysia, cigarettes cost three US dollars (P120) per pack. In Hong Kong, the average cost of a pack of cigarettes is six US dollars (P240) and nine (P360) in Singapore.
In my view, the more lasting and significant impact of the new law will be the on the health of the people. Eighty percent of the incremental revenues after deducting the support for farmers will be allocated for the universal health care program and 20 percent will be allocated for nationwide medical assistance and health enhancement facilities program.
The WHO cited the results of a Global Adult Tobacco Survey, which point to high smoking prevalence rates among both Filipino men (47.7%) and women (9.0%). There are an estimated 17 million smokers in the Philippines. An average of 10 Filipinos die from a tobacco-related disease every hour.
According to a report published by this paper last March, there had been a significant increase in the number of young smokers in the Philippines. The report cited the Global Youth Tobacco Surveys, which showed that in 2003, 19.6 percent of teenagers aged 13 to 15 years consumed tobacco. This translated to 1.07 million out of the 5.46 million of that population, according to the National Statistics Office. The number of youth smokers increased to 1.56 million in 2007, or 27.3 percent of the 5.72 million youth population. In 2011, youth smokers were estimated at 2.3 million, or two out of five teenagers.
A survey by the Social Weather Stations, commissioned by the Health Justice Philippines, showed that higher cigarette prices and graphic warnings will lessen the number of youth smokers in the country. The survey, conducted on August 24 to 27, showed that of 1,200 minors aged 13 to 17 years old, 8 percent are current smokers, and 4 percent are previous smokers, while 88 percent are non-smokers. About 63 percent of current smokers surveyed said that if cigarette prices were raised they would reduce the number of cigarettes they smoke, 34 percent would stop smoking and 3 percent would continue.
I also expect the resulting increase in liquor prices to reduce alcohol consumption, especially among the youth. But I don’t think raising taxes will kill the tobacco industry. For instance, the British American Tobacco Co., which stopped doing business in the Philippines in 2009, announced on December 11 that it would proceed with its plan to invest $200 million in the Philippines over the next five years because the new tax law would level the playing field for the tobacco industry.
Tobacco farmers, including their families, will also benefit from the increased coverage of health care insurance and the improvement of hospitals and other health facilities in their communities.
Republic Act 10351 is not a perfect law but its benefits cannot be underestimated, particularly because it resolved the issue over sin taxes after 16 long years of debate.
It’s a good law, whose benefits will extend even to future generations of Filipinos.