‘Sin’ tax hike urged to restore PH to fiscal health

Emerging markets like the Philippines—which need to narrow budget deficits and repay debts, after they ballooned due to the prolonged pandemic—can consider further jacking up “sin” taxes and imposing a carbon tax to not only raise more revenues but also pursue healthier and greener economies moving forward, think tanks said.

In its report titled “Meeting the Global Health Challenge to Reduce Death and Disability from Alcohol, Tobacco, and Sugar-Sweetened Beverage Consumption with Corrective Taxes,” the Washington-based Center for Global Development (CGD) said that despite sin taxes slapped in some countries, including the Philippines, direct health costs and indirect economic losses due to consumption of these products remained sizable.

In the Philippines, China, India and Indonesia, “there has been no significant change in cost trends” despite sin tax reforms, CGD said.

CGD estimated indirect productivity loss from deaths and disabilities attributable to alcoholic drinks, cigarettes as well as sugary drinks in the Philippines to have reached about $25 billion, or about 2.5 percent of gross domestic product (GDP), in 2019.

CGD said productivity losses stayed at the same levels during the period 2000 to 2019 in the Philippines, China, India, Indonesia, Mexico and Nigeria.

It did not help that “the taxes collected remain significantly lower than the economic costs of death and disability resulting from the use of these products” across the 25 countries covered by CGD’s report.

High corrective rates

In the case of tobacco, mortality had risen by 50 percent in the Philippines, Indonesia and Saudi Arabia since 2000, CGD said.

CGD nonetheless noted that “increased tax effort results in stronger reductions in tobacco use prevalence” in the Philippines, Argentina, Australia, Canada, New Zealand, Pakistan, South Korea and the United Kingdom.

Also, CGD said the Philippines had “relatively high corrective taxes,” which meant the higher rates were addressing the negative health impacts of consuming sin products.

The Philippines started to slap higher excise taxes on cigarettes and alcohol in 2013. It also levied specific excise tax on sugar-sweetened beverages in 2018, as well as included electronic cigarettes and vapes in the tax net since last year.

For the part of the World Bank, its research economist Agustin Samano Penaloza told a webinar on Wednesday that countries which needed to ramp up collection “need to start thinking out of the box, and think about other tax instruments that can help increase revenues, at the same time can help us to go to a green economy,”

But for CGD, sin tax collections across countries “would need to be at least tripled on average to close gaps between productivity loss and corrective taxes.”

Specifically, he pointed to carbon tax and reduction of subsidies extended to firms that emit carbon dioxide.

The Department of Finance (DOF) had said it was carefully studying carbon taxation “to ensure that there’s no regressivity within the system” while slapping a price on harmful emissions in line with the country’s push to fight climate change. The Philippines had committed to slash greenhouse gas emissions by as much as 75 percent by 2030 in line with the Paris Agreement.

‘Playbook’ of strategies

The DOF was currently working on a “playbook” of strategies for fiscal consolidation—including possibly new or higher taxes—which the next administration may implement to generate more revenues and revert the budget deficit to prepandemic levels or about 3 percent of GDP.

The government also borrowed more amid the COVID-19 crisis due to weaker revenue collections wrought by the pandemic-induced economic slump last year, yet higher expenditures needed to give away dole outs during lockdowns and beef-up the health system.

By next year, the government plans to start narrowing the budget deficit due to expectations of faster economic growth and, in turn, increased revenue take.

From this year’s largest fiscal deficit of P1.86 trillion (equivalent to 9.3 percent of gross domestic product), the gap would decline to P1.67 trillion (7.5 percent of GDP) next year, P1.43 trillion (5.9 percent of GDP) in 2023 and P1.29 trillion (4.9 percent of GDP) in 2024.