Group backs ‘sin’ tax changes

A group of prominent economists has backed the government’s plan to restructure the excise taxes on tobacco products, saying such reforms are “imperative” for health reasons as well as to boost revenue collection efforts.

The Foundation for Economic Freedom (FEF), in a position paper issued Tuesday, urged Congress to pass the Abaya bill authored by Representative Joseph Emilio Abaya (1st District, Cavite), which seeks to shift to a simple, unitary tax system for all tobacco products; index taxes to inflation to avoid revenue erosion; remove price classification freeze; and update price groups to current prices.

“The Sin Tax Reform Initiative is a necessary tool to plug our country’s deficit and finance much-needed economic and social infrastructure, with the added benefit of reducing tobacco-related deaths and illnesses. This is one law that must be passed now without delay,” the FEF statement said.

FEF is chaired by former Economic Planning Secretary Felipe Medalla while its president is Calixto Chikiamko. The group also includes Romeo Bernardo, Ernest Leung, Raul Fabella, Alexander Magno, Gary Olivar, Simon Paterno, Rafael Perpetuo Lotilla, Gloria Tan-Climaco and Francis Varela. The group’s advisers are former Prime Minister Cesar Virata and former finance secretaries Roberto de Ocampo and Ramon del Rosario.

Given the government’s unsustainable budget deficits and sluggish economic growth rates, FEF said there was a need to strengthen the government’s fiscal foundations through new revenue-generating mechanisms.

FEF said part of the fiscal remedy was that tobacco taxation was a proven source of tax revenues for the government, noting that the substantial demand for tobacco did not change when pricing did. It cited estimates from the Department of Finance that incremental revenue on tobacco taxes alone would amount to P30 billion, which together with alcohol excise tax would total P60 billion.

High economic and health-related costs could be prevented with the passage of the sin tax law, the group said. FEF said the economic burden—as represented by public health care cost and loss of productivity—of four smoking-related diseases calculated using two different methodologies totaled a massive P150 billion to P314 billion in 2003. In contrast, it pointed out that the excise tax revenue generated (based on average from 2000 to 2010) annually from tobacco amounted only to P30 billion.

FEF also pointed out that the Philippines was a signatory to the UN Framework Convention on Tobacco Control, a treaty ratified by the Senate since 2005. Article 6 of this treaty requires the signatory to enact price and tax measures to reduce the demand for tobacco.