This is in response to the article entitled “Japan Tobacco warns against new tax hike”, released May 20, 2019 on manilastandard.net.
The report quoted Japan Tobacco International (JTI) Philippines general manager Manos Koukourakis saying that the Philippines has already achieved quite a balanced situation, and that there would be no further need to disrupt it by implementing another increase in tobacco taxes.
Action for Economic Reforms (AER) conducted a research on the tobacco industry arguments, and one of the main conclusions that we gathered was that increasing the tax on cigarettes did not lead to a higher incidence of cigarette smuggling.
In its Asia Illicit Tobacco Indicator, Oxford Economics reported that the estimated total illicit trade volume of cigarettes for 2017 was 5.3 billion sticks. This was even lower than the 6.4 billion sticks reported in 2012, before the Sin Tax Reform Act was implemented.
What Koukourakis calls “balance” in terms of illicit trade, was achieved primarily because illicit trade is a function of governance, and not price. The DOF and BIR has improved their capacity in curbing illicit trade through the issuance of tax stamps in October 2014. As a result, the illicit trade volume decreased by 7 billion sticks from 2014 to 2015, and has decreased significantly in each succeeding year despite consistent increases in the tax rate.
Meanwhile, in 2017, a drop in illicit cigarette volume was reported. This coincides with the government filing a series of tax evasion cases against Mighty Corporation after it was caught using fake tax stamps. Another update was made to the tax stamps this year, to help curb illicit trade even further. A strike team from the BIR was created solely for the purpose of combating illicit trade in the country.
Furthermore, Koukourakis mentioned that the balanced situation included the decline in number of smokers, from 26 million in 2013 to 16 million in 2018. However, the reality is that 16 million is still a very large number, and our legislators are in a position where they have the opportunity to save at least 1 million more Filipinos from smoking.
Despite the decline in number of smokers from the increased tax rate brought about by RA 10351 (Sin Tax Law) and RA 10963 (TRAIN Law), we are still far from our health goals. According to the World Health Organization, the increase in the tobacco tax is one of the most effective mechanisms to reduce smoking prevalence. The smoking prevalence remains to be at 24.3 percent or almost 1 out of 4 Filipino adults. This is still far from the DOH target of 15 percent.
According to our estimates, if the tax rate remains unchanged, 1 million more Filipinos would fall ill due to the dangers of smoking—many of which will come from the youth and the poor. There is an urgent need to increase the tax further to prevent affordability of these products that do not contribute any good to society at all.
The DOF agrees that there is still leeway to tax this products in order to generate more revenues to fund the Universal Health Care program. Consequently, the increase in tax will be utilized to provide support for our tobacco farmers seeking alternative livelihood or additional help for their agricultural production. This is the balance that we seek—a tobacco tax that can undo the crooked path it has steered forward.
Let us not be misled by the fallacious claim of an industry that produces nothing but deadly products. According to multiple studies, the top 10 causes of death listed by the Philippine Statistical
Authority in 2016 are all linked to tobacco. Tobacco is a product that kills half of all its users and poses grave health risks to those who are exposed to cigarette smoke. Needless to say, three out of four Filipinos believe that the tax on tobacco products must be increased.
As one of its priority measures, the Philippine President has also certified increasing the tobacco taxes as an urgent measure. May our legislators heed the call of their constituents, and prioritize the passage of this popular measure to end the tobacco epidemic.
Arjay Mercado
Researcher of Action for Economic Reforms
