Strange bedfellows seek sin tax reform

MANILA, Philippines – Politics made strange bedfellows on March 5, 2012 at a joint press conference pushing for tax reforms on tobacco and alcohol. 

At the same table sat the official charged with protecting public health, Secretary Enrique T. Ona.

Two seats away sat the administrator charged with collecting taxes, Commissioner Kim Jacinto-Henares.

Right between them sat the representative once charged with diverting P30 million in tobacco excise taxes, Ilocos Sur Governor Luis “Chavit” Singson.

The 3 joined together to champion the passage of House Bill 5727 to increase taxes on tobacco and alcohol by replacing the complex 4-tier tax system with a single tier system. 

Where the money goes

The Department of Finance estimates that the sin tax bill, in its current version, would collect P60.7 billion in 2012 (with P30.1 billion from cigarettes, P11.2 billion from distilled spirits and P19.4 from fermented liquor). 

The incentive for tax chief Henares is clear. The Bureau of Internal Revenue (BIR) slightly missed its 2011 revenue target by 1.69% and is under pressure to pull in more funds to fuel spending on infrastructure and health care.  

Health Secretary Ona said P56.2 billion, or about 90% of the fresh revenue, would be allotted to pay for Universal Health Care Coverage that would benefit all provinces.

The funds are substantial considering that the Department of Health was only allocated a P43 billion budget for 2012.

About P400 billion is spent annually on treating smoking related illnesses, as well as loss of income and productivity arising from diseases caused by smoking, according to Ona, who cited data from the World Health Organization.

And since P4.5 billion will be allotted to support tobacco farmers, Ilocos Sur Governor Singson plays a role. Singson’s province is among the leading producers of tobacco in the country.

Singson said that he was supporting the bill on behalf of farmers. “It’s high time that we raise the taxes for tobacco products as this will not only raise funds for the health sector but benefit the tobacco farmers.” 

In the past tobacco funds have not helped Ilocos Sur farmers as much as they should according to a 2009 Newsbreak 2-part report by Aries Rufo.

Because of RA 7171, which Singson principally sponsored, the area gets the lion’s share of the tobacco excise tax. Despite the funds, the region has experienced one of the highest increases in poverty incidence for the region. 

The investigative report pointed out that government auditors found at least P1.3 billion in funds were either misappropriated, missed or unaccounted for from 1999 to 2006. Singson was governor of Ilocos for 5 of those 7 years. 

Fracturing alliance 

But no sooner had the press conference ended, then Singson admitted, “There is a little conflict here.” 

While Singson and Ona agreed to push for sin tax reforms, Singson said he is against placing picture-based warnings on cigarette packages that the Department committed to support since the Arroyo administration.

In 2005, the Philippine government ratified the World Health Organization’s Framework Convention on Tobacco Control (FCTC), in which the country committed to curb smoking though taxes and other measures to reduce tobacco demand, as well as large health warnings placed on cigarette packs. 

The Department of Health is currently fighting to uphold the warning in legal cases versus 5 different tobacco firms including: Fortune Tobacco, Mighty Corp., Philip Morris Fortune Tobacco Company (PMFTC), Japan Tobacco International (JTI) and Telengtan Brothers & Sons. The latter is related to La Suerte Cigar & Cigarette Factory.

Given their differing stances on the picture-based warnings, Singson admitted that his current alliance with the DOH could be only temporary.

Singson said he warned Ona not to mention the warning. When Rappler asked about supporting the picture-based warnings, Ona dutifully made his shortest statement of the press conference, saying only that he supported the FCTC.

He avoided specifically mentioning the stringent tobacco control measures in the treaty.

Aquino supports reforming sin taxes

Apparently, the unlikely partners are joined by President Aquino in supporting the reform tax. Commissioner Henares said that she personally asked the president his stance on the bill. 

“He said unequivocally that we would pass the bill and he supports the position of no price freeze and he supports the position that there should be an indexation (to inflation) and it should be on a current price classification,” said Henares.

The reform bill, authored by Cavite Representative Joseph Abaya, is currently being discussed in the House Ways & Means Committee. The expected vote this month will show just how many likely and unlikely supporters the reform won over and if it was enough to change the current tax system. – Rappler.com