Sin tax reforms 101 (accdg to Palace-backed House bill)

Katherine Visconti

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Congress is hotly debating the sin tax reform bill authored by Representative Abaya but what exactly does it contain?

MANILA, Philippines – Since the Aquino government is pushing a sin tax reform bill to raise revenues, its allies in the House of Representatives are going all out in asking for support for House Bill 5727.

The main author of Palace-backed HB 5727, Cavite Rep. Joseph Emilio A. Abaya, stressed that this version would raise more revenues for government than any of the 10 other proposed reform bills.

Currently, the excise tax structure on sin products, like alcohol and tobacco, involves a 4-tier system that favors local brands over foreign ones.

According to Abaya, the following are the key points of HB 5727’s proposed reforms:

1. Ditch price freezes for old brands  

Currently legacy brands, present in the Philippines before 1996, are taxed based on their 1996 price per pack, while newer brands are taxed based on their current, higher price per pack. 

Under the Abaya bill, all brands would eventually pay the same excise tax of P30 per pack. The complex multi-tiered system would fall to the wayside.

The change would be gradually phased in over 2 years for brands who are taxed the least and will feel the increase most.

Current for tobacco

Net retail priceTax per pack
P10 and above P28.30
P6.50-P10 P12.00
P5-P6.50 P7.56
P5 and below P2.72

Abaya reform for tobacco 

Net retail priceYear 1

tax per pack
Year 2

tax per pack
 Year 3

tax per pack
P10 and above P30.00 P30.00 P30.00 
P10 and below P14.00  P22.00 P30.00 

The bill would increase the cost of cigarettes, which Abaya sees as a necessity for curbing smoking among children and the poor.

“A 10% increase in price will result in a 5.8% decrease in use,” said Abaya. 

2. Index taxes to inflation 

Pegging taxes to inflation insures that taxes are adjusted to reflect yearly fluctuations in the price of goods and  services. 

Imagine a pack of cigarettes costs P4.50 in 1995 and is taxed P2.72. In today’s dollars, the same cigarettes could cost P5.50, but not indexing to inflation means the government would continue to get only P2.72. 

3. 15% of incremental revenues goes into farmers’ pockets

Abaya explained that his bill would raise more money, meaning more money for farmers. 

“Fifteen percent of the excise tax collected is plowed back to the farmers. I think current collection is around P3.9 billion but with this it will increase 195% so you are looking at P7.5 billion plowed back to the farmers,” said Abaya. 

4. Help finance the Universal Health Care Program 

Abaya also said that, unlike some of the other reform bills proposed, HB 5727 specifically allocates the lion’s share of collections toward funding the Universal Health Care Program. 

In its current form the bill would raise P60.7 billion in taxes for the government during its first year of being implemented.

Health Secretary Ona has said P56.2 billion would be allotted to pay for Universal Health Care Coverage that would benefit all provinces. 

 TAX SIN TO CURB EXCESS. Representative Abaya and Congresswoman Bernadette Herrera-Dy support the reform bill because they hope it will curb tobacco and alcohol use among children and the poor.


For alcohol products, Abaya said HB 5727 calls for:  

1. Taxing based on alcohol content not raw materials  

Abaya explained that using alcohol content as the basis of classification is not only more accepted worldwide but would make the Philippines compliant with World Trade Organization standards.

In 2011, WTO ruled that the Philippines’ current alcohol taxes break rules for free trade.

Currently alcohol is taxed based on the drink’s raw materials, with a low tax of only P14.68 per proof liter on beverages with coconut, cassava, camote, or cane sugar. 

The Abaya Bill would phase alcohol towards a uniform tax rate over 2 to 3 years. 

Current for distilled spirits

Net retail price

based on 750 ml volume capacity

Tax per proof liter
Above P675.00 P634.89
P250-P675 P317.45
Below P250 P158.72 

* Spirits produced from nipa sap, coconut, cassava, camote or buri plam or from cane sugar are taxed P14.68 per proof liter. Above prices are for products from other raw materials. 

Abaya reform for distilled spirits

Alcohol content Year 1

Tax per proof liter

Year 2

Tax per proof liter
 Year 3

Tax per proof liter
More than 45% alcohol volume P317.45 P233.73 P150.00 
Less than 45% alcohol volume P42.00 P80.00 P150.00

Current for fermented liquor

Net retail price

per liter of volume capacity

Tax per liter

Above P22 P20.57
P14.50-P22 P15.49
Below P14.5 P10.42

Abaya Reform for fermented liquor

Alcohol content Year 1

per liter

Year 2

per liter
 Year 3

per liter
All fermented liquor P25.00 P25.75 P26.52

2. Indexing to inflation

Following the implementation of a unitary tax rate of P150 on distilled spirits, the tax will rise or fall based on fluctuations in inflation.  

3. Discouraging youth and poor from drinking 

Abaya admitted that when it comes to curbing excessive use, price hikes for alcohol are not as effective as cost increases on tobacco. Still he explained there might be a 2% drop in consumption for every 10% increase in price.  

He said a beer like Redhorse could go from P65.49 per liter bottle to about P81.82 in the first year of implementation. While a distilled spirit, like Tanduay, would increase from P125.68 per liter bottle to P150.16.  

4. Raising money for health care  

Of the P60.7 billion that would be raised in revenues, P30.6 billion or 50.4% will come from taxes on spirits and liquor. The bulk of those funds will pay for health care for the poorest Filipinos.  

Abaya and his supporters hope the bill will be passed before the House of Representatives adjourns or goes on recess June 7, 2012. 

The bill will increase the cost of alcohol and tobacco. It will also give government more money for health services. –

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