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A Public Health and Revenue Imperative
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THE SIN TAX REFORM BILLA Public Health and Revenue Imperative
Department of HealthDepartment of Finance
Presidential Communications Development and Strategic Planning Office
Thursday, August 16, 12
The State Protects and Promotes Health
The State shall protect and promote the right to health of the people and instill health consciousness among them. [1987 Constitution, Art II, Sec 15]
The State shall adopt measures which may include tax/price policies on tobacco products so as to reduce tobacco consumption. [Framework Convention on Tobacco Control, Art 6, provision 2 (a)]
Citizens have a right to breathe clean air. [RA 8749, Sec 4(a)]
The State intends to protect the youth from being initiated to cigarette smoking and tobacco use by prohibiting the sale of tobacco products to minors. [RA 9211, Sec. 3(e)]
Thursday, August 16, 12
Common risk factors for lifestyle diseases
Source: Omran et al 1970
EPIDEMIOLOGIC TRANSITION
Mor
talit
y
Development
Lifestyle/NCDs
Infectious Disease
Thursday, August 16, 12
0
2,000
4,000
6,000
8,000
952141
00
1253154
466
885
33812701682
21381761
3532
5280
6704141
1,544
952
885
466
154
1,253
Tobacco use is a risk factor for 6 of the 8 leading causes of death in the world
TOTAL DEATHS: 5,395
Others
Adapted from WHO Report on the Global Tobacco Epidemic (2008)
Ischemic Heart Disease
Cerebro-vascular disease
Lower Respiratory infections
Chronic Obstructive pulmonary
disease
HIV/AIDS Diarrheal Diseases
Trachea, bronchus, lung
cancers
Included in Top 10 Causes of Mortality in the Philippines for 2010
Tuberculosis
Thursday, August 16, 12
THE PHILIPPINES: TOP SMOKING COUNTRY IN SOUTH EAST ASIA
Thursday, August 16, 12
PHILIPPINES: TOP SMOKING COUNTRY IN SOUTH EAST ASIA
The Situation
On average, every Filipino smoker consumes 1,073 sticks every year
CountriesCountriesCurrent smoking of any tobacco products (1)Current smoking of any tobacco products (1) Current smoking of any tobacco products (2) Current smoking of any tobacco products (2)
Per capita cigarette consumption in 2007 (3)
Men Women Boys Girls
Per capita cigarette consumption in 2007 (3)
Philippines
Indonesia
Vietnam
Malaysia
Thailand
Lao PDR
Cambodia
Singapore
Myanmar
53 12 28.3 17.5 1073
62 5 24.1 4.0 974
44 2 6.5 1.5 887
53 3 40.0 11.5 646
43 2 21.7 8.4 634
64 15 7.8 3.9 544
49 7 7.2 3.0 447
36 6 10.5 7.5 406
43 15 22.5 8.2 209
Sources:1. MPOWER report (World Health Organization, 2009). Adult smoking data are age-standardized estimates in 2006. 2. MPOWER report (World Health Organization, 2009). The smoking estimates boys and girls were derived from the Global Youth Tobacco Survey (GYTS). 3. World Cigarettes 1: The 2007 Report. ERC Statistics Intl Pic (ERC, 2007). Per capita consumption is calculated from the total cigarette consumption in 2007 over
the total population (http://esa.un.org/unpp)
Thursday, August 16, 12
SOURCE: WHO Report on global tobacco epidemic:Implementing smoke free environment.Geneva,Switzerland.WHO, 2009
PHILIPPINES: YOUNG SMOKERSThe Situation
17.5%Girls
28.3%Boys
Of the users of tobacco products:(highest in South East Asia)
Thursday, August 16, 12
The poor smoke more than the rich. In ASEAN, the lowest quintile of the population suffer more deaths due to smoking.
The poor suffer the most
0
15
30
45
60
Malaysia Philippines Vietnam Laos Myanmar
Q1 Q2 Q3 Q4 Q5Poorest Wealthiest
From DANS, ET. AL, LANCET 2010
Prev
alen
ce (
%)
Thursday, August 16, 12
Estimated deaths from heart attack and stroke (all risk factors)
Risk Factor Heart Attack Deaths CVD Deaths Total Deaths
Smoking 19,315 29,184 48,499
Cholesterol 8,799 4,053 12,852
Obesity 14,840 20,207 35,047
HPN 15,559 25,401 40,960
Diabetes 3,326 6,864 10,190
Smoking does NOT just cause cancer and lung diseases, it is also the number 1 cause of stroke and heart attack (~50,000 deaths per year). In fact it causes more stroke and heart a than diabetes, hypertension, obesity and high cholesterol - National Nutrition and Health Survey, 2008
Smoking is the #1 preventable risk factor.
Thursday, August 16, 12
ANNUAL COST OF SMOKING TO ECONOMY
Updated Economic Burden of Health Impact of Smoking in the Philippines for 2011
Lung Cancer Chronic Obstructive Pulmonary Disease
Coronary Artery Disease
Cardiovascular Disease
Health Care Costs
Productivity Losses
Premature Death Losses
Total
1.8 billion 14,7 billion 59.5 billion 63.4 billion
11.2 million 146.6 million 847.4 million 929.4 million
4.7 billion 10.1 billion 11.4 billion 9.6 billion
P6.5 billion P24.9 billion P71.8 billion P74 billion
ALL SMOKING-RELATED DISEASE BURDEN: 177 Billion Pesos
From DANS, ET. AL, LANCET 2011
Thursday, August 16, 12
CASE STUDY: THAILANDExcise Tax Rate, Excise Revenue and Smoking Prevalence, Thailand 1991-2007
0
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
30,000.00
35,000.00
40,000.00
45,000.00
50,000.00
1992 1994 1996 1998 2000 2002 2003 2004 2005 2006 2007
Excise Revenue (in million baht)
0
10
20
30
40
50
60
70
80
90
Source: Levy DT, Benjakul S, Ross H, Ritthipkhakdee B. The role of tobacco control policies in reducing smoking and deaths in a middle income nation: results from the Thailand SimSmoke simulation model. Tob Control. 2008: 17(1):53-9.
Excise Rate Excise Revenue Smoking Rate
%
Thursday, August 16, 12
Derived from a simulation model to predict the fiscal and public health impact of a change in cigarette taxes” by Van Walbeek et al BMJ Tobacco Control 2006
PROJECTIONS (IN 10 YEARS)Projected Reduction in Smoking Prevalence and Deaths Averted in the First Year of Excise Tax Increase
0!
50000!
100000!
150000!
200000!
250000!
300000!
350000!
400000!
450000!
0!
5!
10!
15!
20!
25!
30!
35!
0! 5! 10! 15! 20! 25! 30! 35! 40!
Annual % Increase in Excise Tax!
Smokingprevalence (%)
Deaths avertedin 10 years
Thursday, August 16, 12
ALCOHOLConsumption Levels in grams per day
Men Women
Responsible <40 <20
Hazardous 40-60 20-40
Harmful >60 >40
Source: English and Holman,1995
Thursday, August 16, 12
THERE IS MODERATE DRINKING BUT THERE IS NO MODERATE SMOKING
alcohol (M)
alcohol (F)
Source: English and Holman,1995
0
0.27
0.53
0.80
1.07
1.33
1.60
None 0.0-0.9 1.0-1.9 2.0-2.9 3.0-3.9 4.0-4.9 5.0-5.9 6.0+
1.0
Thursday, August 16, 12
Thursday, August 16, 12
Thursday, August 16, 12
Thursday, August 16, 12
THE ECONOMICS OF SMOKING
Thursday, August 16, 12
The costs of smoking greatly outweigh the revenues from tobacco taxes
Excise Tax in Tobacco vs. Economic Costs of Smoking(in Billion Pesos)
0
29
57
86
114
143
171
200
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
26.031.7
24.227.623.226.823.723.120.020.119.417.416.516.8
Tobacco Products
Economic costs of smoking of Php177 Billion
Source: BIR and DANS, ET. AL, LANCET 2010)
Low tobacco prices = High public health costs
Thursday, August 16, 12
Philippines is one of the countries with the cheapest cigarettes in the world
Singapore
Vanuatu
Australia
Tonga
New Zealand
Malaysia
Samoa
Japan
Brunei Darusalam
Vietnam
Mongolia
Lao PDR
China
Philippines
0 1 2 4 5 6 7 8 10 11 12
Cheapest Brand Most Sold Brand
Source: WHO
Price in USD
Thursday, August 16, 12
Philippines also has one of the lowest excise tax rates in the world
Source: WHO
0
1
3
4
5
Egypt Poland Turkey Thailand Ukraine Bangladesh Philippines Mexico Pakistan Indonesia Vietnam India Brazil China Russia
Retail Price Excise Tax
in USD
Thursday, August 16, 12
First: Because of the price classification freeze, cigarettes are cheaper than they should be.
Source: BIR
3 most sold
brands
Price Class fixed by law (Sec.
145)
Average Net Retail Price as of Dec 2010
If no price class
freeze, net price
should be
Excise tax paid per
pack as of 2010
If no price class
freeze, excise tax per pack should be
Tax variance per pack
Brand A NRP < 5LOW P9.49
6.50 ≤ NRP≤ 10
HIGH
P2.47 sinceLOW P11.43 P8.96
Brand B5 ≤ NRP≤ 6.50
MEDIUMP17.95 NRP > 10
PREMIUMP7.14 sinceMEDIUM P27.16 P20.02
Brand C6.50 ≤ NRP≤ 10
HIGHP14.78 NRP > 10
PREMIUMP11.43 since
HIGH P27.16 P15.73
Thursday, August 16, 12
Second: Non-indexation makes cigarettes more affordable over time, to the detriment of public health objectives.
AFFORDABILITY INDEX - CIGARETTES CY 2000-2011
Source: NSO and NSCB
- !
0.20 !
0.40 !
0.60 !
0.80 !
1.00 !
1.20 !
2000! 2001! 2002! 2003! 2004! 2005! 2006! 2007! 2008! 2009! 2010! 2011!
index low (base year 2000)! index medium (base year 2000)! index high (base year 2000)!
Thursday, August 16, 12
Third: Multi-tiered structure allows smokers to downshift to lower-priced cigarettes.
0%
20%
40%
60%
80%
100%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Low-priced Middle-priced High-priced
Source: BIR
Share to total
volume
Thursday, August 16, 12
RESULTING IN FOREGONE REVENUES which could have been spent on healthcare services such as:
Php19.5 B due to
downshifting in cigarettes
(2006-2010)
Premium subsidy to 8M indigent families in PhilHealth
Rotavirus vaccine to 29M children
203,125 RN Heals nurses
Influenza and Pneumonia vaccine to 11M senior citizens
Various vaccines to 9M children
Thursday, August 16, 12
3 most sold
brands
Price Class fixed by law (Sec.
145)
Average Net Retail Price as of Dec 2010
If no price class
freeze, net price
should be
Excise tax paid per
liter as of 2010
If no price class
freeze, excise tax per liter
should be
Tax variance per liter
Brand A NRP < 14.5LOW P48.06 NRP > 22
HIGHP9.65 since
LOW P19.05 P9.40
Brand B14.50 ≤ 22.00
MEDIUMP45.47 NRP > 22
HIGHP14.35 sinceMEDIUM P19.05 P4.70
Brand C NRP ≤ 14.50LOW P28.74 NRP > 22
HIGHP9.65 since
LOW P19.05 P9.40
First: Because of the price classification freeze, beer is cheaper than it should be
Source: BIR
Thursday, August 16, 12
- !
0.20 !
0.40 !
0.60 !
0.80 !
1.00 !
1.20 !
2000! 2001! 2002! 2003! 2004! 2005! 2006! 2007! 2008! 2009! 2010! 2011!
San Miguel Pale Pilsen, 320 ml bottle! Ginebra San Miguel, 350 ml bottle! Tanduay 5 Years, 375 ml bottle ! Tanduay ESQ, 375 ml bottle!
Second: Non-indexation has made alcohol products more affordable relative to their 2000 prices
AFFORDABILITY INDEX - ALCOHOL CY 2000-2011
Source: NSO and NSCB
Beer Brand A Gin Brand B Rhum Brand C Rhum Brand D
Thursday, August 16, 12
0%
25%
50%
75%
100%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Low-priced Middle-priced High-priced
Third: Multi-tiered structure also fosters downshifting of consumption to lower-priced beer products
Source: BIR
Share to total
volume
Thursday, August 16, 12
RESULTING IN FOREGONE REVENUES which could have been spent on healthcare services such as:
Php12.9B due to downshifting in
beer (2006-2010)
Premium subsidy to 5.4M indigent families in PhilHealth
Rotavirus vaccine to 19.2M children
134,375 RN Heals nurses
Influenza and Pneumonia vaccine to 7.5M senior citizens
Various vaccines to 6.2M children
Thursday, August 16, 12
With respect to distilled spirits, WTO compliance is a must
With respect to distilled spirits, WTO compliance is a must
Current System House Approved
Taxation based on raw material content.
A. Produced from sap of nipa, coconut, cassava, camote, or buri palm or from juice, syrup or sugar of cane: P 14.68
B. Produced from other raw materials, the tax shall be based on 750ml volume capacity:
If NRP less than P 250 - P 158.72 P250 to P 675.00 - P 317.45 More than P 675.00 - P 634.89
✓Original proposal to base taxation on alcohol content not accepted by Congress. ✓Removed raw materials as a basis for taxation. Taxation (per proof liter) based on 750 ml volume capacity:
If NRP less than P 90 - P 20 P90 to P150 - P 80 More than P 150 - P 320
✓8% increase in tax rates every two years effective Jan. 1, 2015 up to Jan. 1, 2025.
✓Reclassification every two years.
Thursday, August 16, 12
ESTIMATED INCREMENTAL REVENUES UNDER HOUSE APPROVED BILL (In Billion Pesos)
Year Cigarettes Distilled Spirits
Fermented Liquor Total
2013 26.87 1.45 3.03 31.35
2014 34.72 1.78 2.52 39.02
2015 36.27 2.62 3.79 42.68
2016 35.38 3.03 3.10 41.51
Source: BIR
Thursday, August 16, 12
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