Let he who is without sin…
After several months of frenzied debate, sharp rhetoric and the usual flawed arguments supported by bad science, greed and a nanny-knows-best attitude, president Benigno S. Aquino signed Republic Act RA 10351 into law last December paving the way for a round of massive tax hikes on cigarettes from 2013 to 2017, after which taxes will increase by 4% every year – the so-called 1,000% tax hike.
While the new so-called sin tax on a premium pack of cigarettes -- an increase of US$0.52 per pack rising to US$0.64 by 2017 -- may not seem so steep to most of our readers, to the 50% of Filipinos that smoke, this is a real burden. Regardless of the fact that cigarettes in the Philippines will still be among the cheapest in the region, much of its population are also ranked amongst the poorest in the region and for many of them a cigarette has been one of the few luxuries they could afford – up
The argument presented by the proponents of the law says that ultimately the poor Filipino stands to benefit as he will be unable to afford to buy cigarettes and will therefore quit, sparing his health and saving the country millions of dollars in health care. However, there are those who believe that this is a discriminatory and unfair imposition that penalizes the already marginalized “poor” smoker and will have minimal effect on the wealthier members of society who can easily absorb the increases. This would include every single one of the politicians that voted the law into effect. More on them in a moment, but let’s take a moment to reflect on a couple of the alternatives that are likely to present themselves to a Filipino smoker.
Firstly, despite the fact that government spokespersons, such as secretary Manuel Mamba, head of the Presidential Legislative Liaison Office, believe that smuggling cigarettes into the country “…will be difficult because [our products] will still be the cheapest compared to neighboring countries,” manufacturers of counterfeit and tax unpaid cigarettes are going to see a wonderful opportunity to launch operations targeting as many of the country’s 7,107 islands (at high tide) that they want. “… I believe that is a question of enforcement,” according to Mamba. Perhaps Mamba is unaware that the Philippines’ 36,289 km of coastline is protected by a coastguard that has a mere 15 operational boats, 6 working planes, with 2 helicopters awaiting delivery. He may also not remember that until Philip Morris opened its own factory in the country, smuggled “Blue Seal” cigarettes, popular brands manufactured overseas (sometimes legitimately, sometimes not) that were preferred by smokers who could afford them over locally produced variants, were endemic throughout the land.
Quite clearly, another option for Filipino smokers is roll-your-own, as there is no shortage of tobacco in the Philippines. Looking at the model of Thailand, where an estimated 50% of all tobacco consumed in the country is unregulated, tax unpaid RYO, it is hard not to imagine Filipino smokers buying pouches of tax unpaid tobacco and a packet of papers from their local sari sari stores at a fraction of the price of a pack of machine rolled cigarettes sooner rather than later.
Unsurprisingly, domestic cigarette and cigar manufacturers are struggling to understand how their businesses are going to be impacted and most fear the worst. None of them that we have spoken to believes that their pre-tax sales volumes are sustainable.
Naturally the politicians that voted the law in were swayed by the promises of huge revenues that will be earned from the tax hikes (which are split 60-40 on tobacco and alcohol products), estimated at an additional Php39.5 billion (US$9.7 billion) in 2013 rising to Php64.4 billion by 2017.
As mandated by several previous laws, a significant percentage of revenues earned from tobacco specific taxes are funnelled back into the tobacco growing areas. It was the “mishandling” of around US$80 million of one such transaction that led to former president Estrada’s impeachment. It can hardly have escaped the attention of the incumbent politicians that the opportunities to grab hold of significantly larger slices of pork from ever-expanding state coffers overflowing with lucre earned from sin taxes are mouth-
Unfortunately for them, history has clearly shown that pushing tax hikes too far typically leads to a fall in income, not an increase, perhaps because its anti-smoking strategies were working, as the Australian government claimed after its most recent purportedly revenue increasing tax hike instead saw a reported drop of AU$31 million (US$32,4 million) last September, or, as is more likely to be the case in the Philippines, smokers switch to tax unpaid options, thereby depriving government and legitimate companies that have invested millions of dollars in manufacturing and distribution networks of the income they would otherwise have earned.
As usual, it’s the criminals that stand to gain from this flawed legislation, and once again, it’s the politicians that have been bought off with bad science and promises of increased wealth to be earned by punishing smokers – which in the case of the Philippines means around half of the population that voted them in.