Missing the forest for the trees

Some health advocates may have been displeased with the amended HB 5727, which was recently passed by the House Committee on Ways and Means. After all, there were changes from the original bill, such as the two tiers for cigarettes and three tiers for alcohol. There have been allegations from health advocates like Health Justice that the “amended bill will cost our nation more lives.” How that conclusion was arrived at remains a mystery.

We must remember that our starting point here is from a four-tiered system for cigarettes and from lower tax rates frozen at price classifications of some 16 years ago. To see the pending losses (which are not really losses since you cannot lose something you did not have) without looking at the actual gains is unfair, if not totally short-sighted.

Undoubtedly, it was through a compromise that the bill passed the committee level. But a compromise does not always spell doom. A compromise means making room for concessions, but still holding on to what is essential.

The compromise approved in the Committee may have spelled lower revenue gain compared to the original proposal. Indeed, a difference of PhP27 billion in revenues is a lot of money. But a gain of Php33 billion in revenues is quite hefty, especially in light of the decreasing revenues being brought in by sin taxes under the existing regime. It has been reported by the Department of Finance that “sin” tax collections have decreased by 20% from the previous year.

But then there is the issue of tiering. Sin tax reform advocates have been pushing for a unitary tax system.

Yes, a unitary tax system would have been best, as simplification was the goal. But we have to admit that two tiers is better than four. We have to remain focused on our basis of comparison. In time, two tiers for cigarettes will eventually move towards a unitary tax rate with the provisions for upward reclassification and 8% increase every two years. Simplification indeed is the goal.

It is sad, amusing and insulting at the same time— that the most important achievement in this battle so far, is not recognized by some advocates themselves. It must be emphasized that what was essential was not compromised: the removal of the price classification freeze. With the updating of tax classification to match the current net retail price, taxation of these products is finally moving forward. We are no longer stuck in the past. Tobacco products will no longer be taxed based on their prices 16 years ago. There is nowhere to go now but up.

The bottomline is that prices of tobacco and liquor will go up. With higher prices, the price-sensitive consumers—especially the young and the poor—may be forced to think more than twice before purchasing these products. A tax increase of at least PhP12 compared to the current tax of PhP2.72 for cigarettes is significant. This increase alone is for the first year of implementation of the sin tax reforms. With more than PhP10 that a consumer may have to bear to obtain cigarettes, those with less to spend would have to decrease their consumption of these harmful products, thus protecting them from the inevitable healthcare costs especially from tobacco-related illnesses. How then will the amended bill cost more lives?

With the provision of reclassification and tax increase of 8% every two years, “sin” taxes are expected to be up-to-date. Given the trend of decreasing inflation based on data from the Philippine National Statistical Coordination Board, these increases, though small nominally, would be large in actuality.

The first round of the battle for sin tax reforms may have been won by the advocates. Although it was won not with the original proposal because there were variations in the details, we must not lose sight of the bigger picture. For without the compromise, the passage of the bill at the Ways and Means would have not been realized. The passage is a landmark win—a reminder that we can move forward despite the strong lobbying against “sin” tax reforms.

The battle is not yet over and the road to the ideal may still be a long way ahead of us. There may be concessions along the way but as long as the aspects of the reforms that cannot be compromised are kept intact, we shall persevere. The advocates of the sin tax reforms may have different perceptions of victory, but at least let’s recognize a clear win when we see one. After all, we’re all supposed to be on the same side.

Zuñiga is a researcher for Action for Economic Reforms (AER).

The AER and the Education is Hope Project (EHP) invites all math teachers, department heads, coordinators, school administrators, Department of Education officers, academicians and parents to the Singapore Math Seminar on May 26, 2012, Saturday at SEAMEO INNOTECH, Commonwealth Avenue, Quezon City. The EHP is the John Dewey School for Children’s social service arm. Singapore Math has been proven worldwide to improve student performance and motivation in learning mathematics. The main speaker, Dr. Yeap Ban Har, is an internationally recognized expert on Singapore Math. For inquiries, please contact Ms. Edwina Tan or Ms. Rochelle Razo at (02)435-0010; (02)926-0020 or text at 0916-4404500 or email at [email protected] or visit the EHP Facebook page: Education is Hope Project.

Fatima Eliza O. Zuñiga