Finance Secretary Carlos Dominguez III has thanked the Senate and the House of Representatives for passing this week a new “sin” tax reform bill that provides substantially higher excise tax rates on tobacco products, which would be earmarked primarily to augment the huge funding needed for the Universal Health Care (UHC) program that would benefit mostly poor and low-income Filipino families.
While the projected revenues from the final approved measure will be lower because of the staggered excise tax increase on tobacco products over the next four years, this would still enable the Duterte administration to better implement UHC by 2020 to provide Filipino families equitable access to quality and affordable health care services, Dominguez said.
Senate Bill (SB) No. 2233, which was approved unanimously by senators on third and final reading on Tuesday, provides for a unitary P45 excise tax increase per pack on tobacco products in 2020, followed by a series of P5 hikes until the rate reaches P60 in 2023, and a 5 percent annual increase thereafter.
The House concurred with the Senate version after senators reconsidered its earlier final reading approval of the bill Monday night to address the concerns raised by congressional representatives from the tobacco producing provinces of Northern Luzon. The Senate move ensured that the measure would no longer go through another round of deliberations at the bicameral conference committee.
The Department of Finance (DOF) said the Congress’ phased increase is acceptable and will secure the necessary funding for the UHC program.
Executive Secretary Salvador Medialdea, Dominguez, Health Secretary Francisco Duque III and Cabinet Secretary Karlo Nograles were in the Senate during the plenary session Monday to show their support for the swift approval of SB 2233.
“I think we made history. I think it is only in this administration that tobacco taxes were raised twice. We’re quite thankful to the Senate and also to the House (of Representatives) for putting this bill over the line,” Dominguez said.
The unitary excise tax rate on tobacco products was earlier increased under the Tax Reform for Acceleration and Inclusion (TRAIN) law from P30 per pack of cigarettes to P32.50 beginning January 1, 2018 and to P35.00 beginning July 1, 2018.
Dominguez also recognized the Senate’s progressive proposal during the period of amendments on the bill to introduce taxes on e-cigarettes, such as vapor and heated tobacco products, which are now becoming increasingly popular among the youth.
Dominguez said increasing taxes on tobacco products is only one aspect of “sin” tax reform, as higher taxes on alcohol products still have to be tackled and approved by the incoming 18th Congress.
The DOF has proposed a tax of at least P40 per liter on alcoholic drinks.
“It’s a work in progress,” Dominguez said.
Earlier, the DOF and the Department of Health (DOH) said the approval by the 17th Congress of higher excise taxes on tobacco products will provide the government with the means to curb vices and undesirable behavior, while at the same time generate the revenues necessary to fully fund the UHC, which will require as high as P1.44 trillion combined from 2020 to 2024.
Dominguez said that from 2020 to 2024, all current sources of government funding can cover UHC at around P200 billion annually, while the cost of the program will start at P257 billion in 2020 and grow at an average of around P11 billion to P12 billion per year, amounting to a five-year total of around P1.44 trillion by 2024.
Without substantially adjusting the current “sin” tax rates, Dominguez said the cumulative funding gap by 2024 will reach P426 billion.
For 2020, the government can cover the cost of the UHC program from its current funding sources from the national budget, the Philippine Amusement and Gaming Corp. (PAGCOR) and the Philippine Charity Sweepstakes Office (PCSO) in the amount of P195 billion.
Without sin tax reform, UHC will be left with a funding shortfall of around P62 billion.
Finance Undersecretary Karl Kendrick Chua said PhilHealth coverage will expand to cover 120 drugs and there will be no limit on primary care treatment conditions once the UHC law is fully implemented.
Barangay health care facilities will also be expanded and will be better equipped to render primary health care, Chua said.
The DOH has also proposed that medicine purchases will be limited to a fixed fee—the cost of the transaction alone, instead of patients shelling out 90 percent of the expenses, Chua added.
Both Dominguez and Duque have noted that the rise in incomes and slower increases in “sin” taxes over the past few years have made cigarettes and alcoholic drinks affordable to the average Filipino, which, in turn, has increased anew the number of smokers, especially among the youth, and made binge drinking more prevalent.
Raising tobacco taxes in in 2012 succeeded in reducing smoking prevalence from 29 percent during that year to 22.7 percent in 2015. However, smoking has gradually been on the rise, reaching 23 percent in 2018.
With the 2012 “sin” tax law failing to increase taxes on alcohol products, the prevalence of binge drinking among regular consumers continues to rise.
Duque said revenues collected from “sin” taxes provide the much-needed financing to help reform the health sector, deliver PhilHealth coverage to poor Filipinos, scale up the DOH’s non-communicable disease (NCD) prevention services, and extend aid to the country’s tobacco farmers.
He also noted that increasing taxes on “sin” products are what the Filipino people want, as shown by the results of a Pulse Asia survey conducted in March.
The survey results revealed that 75 percent, or 3 out of every 4 Filipinos, support the move to increase tobacco taxes and more than half of current smokers surveyed also backed higher tobacco taxes.