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Desperate times call for desperate, and sometimes, ridiculously laughable statements. This is so appropriate for interest groups as well as those with vested interests that have been trying to derail P-Noy’s resolve to reform the current excise tax system on “sin” products, particularly for tobacco.
The lobby group working aggressively to continue the monopoly position of the merged company of Philip Morris and Lucio Tan’s Fortune Tobacco has been feeding the ongoing senate hearing with justifications why the very low taxes on cigarettes should be maintained.
Some are bordering on the ridiculous, while others are glaringly contrary to facts. But just the same, these were given wide coverage by media.
Higher cigarette tax leads to higher inflation
For starters, let us cite recent declarations that the proposed increase in excise taxes on Philippine cigars and cigarettes will stoke inflation. In the long time that our government planners have been studying the “sin” tax reform proposal, never has this scenario arose.
I am not an economist, but in my limited understanding, the inflation index is always linked to a basket of consumer goods. And while in some countries, tobacco and alcohol consumption is included as an indicator, in the Philippines, such is not the case.
It would be interesting to get a full copy of this study made by some unnamed economists from the University of Asia and the Pacific as quoted in news accounts, and which has also been used as reference by the president of the Philippines Amalgamated Supermarket Association.
In the meantime though, I take comfort in the fact that raising tobacco taxes would immediately raise retail prices, and ultimately dampen consumption of this vice that has been seen as a major cause of costly but avoidable ailments and deaths.
Protecting tobacco farmers’ lives
Another desperate claim, as declared by the president of the Philippine Tobacco Growers Association on several occasions at the Senate and to the media, invokes what is perceived as putting to risk the lives of tobacco farmers because of higher excise taxes.
What is not apparent to most people though is that the current tobacco excise tax system is protecting the existing tobacco monopoly of Philip Morris and Fortune Tobacco in the country and hurting tobacco farmers by keeping farm gate prices low.
Before Philip Morris and Fortune Tobacco merged, the crop season price of raw tobacco was P95 per kilo. After the merger, prices immediately dropped to P73 per kilo, or 23 percent lower.
The reform of the tobacco excise tax system, should all the provisions of HB 5727 (Abaya bill) be adopted by Congress into law, will largely benefit the farmers since 15 percent of the incremental revenues from the excise tax collections will go to tobacco farmers.
On the first year alone, it is estimated that the additional amount that would go to tobacco farmers could be as much as P4.5 billion. This could be used to helping improve farmers’ knowledge and skills in planting other crops that could bring better profits.
It can also be argued that cigar and cigarette manufacturing, because of a widespread global push by international health institutions to discourage smoking, is becoming a sunset industry. Therefore, even without higher taxes, tobacco farming will continue to be affected.
The share of tobacco farmers from the excise tax collections will come in handy to pave the way for their shift to other agricultural products that are suitable for growing in the region. Examples of lucrative crops are sweet pepper, hot pepper, bitter gourd and tomatoes.
Protecting people’s lives
Those against reforming the existing tobacco tax structure and increasing excise levies also argue that many people, especially those belonging to the lower income brackets, will not be able to afford cigarettes in future.
That is precisely the objective of the “sin” tax reform: to increase taxes particularly on cigarettes to discourage its consumption, particularly by the poorer sectors of our society.
Researches have shown that not only is cigarette smoking hazardous to one’s health, it is even lethal to the country’s poor. According to a 2012 study by the Philippine Institute for Development Studies (PIDS), it is the poor who are more imperiled by the existence of cheap cigarettes.
The poor not only smoke more, they also spend a higher percentage of their income on tobacco products. In fact, from a study commissioned by the WHO in 2006, Filipinos belonging to lowest income bracket spent 2.7 percent of their monthly income on tobacco, an amount that spells the difference between having food on the table or going hungry.
Because more of our poorer countrymen smoke, they are at higher risk of diseases caused by chronic tobacco consumption. A 2011 study by Dr. Antonio Dans showed that death rates from stroke, heart disease, cancer, and chronic obstructive pulmonary diseases (COPD) were highest among low-income families.
Furthermore, tobacco-related deaths are higher among low-income families since treatment is usually not availed of because of cost considerations. Even the public health care system is subjected to higher expenditures that could otherwise have been avoided if smoking prevalence was not abnormally high.
Treatment at the state-owned and operated Lung Center of the Philippines’ charity ward, for example, could cost at least P100,000 for every lung cancer patient. Chemotherapy sessions, on the other hand, could cost up to P150,000 per patient.
Ironically, the current tax collection from cigarette sales is not enough to cover the expenditures of public hospitals and clinics in curing chronic diseases caused by smoking.
War on smoking
Even as P-Noy’s administration sets its sights on increasing tax collections from the sin tax reform, the ultimate objective is to wage a war on smoking, and therefore prevent more lives from being lost.
In the same way, while minding the economic jargon on inflation and “sweet spots” in determining the right level of tax collections vis-à-vis expected revenues, the government should not lose sight of the more important objective, which is to make sure that the health of countrymen is preserved.
Finally, for our tobacco farmers, if they can shift to other products that will improve the quality of their lives as well as the general public, will this not be a better alternative?
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