MANILA, Philippines – Another increase in “sin” taxes – which consumers ultimately pay – has greeted 2022, not only to discourage smoking and alcohol consumption that result in public and private health costs, but also to generate more income to finance universal health care (UHC) implemented by the Philippine Health Insurance Corp. (PhilHealth) managed by the state.
Effective January 1, 2022, the excise tax on cigarettes increased to 55 pesos per packet, from 50 pesos last year. This means that cigarette prices will increase by at least P 5 per pack compared to last year. The annual increase in excise duty on cigarettes will be implemented until 2023, when the rate will reach P 60 per packet, under Republic Law (RA) No 11346 or Law on the 2019 tobacco tax.
RA 11467 signed by President Duterte in 2020 – another ‘sin’ tax law enacted before the COVID-19 pandemic – imposed a higher excise tax of 30 pesos per pack on heated tobacco products or cigarettes electronic in 2022, 27.50 pesos per packet in 2021.
Under RA 11467, the excise tax rate on conventional or conventional nicotine-based vaping products increased to P 55 per 10 milliliters (ml) this year, from P 50 last year. The rate of nicotine salt vaping increased to 47P per ml from 42P per ml last year.
RA 11467 also increased the excise duty on distilled spirits – brandy, gin, rum, tequila, vodka and whiskey – to a specific tax of 52 P per liter of proof, from 47 P in 2021, in addition to the tax ad valorem equivalent to 22% of the net retail price.
This year, fermented spirits like beer, lager, ale and porter were hit with an excise tax of 39 pesos per liter, up from 37 pesos in 2021.
The excise duty on wines has increased by 6% per year compared to the base of P 50 per liter in 2020.
Budget documents had shown that the government aimed to raise 172.3 billion pesos from tobacco, plus 82.21 billion pesos from alcoholic beverages, by 2021. Along with this year’s excise tax hikes, incomes cigarettes and electronic cigarettes as well as alcohol had been projected to reach 199.6 billion pesos and 94.8 billion pesos, respectively.
Despite the pandemic-induced recession in 2020, tax collections for âsinâ on cigarettes and alcohol products reached a total of 227.6 billion pesos against 224.6 billion pesos in 2019. Actual collections in 2020 surpassed the conservative target of 201.5 billion pesos, as the tightest lockdowns imposed at the start of the COVID-19 pandemic hampered sales and limited distribution of ‘sin’ products due to movement restrictions on non-essential goods as well as drinking prohibition orders from certain local government units (LGUs) in accordance with curfews.
Planned increases in the ‘sin’ tax last year and this year were also despite reports of a flourishing illicit cigarette trade, including smuggling in at least four ports reported by House lawmakers. low as “hot spots”, as well as the manufacture of unregistered brands and products in certain economic zones.
The latest estimates from national industry leader PMFTC Inc. had shown that illicit cigarettes – smuggled or fake sticks cheaper because they had unpaid import duties, excises, and other taxes – had increased their price tag. 8.6% market share in 2021, compared to around 5 to 5.5% in 2020.
It hasn’t helped that law enforcement operations against unscrupulous cigarette traders run out of steam amid protracted COVID-19 restrictions.
The Internal Revenue (BIR) and Customs (BOC) offices have “strike teams” against the illicit trade in cigarettes.
BIR estimates in November 2021 showed that the 2.5 million packets of illicit cigarettes it confiscated last year deprived the government of about 123.3 million pesos in lost tax revenue.
For its part, the BOC apprehended 102 traders of illicit cigarettes at the end of November 2021, which led to the seizure of 38,827 master cases or 1.3 billion pesos of illicit cigarettes. Excise duties lost on these confiscated illegal tobacco products have been estimated at 970.6 million pesos.
Senior officials from the Ministry of Finance (DOF), which oversees both the BIR and the BIR, had warned that unscrupulous traders would profit from the higher prices of taxed cigarettes by selling cheaper sticks, which would reduce government collections .
Revenues from the annual âsinâ tax increases were to be spent on implementing the UHC covering all Filipinos.
In October last year, Finance Secretary Carlos Dominguez assured that the government would continue to fund and deploy the UHC program, enacted in 2019 before the protracted COVID-19 pandemic put pressure on the limited financial resources of the government. Dominguez heads the economic team of President Duterte and is in charge of financing government programs and projects.
The record national budget of 5.0 trillion pesos in 2022 allocated 80 billion pesos in grants to PhilHealth to cover premium subsidies for indirect contributors – including 13.2 million poor households and 7.3 million elderly people, with the implementation of the booming UHC program.
Since 2014, PhilHealth has received the largest amount of grants of any state owned and / or controlled (GOCC) company.
The latest data from the Treasury Office showed that the national government made 76.9 billion pesos in grants to PhilHealth received at the end of November 2021, nearly half of the 163.4 billion pesos given to GOCCs over the past year. the 11 month period.
But PhilHealth has come under criticism over its inability to resolve COVID-19 claims with hospitals, as well as other reports of alleged corruption and public funds mismanaged by the crown corporation. .
In November last year, a report by the Washington-based think tank Center for Global Development (CGD) showed that despite “sin” taxes imposed in the Philippines and other countries, healthcare costs direct and indirect economic losses due to the consumption of these products remained significant.
As such, the CGD urged emerging markets like the Philippines, which needed to cut budget deficits and repay debts that swelled due to rising COVID-19 war coffers, to consider increasing further. the tax rates applied to cigarettes, alcohol and sugars. drinks.
The DOF was currently working on a âplaybookâ of fiscal consolidation strategies – possibly including new or higher taxes – that the next administration could implement when it takes office from mid-2022, in order to support economic growth, generate more income, return the budget deficit to pre-pandemic levels and ease the debt burden.
“Sin” tax hike to restore PH’s fiscal health
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