Ten years after

It was 10 years ago (to be exact, on Dec. 20, 2012) that the late President Benigno S. Aquino III signed into law the Sin Tax Reform. On the first day of 2013, the government implemented the law unfailingly. This law restructured the excise taxes and dramatically increased the tax rates for tobacco and alcohol.

Ten years after, we can declare that the law has: a.) made the system efficient, fair, and non-discriminatory; b.) increased government revenues significantly and robustly; c.) boosted spending for universal healthcare; and, d.) lowered tobacco consumption in particular, thus saving lives and preventing diseases.

The law, together with the subsequent series of amendments that further increased sin tax rates, also had the knock-on effect of strengthening macroeconomic fundamentals. The sin tax reforms broadened the fiscal space and made the Philippines creditworthy.

Passing the law was hard-earned. It took about 15 years to secure the reforms on structure and rates. The vested interests included what was described as the “strongest tobacco lobby in Asia.”

The Senate ratified the bicameral conference committee bill (the bill that was the product of reconciliation by both Houses of Congress) by the skin of its teeth. It was ratified by a margin of one vote in the Senate. Some of the President’s allies succumbed to the industry lobby and did not show up for the vote.

The signing of the law was truly a watershed moment. It was landmark legislation that defined the commitment of the Aquino administration to reforms.

But the story did not end there. During the next administration, during the term of Rodrigo Duterte, his economic team unleashed a gigantic wave of reforms.

Twice, the law on tobacco taxes was amended to have much higher tax rates. Twice, too, the taxes on vape products increased. Alcohol taxes further went up, and a tax on sugar-sweetened beverages was introduced. And as different types of sin taxes advanced, so did the universal healthcare law and its financing.

The evidence of the gains from the series of sin tax reforms since the first signing is solid, credible, and indisputable. We wish to highlight the recently published 2021 Global Adult Tobacco Survey, showing the consistent significant decline in smoking prevalence. In 2009, prior to the historic tobacco tax reform in 2012, smoking prevalence was equivalent to 28.3% of the population. As a consequence of the reform, in 2015, smoking prevalence dropped to 23.8%, and further decreased to 19.5% in 2021.

The reforms were not limited either to sin taxes or health taxes. The sin taxes were part and parcel of an ambitious but politically difficult tax reform program. Indeed, the scope was the whole range of tax reforms — increasing the excise taxes on oil products and automobiles, further rationalizing the value-added tax (VAT) system, reforming the rules on fiscal incentives, restructuring individual and corporate income taxes, and others.

The Duterte economic team pursued other decisive measures on top of the different packages of tax reforms. All this resulted in a radically changed Philippine economic landscape. To wit: Removing quantitative controls and replacing them with tariffs, making the staple food affordable and accessible to the consumers. Enabling internet access, especially in underserved areas, or expanding inter-connectivity by easing the rules of entry in telecommunication. Opening foreign investments and ownership in other key public services, which heretofore were restricted areas. Further reducing other barriers to doing business.

The Sin Tax Reform Law is situated within this broader context of transformative reforms. The Sin Tax Reform was a catalyst. It created the momentum for deep, irreversible all-round reforms.

In this regard, a critical lesson stands out: How different political administrations formed a consensus in pushing sin tax reforms. This meant continuity of reforms.

Cesar Purisima, the Finance Secretary during the Aquino administration, credits the succeeding administration, the Duterte administration, “in updating sin taxes in the 2017 TRAIN [Tax Reform for Acceleration and Inclusion] Law, again in 2019 through Republic Act No. 11467.”

Sonny Dominguez, the Finance Secretary during the Rodrigo Duterte presidency, likewise compliments the work of the past administrations. He compares the progress of reforms to building an edifice. Every stone contributed to constructing the edifice — past, present, and future — matters.

We hope that the wise words of Messrs. Purisima and Dominguez will resonate with the administration of Ferdinand Marcos, Jr.

The significance of the Sin Tax Reform has moreover taken a global dimension. It has inspired the world. In particular, Philippine tobacco taxation has become a global brand.

In his message to the government champions and civil society, Tedros Adhanom Ghebreyesus, the Director-General of the World Health Organization, says that “the Philippines is a great example for other countries of how raising tobacco taxes can save lives, reduce health costs, and raise revenues.”

Michael Bloomberg, the philanthropist at the forefront of global tobacco control, also congratulates the Philippine stakeholders on the 10^th anniversary of the Sin Tax Reform Law. He comments that the kind of leadership shown in the Philippines has made it “a global leader in tobacco control,” which Bloomberg Philanthropies is working to help replicate around the world.

We are hence proud of the Sin Tax Reform. We will continue to defend and expand its gains. It’s a victory for the Philippines and it’s a victory for the world.

The Sin Tax Reform has created a path dependence which can even compel the current administration to accept it.

Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.

www.aer.ph

For all the latest Business News Click Here 

 For the latest news and updates, follow us on Google News. 

Read original article here