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C A S E S I N G L O B A L H E A L T H D E L I V E R Y

Amy Madore, Julie Rosenberg, and Rebecca Weintraub prepared this module note for the purpose of aiding instructors in facilitating discussion

around tobacco control and health financing.

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APRIL 2015

MODULE NOTE

“Sin Taxes” and Health Financing in the Philippines

As nations grapple with how best to mitigate the health and economic effects of smoking, many are

increasing excise taxes to curb consumer demand for tobacco products. Following the adoption of “sin tax”

increases in 2012, the Philippines saw a reduction in smoking and generated new revenues for health care,

including for its national health insurance program. The experience of the Philippines—home to one of the

strongest tobacco lobbies in Asia and the 15th largest cigarette market in the world in 2010—highlights the

critical role of political leadership and multisectoral collaboration in reforming tobacco tax policy.1–3 In this

module note we describe the context that laid the groundwork for an effective legislative campaign and the

strategies stakeholders used to drive it. We also follow the trajectory of the legislation through its initial

implementation and identify several challenges the country faces in maximizing the impact of increased

revenues for health. Key tactics made this taxation policy very successful in generating revenue. At the same

time, it illuminated spending limitations and the challenge of translating increased funding to health

impacts.

Situational Context

The National Health Insurance Program Was Not Meeting Its Goals

Since 1991, the Philippines health system had been decentralized (see Exhibit 1 for a map of the

Philippines and an overview of the country and health system). Local government units (LGUs)

administered and financed public health services. The Department of Health (DOH) oversaw LGUs,

providing targeted funding and technical guidance, and managed 72 public hospitals. The bulk of DOH and

LGU funding came from general government revenues.

Modeled after the United States (US) system, the Philippines established a Medicare program in 1969 to

provide health insurance to Filipinos working in the formal sector. Informal sector workers and

unemployed Filipinos purchased private insurance or paid out-of-pocket for services. In 1995, the DOH

expanded government-sponsored health insurance, replacing Medicare with the National Health Insurance

Program and forming the Philippine Health Insurance Corporation (PhilHealth) to manage it. Households

that could not afford the premiums qualified for financial assistance through PhilHealth’s Sponsored

Program if they were registered with the Department of Social Welfare and Development’s conditional cash

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Sin Taxes in the Philippines

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transfer program. Although the government’s goal was to achieve universal PhilHealth coverage within 15

years, by 2010 only 21% of poor households and less than three-quarters of the total population were

enrolled.4,5

Tobacco Use Accounted for a Large Burden of Disease in the Philippines

In 2011, tobacco use was the leading cause of preventable death globally, killing approximately 6

million people every year and contributing significantly to the incidence of non-communicable diseases.

Approximately 80% of smokers lived in low- and middle-income countries.6,7

In the Philippines, smoking was one of three risk factors accounting for the highest burden of disease.8

Nearly one-third (31%) of adults age 20 or older were smokers in 2008.9 Most adults were aware of the

dangers of tobacco consumption. According to the Philippines’ 2009 Global Adult Tobacco Survey (GATS),

94% of Filipinos age 15 or older agreed that smoking caused serious illness. Sixty percent of current smokers

were interested in quitting.10

Smoking patterns varied by group. Prevalence was increasing among youth and was most common

among males and in rural areas. More than one-quarter (27.3%) of 13-15 year-olds smoked in 2007, up from

19.6% in 2003.11 More than half (53.2%) of men and 12.5% of women age 20 or older smoked in 2008.9 In

rural and urban areas, 33.1% and 28.9% of adults smoked, respectively.

Poor Filipinos were more likely to smoke than other socioeconomic groups. In 2009, 26% of adults in

the second quintile and 31% of adults in the first (lowest) quintile were current smokers.12 By contrast, 21%

of adults in the three wealthiest quintiles were current smokers. Poor households spent a larger proportion

of their income (1.6%) on tobacco than wealthier households (0.7%).13 On average, smokers spent PhP 326.4

(Philippine Pesos), or USD 7.30, * on cigarettes monthly.10

Cigarette prices in the Philippines were the lowest in the Western Pacific region in 2010 and seventh

lowest globally. A pack of the country’s most sold brand of cigarettes was $0.90 (international dollars)† in

2010.6 Excise taxes accounted for 24.1% of cigarette retail prices, on average, despite the World Health

Organization’s recommendation that they should account for at least 70%.14

The economic and health costs of smoking in the Philippines were substantial. A 2011 study estimated

the cost of death and disease resulting from just four tobacco-related diseases (lung cancer, chronic

obstructive pulmonary disease, coronary artery disease, and cerebro-vascular disease) to be PhP 188.8

billion (USD 4.22 billion)—nearly 2% of GDP.15 Costs included health care, productivity losses, and

premature death losses. The actual costs were believed to be much greater.

The Tobacco Industry in the Philippines Was Strong

Tobacco was grown in 27 provinces countrywide but concentrated primarily in 5 northern provinces.

Following a peak in 1992, tobacco-growing declined during the 1990s and 2000s as agricultural lands were

converted for residential use and farmers switched or expanded to more profitable crops.14 Most tobacco

farmers planted multiple crops in addition to tobacco.16 In 2010, tobacco farming accounted for 0.4% of total

agricultural employment. Farmers produced more than 70 million kilograms of tobacco leaf valued at PhP

* All currency calculations were performed using the prevailing exchange rate on March 24, 2015 of 1 USD = 44.7350

Philippine Pesos (PhP). The average exchange rate from January 1, 2008 – March 24, 2015 was 1 USD = 44 PhP. † Pricing and tax data were made available for 166 countries. The Seychelles’ most sold brand was the most expensive as

at $14.06 per pack. The United States’ most sold brand cost $5.72 per pack.


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4.85 billion (USD 108.4 million).17 Approximately 40 million kilograms were exported.18 The National

Tobacco Administration regulated and provided technical support to the industry.

The tobacco industry and its political allies heavily influenced policymaking in the Philippines.2 The

Northern Alliance of legislators was closely tied to tobacco-growing provinces and repeatedly defeated or

weakened tobacco control proposals (see Exhibit 2 for a timeline of key tobacco policy and industry and

events). Attempts in 1997 and 2004 to increase cigarette taxes, index tax rates and price brackets to inflation,

and eliminate preferential taxes for cheap and older cigarette brands were largely unsuccessful (see Exhibit

3 for a glossary of taxation terms). As a result, the excise tax base eroded over time, costing the government

billions of pesos (see Exhibits 4a and 4b for comparison of nominal and real tobacco tax revenues and

tobacco excise taxes as a percentage of total governmental revenues, 1999-2009).19

Despite these setbacks, there was some progress in tobacco control. In 2003, Congress passed landmark

legislation tightening restrictions on tobacco marketing and prohibiting smoking in public places and sales

to minors.20 Two years later the Philippines joined 167 other World Health Organization (WHO) member

states in signing the newly created WHO Framework Convention on Tobacco Control. The treaty called on

Parties to adopt a variety of tobacco control measures, including tax policies aimed at reducing smoking.

In 2010, domestic cigarette manufacturer Fortune Tobacco merged with Philip Morris International’s

local subsidiary to form Philip Morris Fortune Tobacco Corporation (PMFTC).21 Prior to the merger, Fortune

Tobacco was the largest player in the domestic cigarette market.3 PMFTC produced the top 5 most-sold

cigarette brands, representing more than 75% of cigarettes consumed in the country.14

The 2010 Presidential Elections Set the Stage for “Sin Tax” Reform

In 2010, Benigno Simeon Aquino III became the 15th President of the Philippines. One of his priorities

was to increase efficiencies in tax collections. With the tax effort averaging 12.7% since 2000,22 a record

national budget deficit, and the Philippine government’s history of corruption and elite capture, Aquino

aimed to strengthen the country’s fiscal capacity without levying new taxes.

Another priority of the Aquino administration was to achieve Universal Health Care, or Kalusugan

Pangkalahatan, by accelerating PhilHealth enrollment for poor Filipinos. In doing so, Aquino hoped to see

tangible progress toward realizing the Millennium Development Goals for maternal health and infectious

disease, which the country was not on track to achieve by 2015.

Despite being a smoker himself, Aquino indicated early in his term that he favored increasing taxes on

tobacco and alcohol products. Unlike many former presidents, he did not have strong political connections

to the Northern Alliance. The arrival of a new President with a strong health agenda represented an

opportunity to reform the excise tax system and excited tobacco control and economic reform advocates.

“We had a new President, so there was a breath of fresh air—the possibilities seemed endless,” one

advocate reflected. “Because he had forged a social contract with Filipinos, we knew that he would listen to

the people. So it was an opportune time for groups to re-strategize the approach to passing sin tax reforms.”

When Aquino appointed Dr. Enrique Ona as Secretary of Health in 2010, he charged Ona to expedite

universal insurance coverage through PhilHealth, especially for the poor, women, and children. Ona was an

accomplished surgeon and the Executive Director of the National Kidney and Transplant Institute. With

clinical and management experience in the private and public health sectors, he had the reputation and

management experience to promote universal health coverage.

Given Aquino’s promise not to introduce new taxes, the DOH and Department of Finance (DOF)

would have to use an existing government revenue stream to increase the health budget. Government and


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civil society collaborated to change the existing framework for excise taxes on alcohol and tobacco products,

culminating in Republic Act No. 10351, or the “Sin Tax Reform Law.” The provisions of the act and what it

took to get it passed are discussed in detail below. Aquino signed the bill into law on December 19, 2012.

The new tax structure would take effect on January 1, 2013.

Sin Tax Reform Law of 2012

Republic Act 10351 (RA 10351) represented a significant departure from historical tobacco and alcohol

tax policy. For the first time, the law indexed tobacco and alcohol taxes to inflation. It also simplified the

four-tier taxation system to a two-tier taxation system and removed preferential tax rates for older brands.

In 2017, the two-tier system would transition to a unitary tax rate for all tobacco product and fermented

liquor brands, regardless of price. Distilled spirits would be taxed at a uniform rate beginning in 2013 to

address a World Trade Organization ruling that excise taxes on imported distilled spirits were

discriminatory and thus gave domestic brands an unfair advantage (see Exhibits 5 and 6 for a more detailed

summary of the law’s provisions and a comparison of the old and new tax rates).23

The goal of RA 10351 was to make smoking and drinking less affordable and earmark incremental tax

revenues for universal health care.‡ Eighty-five percent of incremental tobacco tax revenues and 100% of

incremental alcohol tax revenues were earmarked for health. Eighty percent would be used to finance the

National Health Insurance Program, attainment of the Millennium Development Goals, and health

awareness programs. The remaining 20% would be used for health infrastructure improvements and to

provide additional support for indigent patients. The incremental tobacco tax revenues not supporting

health (15%) would fund economic development projects in provinces producing burley and native tobacco.

The DOH, PhilHealth, the Department of Budget and Management (DBM), and the Department of

Agriculture would submit annual reports on the expenditure of earmarked revenues to a Congressional

Oversight Committee. In 2016 the Committee would review the impact of the legislation to date.

The Policy Development Process Was Enabled by Many Factors

The process of developing and promoting RA 10351 was multi-faceted and required strategic

coordination of diverse stakeholders. Multiple strategies and contextual factors converged to create an

environment that was conducive to its success.

Presidential Support

President Aquino prioritized and supported “sin tax” reform, publicly voicing his intent to promote

tobacco and alcohol tax increases and placing the measure on his administration’s policy agenda. His

endorsement of tax reform compelled and empowered his executive cabinet secretaries to invest in the

legislation. In a rare instance, the DOH, DOF, DBM, and Department of Agriculture worked together to craft

and advocate for the bill. Aquino’s strong approval ratings made it politically feasible for legislators in his

party to support it. He used his political muscle to pressure those who opposed it by making personal

phone calls and visits.

Broad-based, Multi-sectoral Support and Collaboration

‡ The incremental revenues were the difference between the total revenues generated by the new tax structure and the

total revenues that would have been generated by the previous tax structure.


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Individuals, nongovernmental organizations (NGOs), and government agencies representing a broad

range of sectors and disciplines also worked together to promote the reform. Many of them had worked on

similar initiatives previously; however, their efforts had not been coordinated. Stakeholders saw an

opportunity to unite to maximize their collective resources and expertise.

NGOs formed a coalition to synchronize civil society efforts to promote the sin tax as beneficial for the

health and economy of the Philippines. The coalition took root in the latter half of 2010, when tobacco

control advocacy organization FCTC Alliance Philippines (FCAP) approached Action for Economic Reforms,

a Philippine NGO experienced in advocacy and economic policy research. They united other tobacco control,

health care, and economic reform groups—including WomanHealth Philippines, Foundation for Economic

Freedom, the Philippine Society of General Internal Medicine, the Philippine College of Physicians, and

New Vois Association of the Philippines—with a shared goal: to reduce smoking and generate revenues for

universal health care by raising taxes on cigarettes and alcohol. The coalition engaged health care

professionals, epidemiologists, university students, and patients with tobacco-related illnesses in the debate,

organizing press conferences and testimonies before Congress.

Under Action for Economic Reforms’ coordination, the coalition was democratic and collaborative. A

core group of leaders from the tobacco control, health care, and economic reform groups convened

frequently to develop strategy, plan events, and delegate work. The coalition was intentionally informal and

unnamed, enabling it to act and make decisions quickly. One member characterized it as “centralized in

terms of messaging but decentralized in terms of implementation.” The core group convened meetings with

DOH and DOF representatives to share updates and determine how they could support their work.

Legislators elected to the House of Representatives by local constituencies and Senators elected

nationally were instrumental in moving the reform through Congress. The House Ways and Means

Committee and the Senate Ways and Means Committee were responsible for developing and deliberating

fiscal bills. Historically, these committees had been dominated by members of the Northern Alliance. In

early 2012, the committee chairs initially favored making limited changes to the tobacco and alcohol tax

system. Legislators from President Aquino’s party pressured both to resign and replaced them with

“champions” for the legislation who would not be influenced by the tobacco lobby. Coalition members, the

DOH, and the DOF developed relationships with the chairs and their committee allies and provided data

and strategy recommendations to defend the bill at committee hearings.

International organizations and national governments contributed funding and/or technical assistance

that insured the Philippines would be aligned with international recommendations. Key players included

WHO, World Bank, the International Monetary Fund, Bloomberg Philanthropies, AusAid, The Asia

Foundation, Campaign for Tobacco-Free Kids, and The Union.

Other important supporters of the bill included current and former cabinet secretaries, media allies,

and academic researchers. Getting powerful local leaders on board was important for gaining momentum

because they brought large constituencies with them. For example, the Union of Local Authorities of the

Philippines appealed to an influential governor from a northern tobacco-growing province to endorse the

legislation by publically denouncing the notion that higher sin taxes would lead to the “death of the tobacco

industry”—a popular argument among opponents of tax increases. Stakeholders believed that his public

support of the bill was critical because it convinced several politicians from the north to support it.

Some compromise was necessary to attain the support of industry stakeholders. For example, in

exchange for the support of the country’s largest brewery, San Miguel Brewery,24 legislators adjusted the

lower of the two price tiers for fermented liquor brands to include its popular premium beer brand.

Government leaders and coalition members established consensus on which provisions were nonnegotiable

(e.g., the minimum tax rate for low-price cigarette brands) to protect the core objectives of the legislation.


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Given the diversity of supporters, it was important that they maintained a shared sense of purpose and

mission. Undersecretary of Finance Jeremias Paul emphasized the importance of a “whole of government

approach,” noting that, “If you’re not united, the tobacco industry will capitalize on that.” Before speaking

publicly on behalf of the legislation, Secretary Ona, DOF Secretary Cesar Purisima, and DBM Secretary

Florencio Abad ensured their messaging was aligned and consistent.

Despite broad-based advocacy for the legislation and the President’s leadership, the final vote on RA

10351 was extremely close, with 10 votes for and 9 votes against the measure.

Collaboration between the DOH and DOF

The DOF typically took the lead on legislative proposals related to taxation. “What differentiated RA

10351 from past efforts is that Health and Finance were working together,” explained Finance

Undersecretary Paul. They met regularly with each other, other executive departments, legislators, and civil

society coalition members. While Secretary Ona and Finance Secretary Purisima set priorities and provided

high-level oversight, they delegated day-to-day coordination and communications to undersecretaries

whom they could trust to work proactively and collaboratively on the initiative. Paul and his team helped

Ona determine how much revenue the DOH required to achieve its goals while Health Undersecretary Ted

Herbosa worked with the DOF and civil society coalition to emphasize the legislation’s health objectives.

Ona also met with the National Tobacco Administration to understand how reform might impact

tobacco farmers and cigarette manufacturing workers. Although this move concerned some stakeholders

that Ona would favor more conservative tax increases, he believed it was important to hear their concerns.

Within the DOF, Bureau of Internal Revenue (BIR) Commissioner Kim Henares provided technical

assistance to the DOH and coalition members and was a vocal advocate for reform. She suggested

providing legislators with estimates of how much additional funding the new law would generate for

health spending in their districts. Ona disseminated the BIR’s estimates to Representatives, highlighting the

potential benefits for their constituents. He and other cabinet secretaries believed this outreach garnered

additional support from legislators by framing the bill as relevant and advantageous to them.

Data-Driven Policy Development and Advocacy

There was a large pool of both international and national tobacco research from which the DOF, DOH,

and other stakeholders drew. The World Bank and WHO provided analysis of other countries’ experiences

with tobacco tax policy and the tobacco industry. Scholarly research on the prevalence, health effects, and

costs of smoking in the Philippines and the relationship between tobacco taxes, prices, and consumption

further bolstered arguments for reform. Proponents for higher taxes leveraged research demonstrating that

increased tobacco prices reduce smoking prevalence. Estimates of the price elasticity of demand for

cigarettes varied considerably but typically suggested higher sensitivity to price in low- and middle-income

countries than in high-income countries.14

Secretary Ona consulted with economists at the University of the Philippines School of Economics to

determine which tax rate he should support. The economists looked to a 2012 study funded by Bloomberg

Philanthropies,14 which drew from international data to model how the proposed tobacco tax reforms might

impact consumption in the Philippines. Based on this analysis, the team advised Ona to advocate for the

highest tax possible. If consumer demand for tobacco was highly inelastic, smoking prevalence would

remain high, but tax revenues would generate funds to improve accessibility and quality of health care. If

consumer demand for tobacco was highly elastic—the position the Philippine tobacco industry took—a

higher tax rate would dissuade consumers from smoking and thereby lower rates of smoking-related death


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and disease. The government would realize cost savings in terms of lower health care spending and fewer

productivity and premature death losses.

Ona and the government and civil society coalition decided to push for the highest tax rate possible,

viewing it as a “win-win” proposition. With technical input from the World Bank, WHO, and the authors of

the Bloomberg-funded study, the DOF recommended an elasticity of -0.5, suggesting that, on average, a 10%

increase in cigarette prices would result in a 5% reduction in cigarette demand in the Philippines. The DOF

simulated how different tax rates would impact cigarette consumption and revenue generation given

various elasticity assumptions (see Exhibit 7 for a table government and civil society allies used to compare

scenarios). Epidemiologists at the University of the Philippines College of Medicine then used these data to

estimate the number of lives that would be saved and the cost savings to government given each scenario.

Earmarking Incremental Revenues for Health

The DOF typically opposed earmarking fiscal legislation because it restricted the government’s

flexibility. However, given the history of political patronage and elite capture in the Philippines, it was

agreed that incremental revenues should be earmarked to ensure the DOH could deliver on the health

promises of the measure. Data on the health and economic costs of smoking further convinced the DOF that

dedicating the funds to health spending was a strategic and necessary move.

Strategic Shift in Messaging

The DOH and other proponents carefully framed RA 10351 as a health measure first and a revenue-

generating measure second. President Aquino stressed that the ultimate goal of excise tax reform was to

reduce the consumption of “sin products” while increasing funding for universal health care. Secretary Ona

worked to underline this point: “I think this was probably the most important role I played: to make it very

clear to everybody to forget about it being a tax measure and focus instead on it being a health measure.”

Preparing for Implementation

The government adjusted various DOH and PhilHealth policies and programs in 2013 in preparation

for the budget increase sin tax collections would bring in 2014. Prior to 2013, the national government and

LGUs split the cost of premiums for poor families in the Sponsored Program. Many eligible families were

being denied coverage because LGUs could not pay their share of the premium costs. Secretary Ona played

a central role in changing this by advocating for the National Health Insurance Act of 2013 (RA 10606) and

crafting its Implementing Rules and Regulations. The law made PhilHealth enrollment compulsory for all

Filipinos, regardless of their socioeconomic status. The national government would be responsible for fully

subsidizing the PhilHealth premiums for both families in the Sponsored Program—who were automatically

enrolled via their participation in the government’s conditional cash transfer program—and for Filipinos

who worked in the informal sector and belonged to the second income quintile.

The DOH and PhilHealth instated operational and financing reforms to complement these policy

changes. In early 2013, PhilHealth increased minimum premium contributions from PhP 1,200 (USD 27) to

PhP 2,400 (USD 54) annually and expanded benefits. It also introduced a policy prohibiting PhilHealth-

accredited government facilities from billing Sponsored Program members for any health expenses. If a

member’s benefits did not cover the costs of a covered procedure, the hospital could not charge the member

for the balance. PhilHealth would deduct a penalty from hospitals’ reimbursement claims for

noncompliance with the policy or for prescribing medication not available at the hospital pharmacy. Its goal

was to reduce out-of-pocket expenditures, incentivize hospitals to stock their pharmacies, and discourage


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over-diagnosis and over-treatment. “These were the tweaks that Secretary Ona and I tried to implement to

ensure the health system would become financeable and self-sustaining,” said Undersecretary Herbosa.

PhilHealth also launched a Point of Care enrollment mechanism to ensure that qualifying patients who

were not enrolled would not be denied coverage at a public facility. Medical social workers conducted a

means test onsite and enrolled qualifying patients immediately.

In order to realize the potential of these policies, Ona believed it was essential to improve the quality

and capacity of government health facilities. Facilities in poor rural areas were less likely to meet PhilHealth

standards for accreditation, forcing patients to pay out-of-pocket or travel long distances for care. At the

same time, most PhilHealth-accredited public hospitals were overcrowded, under-equipped, and under-

staffed, driving patients who could afford private services to use the private sector. Ona planned to use a

portion of sin taxes to fund the modernization, purchase, and repair of health infrastructure and equipment.

Results and Impact

Revenue Generation

The incremental revenues generated by RA 10351 during the first year of implementation (2013)

exceeded the government’s expectations. The BIR collected a total of PhP 51.12 billion (USD 1.14 billion) in

incremental tax revenues: PhP 41.82 billion (USD 934.8 million) from tobacco and PhP 9.29 billion (USD

207.6 million) from alcohol. While incremental tobacco tax revenues surpassed the government’s projection

by 179%, incremental revenues from alcohol were under goal by approximately 12%. As a result, total sin tax

revenue collections (i.e., incremental plus the taxes that would have been collected from tobacco and alcohol

products in the absence of any reform) for tobacco and alcohol reached PhP 70.4 billion (USD 1.57 billion)

and PhP 33.0 billion (USD 737.7 million), respectively. The total tobacco sin tax revenue collection

represented a 114% increase over the 2012 collection (PhP 32.9 billion, or 735.4 million), while total alcohol

sin tax collections grew by 38%.25

The DOH’s 2014 budget was equal to its 2013 budget (PhP 53.2 billion, or USD 1.19 billion) plus its

share of the incremental tobacco and alcohol tax collection projection for 2013 (PhP 30.5 billion, or USD

681.4 million), or PhP 83.7 billion (USD 1.87 billion).26 The resulting 57% year-over-year growth in the

DOH’s budget was unprecedented (see Exhibit 8 for annual growth in DOH budget).

The DOH budgeted 74.4% of incremental revenues for PhilHealth premiums, representing 64% of its

total PhilHealth premium budget and a 180% increase over its total 2013 budget for premium subsidies. The

second largest allocation of incremental revenues (10%) was for assistance to indigent patients and health

facility improvement projects. Smaller allocations included projects and programs targeting achievement of

health-related Millennium Development Goals and strengthening health awareness programs (see Exhibit 9

for allocations of incremental revenues in the 2014 DOH budget).26

Given that actual 2013 collections exceeded DOF projections, the DOH petitioned the DBM to allocate

the surplus incremental revenues (PhP 14 billion, or USD 313 million) to its 2015 budget. Instead, the DBM

proposed including them in a supplemental 2014 budget to finance reconstruction projects in communities

affected by Typhoon Haiyan and frontloading activities to support universal health care.26 Concerns about

the DOH’s absorptive capacity were first among the DBM’s reasons for withholding the incremental

revenue surplus. “It’s really a challenge to spend the money,” DBM Secretary Abad observed. “Their budget

has tripled in about four years, but their capacity may not have. So, when they were negotiating to be given

the full amount, our argument was, let’s see to what extent can you really absorb what you have right now.”


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Incremental tobacco and alcohol tax revenues totaled PhP 50.18 billion (USD 1.12 billion) in 2014,

surpassing the government’s target of PhP 42.86 billion (USD 958 million) by 17%.27 The 15% earmark for

tobacco-farming regions would be allocated for the first time in 2015 and was based on 2014 tax collections.

PhilHealth Enrollment

PhilHealth used the funds to increase subsidized PhilHealth enrollment to 45.1 million poor Filipinos,

representing 14.7 million Principal Members and 30.4 million dependents. In doing so, it effectively enrolled

100% of the poor and near-poor in PhilHealth.26

The DOH’s ability to capitalize on its increased budget for PhilHealth subsidies was constrained by

capacity and structural limitations. Funding and establishing insurance coverage was only the first step in

the process of increasing access to health care. Educating members about PhilHealth was challenging; it

required buy-in and collaboration from LGUs and a marketing and communications plan that would reach

the Philippines’ 2,000 inhabited islands. Despite the introduction of Point of Care enrollment at government

hospitals, in early 2015 most Filipinos in the informal sector were still unaware of their PhilHealth benefits.28

Other ongoing challenges with PhilHealth, including its low benefit-delivery ratio and cumbersome paper-

based claim submission process, also threatened to blunt the impact of the sin tax reforms.

Health Infrastructure and Procurement

The DOH faced challenges maximizing and demonstrating the impact of its budget increase on health

infrastructure improvements. Historically, decisions about how much funding to provide LGU and DOH

health facilities tended to be historically-based—i.e., facilities received the same allocation each year—or

politically-driven rather than performance-based. As a result, administrators had little financial incentive to

improve service delivery because it would not necessarily influence the amount of health infrastructure

funding they received—or did not receive—from the DOH. Furthermore, the DOH did not have a

mechanism for vetting facility requests to ensure they aligned with the health needs and priorities in their

communities.

The Department also struggled to purchase and deliver new supplies and drug stock, as limited

funding in previous years had stunted the development of strong logistics and procurement systems. This

led to problems in getting vaccines and medicines from the DOH to LGUs, and from the LGUs to patients. A

health economist who consulted for the DOH summarized the challenge:

The weaknesses of the health system became apparent when money was made available. No matter how

inefficient the logistics system was, we did not notice because we did not have the money—we didn’t have

any use for it. Suddenly, the Department had money and it was procuring goods, equipment, drugs, and

medicines to be distributed down the line, and then you realize that the whole supply chain isn’t there. So

things weren’t moving; warehouses got filled up, the wrong things went to the wrong places. You have lots

of money for meds, but then you would have stock-outs. In effect, part one of the game was to actually argue

and get money... The next part was, of course, to spend the money, and this is where we are now: we don’t

know how to spend the money.

Smoking Impact

National survey data suggested that the sin tax reform contributed to a marked reduction in smoking.

According to the National Nutrition and Health Survey, smoking prevalence among adults age 20 or older

fell from 31% in 2008 to 25.4% in 2013.29 A separate national poll found that smoking prevalence among

adults age 18 or older fell from 29% to 26% between December 2012 and March 2014, in just 15 months.12


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The most dramatic decline was in the lowest income quintile (from 38% to 25%) and among adults 18-24

years of age (from 35% to 18%). There was a slight or no reduction in smoking within older age groups, and

smoking increased by one percentage point among 45-54 year olds. Proponents of the sin tax believed the

reduction in smoking was largely the result of fewer Filipinos starting the habit.

Almost half (45%) of current smokers, especially older smokers, smokers in rural areas, and poor

smokers, reported “downshifting” to less expensive brands since the tax increase. The DOH and civil

society hoped that moving to a unitary tax rate in 2017 would force companies to increase the price of

inexpensive brands and eliminate the option of downshifting.

Industry Impact

Cigarette manufacturing decreased following implementation of RA 10351. In 2013, the volume of

cigarette and fermented liquor factory removals (i.e., the amount of each product that manufacturers

removed from their factories to sell on the market) fell by 15.52% and 11.16%, respectively, while the

volume of distilled spirit removals§ grew by 29%.25 In the first three quarters of 2014, cigarette and

fermented liquor removals was 0.81% lower and 1.2% higher, respectively, than they were for the same

period in 2013. Distilled spirit removals were 10.75% higher.

The decline in cigarette factory removals provided further evidence that tax increases had discouraged

consumption of cigarettes and fermented liquor products. The BIR believed it was also due in part to

manufacturers frontloading production for 2013 sales at the end of 2012. Cigarettes they removed from the

factory prior to January 1, 2013 would not be subject to the higher tax rates, allowing them to save money.

Contrary to industry claims that tobacco farmers would suffer as a result of RA 10351, tobacco farming

remained strong. Production increased by 4.5% in 2013, and exports expanded by 35%.30 Local cigarette

manufacturing company Mighty Corporation reportedly saw its domestic market share grow from 3% in

2012 to more than 20% in 2013. Meanwhile, the largest domestic cigarette manufacturer, PMFTC, reported

that its market share fell from 90% in 2012 to 70% in 2013 (see Exhibit 10 for comparison of market shares).31

Mighty’s increasing competitiveness with PMFTC suggested that the tax reforms had begun to level

the playing field by addressing price discrimination. PMFTC accused Mighty of tax evasion and suggested

the government lost billions in foregone revenues due to illicit trade (see Exhibit 11 for PMFTC print ad

denouncing Mighty).32 In early 2015 the company laid off more than 10% of the 6,000 workers in the

Philippines, citing a need to cut costs in the face of unfair competition from Mighty.31 The BIR was

investigating Mighty to determine if it had underreported sales to avoid paying taxes.

Although it had yet to be substantiated, illicit trade was a real threat to the fiscal and smoking

reduction goals of RA 10351. In late 2014 the BIR issued new regulations requiring companies to affix

government-printed tax stamps on cigarette packs produced in the country before they could be sold to

consumers, effective in March 2015. It announced similar plans for alcohol products, set to roll out in mid-

2015.33 NGOs were exploring research design options for estimating the prevalence of illicit trade. It would

be difficult to understand the full extent of tax evasion without industry cooperation.

Transition in Leadership and Next Steps

§ RA 10351 changed the basis of taxation on distilled spirits from raw materials to the finished product. 2013 removals

included local and imported raw materials, while removals in 2012 were based only on locally produced raw materials.

The increase was due largely to the inclusion of imported raw materials in the tax base for domestic distilled spirits.25


11

In December 2014, Secretary Ona resigned in response to an ongoing government investigation of a

DOH vaccine procurement decision his team had made in 2012. President Aquino appointed DOH

Undersecretary and former Congresswoman Janette Garin to take his place. When she stepped into the

Health Secretary role, she assessed the challenges and opportunities facing the DOH and developed a plan.

Her goals for the remainder of Aquino’s term were to improve collaboration between LGUs and the DOH;

establish a DOH Academy to facilitate capacity-building across the department; and to review PhilHealth

programs and benefit packages and identify options for improving and growing them.

Garin also aimed to address several of the issues the DOH and PhilHealth faced in terms of improving

the country’s health infrastructure and expanding access to services. She prioritized the 48 poorest, most

geographically-isolated and disaster-prone provinces for health facilities investments. Garin’s goal was to

increase PhilHealth utilization by ensuring each province had at least one PhilHealth-accredited facility

offering basic maternity, check-up, and TB services by mid-2016. In 2015 her team was conducting an

inventory of equipment in public health facilities nationwide to facilitate more informed, strategic

evaluation of LGU requests. A majority of future allocations for LGU facility and DOH-run hospital needs

would be based on scorecards rating facility performance across five indicators, set to roll out in June.

The official review of RA 10351 was scheduled for the summer of 2016. Citing concerns about how sin

tax revenues were being spent and what their impact had been thus far, some legislators requested to

conduct an earlier review in 2015. In addition to thinking about how to capture the effects of sin tax reform

and leverage future revenues, government and civil society supporters were preparing for the transitions in

presidential and congressional leadership that would come with the 2016 general elections. Ultimately, the

merits of RA 10351 would be judged by Filipinos. One civil society advocate explained:

At the end of the day, in 2016 the question will be, “Did it change your life?” That’s going to be the question

with any policy change: “What did it do for you?” If it’s not clear to the Filipinos what the impact has been,

it’s going to be very easy for the tobacco industry to harness and harvest a dissenting public opinion. So we

have to make it work. But that’s what we have to understand: where is the most impact at the health level?

Discussion

The Philippines offers an instructive example of the resources, coordination, and enabling political

environment needed to improve health by increasing tobacco taxes in a country with a strong tobacco lobby

and historically low cigarette taxation. Key success factors included the unwavering commitment of

executive and legislative leaders; unified multi-sectorial and intragovernmental collaboration; mobilization

of information and stakeholders via a strong, agile civil society coalition; and consistent internal messaging

centered on the campaign’s health objectives. The campaign was built on a foundation of strong and timely

research, with data analysis at both international and national levels supporting the legislation. Early results

align with predictions and suggest that higher cigarette prices are a powerful means to reduce smoking

among price-sensitive consumers, namely the young and the poor.

The Philippine’s sin tax reform has generated considerable government revenue for health care. In fact,

it has exceeded expectations, boosting tobacco tax collections by 114% in its first year of implementation. As

a result, the DOH has seen tremendous growth in its budget to achieve universal insurance coverage and

other health goals.

While the tax reforms have generated higher revenues than predicted and increased health care

financing dramatically, unforeseen limitations to spending the revenues to impact health have emerged.

Existing weaknesses in public health infrastructure, low PhilHealth literacy and utilization, the vertical

nature of DOH programs, historically-based allocations for facilities improvements, and weak incentives for


12

LGU investment in health have slowed the absorption of new revenues and mitigated their impact thus far.

These challenges demonstrate the importance of strategic planning for budgetary increases, including the

development of realistic metrics to track and communicate progress to stakeholders.

In order for the full value of successful policymaking to be realized in the Philippines, improvements in

the health system are needed. In 2015, the DOH and other proponents of the sin tax increases are working to

further the impact of revenues by strengthening PhilHealth and the health infrastructure. Their ability to

provide compelling evidence of the benefits to Filipinos’ health will be critical in 2016, when political

candidates challenge the measure and the Congressional Oversight Committee reviews its effectiveness

since implementation in 2013.


13

Appendix Commonly Used Acronyms

BIR Bureau of Internal Revenue

DBM Department of Budget and Management

DOF Department of Finance

DOH Department of Health

LGU Local Government Unit

NGO Nongovernmental Organization

NRP Net Retail Price

PhP Philippine Pesos

PMFTC Philip Morris Fortune Tobacco Corporation

RA Republic Act

USD United States Dollars


14

Exhibit 1 Philippines Country and Health System Overview

Source: U.S. Central Intelligence Agency, 2014

Historical Background

Spain colonized the Philippines in the 16th century, introducing tobacco-farming and converting a

majority of the population to Catholicism. Spain ceded the Philippines to the United States (US) when it lost

the Spanish-American War in 1898. The Philippines gained independence from the US in 1946, following

World War II. The People Power Revolution and elections of 1986 ended decades of government corruption

by ousting dictator Ferdinand Marcos and installing Corazon Aquino as president.34 When Aquino passed

away in 2009, Filipinos called for her son, Senator Benigno Aquino III, to run for office. He won and became

the 15th president of the Philippines in 2010. His campaign promises were to uproot corruption and reduce

poverty through government reform.

Demographics and Geography

The Republic of the Philippines was an archipelago of 7,107 islands in the western Pacific Ocean in

Southeast Asia in 2015.35 Approximately 2,000 islands were inhabited. The Philippines was a lower middle

income country and the 39th largest economy in the world.36 In 2012, average household income was PhP


15

235,000 annually (Philippine pesos), or USD 5,253 (US dollars). Families in the poorest decile earned PhP

6,000 (USD 134) per month on average.37 Approximately 75% of workers were employed in the informal

sector. From 2010 to 2013, the underemployment and unemployment rates were approximately 20% and

7.3%, respectively.38 Foreign remittances played an important role in the economy, comprising 8.5-10.5% of

GDP from 2010-2013.39 More than 10% of Filipinos worked abroad.40 While the industrial sector accounted

for 30% of GDP, approximately 53% of the population worked in the services industry and 32% worked in

agriculture. The Philippines was one of the largest rice producers in the world,41 and also produced sugar,

corn, coconuts, pineapple, and rubber.42

Basic Socioeconomic and Demographic Indicators

INDICATOR YEAR

UN Human Development Index ranking (117 out of 187 ) 2013

Population (thousands) 98,394 2013

Urban population (%) 48.8 2011

Drinking water coverage (%) 91.8 2012

Poverty (% living on less than USD 1.25 per day,

2005 international prices) 19

2012

Gini index 42.0 2012

GDP per capita in PPP

(constant 2011 international dollars) 6,326

2013

GDP per capita (constant 2005 USD) 1,581 2013

Literacy (total/female/male) 95.4, 95.8, 95 2008

Source: Compiled by case writers using data from the United Nations, UNICEF, World Bank, and UNESCO.

Health and Health System Structure

The Philippines faced a double burden of infectious and noncommunicable diseases. In 2009, the main

causes of death included heart disease, vascular disease, malignant neoplasms, pneumonia, accidents, and

tuberculosis.43 The primary causes of morbidity were acute respiratory infection, acute lower respiratory

tract infection and pneumonia, bronchitis, hypertension, watery diarrhea, and influenza.44 There were wide

disparities in health care between socioeconomic groups and geographic areas. High-income and urban

households typically experienced better health outcomes than lower-income and rural households.45

Data on alcohol consumption and alcohol-related death and disease in the Philippines were limited.46

From 2008-2010, average per capita consumption of alcohol among Filipinos age 15 or older was 5.4 liters of

pure alcohol annually, lower than the WHO Western Pacific Region and global averages of 6.8 and 6.2,

respectively.47,48 An estimated 4.6% of Filipinos age 15 or older had an alcohol use disorder.

The health system became decentralized in 1991. The Department of Health (DOH) managed the

national public health system, consisting of tertiary hospitals at the national and regional levels; provincial

and district hospitals and city and municipal health centers; and barangay (village) health centers and rural

health units at the local level. Local government units (LGUs)—provinces, cities, municipalities, and

barangays—were responsible for primary and secondary care and were expected to dedicate 30% of their

budgets to health care.


16

The private sector was large, employing more than 70% of health professionals in 2011. Most hospitals

were privately owned, although the number of private hospital beds was roughly equal to the number of

public hospital beds. Roughly 30% of Filipinos obtained health care from the private sector.45 The

Philippines was the largest exporter of nurses and the second largest exporter of doctors globally.49,50

From 2007 to 2011, approximately 35% of total health spending was public; the remainder was private.

Of private spending, 83.6% was out-of-pocket at point-of-service.45 The rest was financed by private health

insurance payments.

Health System and Epidemiologic Indicators

Source: Compiled by case writers using data from the United Nations, UNICEF, and the World Health

Organization.

INDICATOR YEAR

Average life expectancy at birth (total/female/male) 72.5, 75.6, 69.5 2014

Maternal mortality ratio (per 100,000 live births) 99 2010

Under–five mortality rate (per 1,000 live births) 30 2013

Infant mortality rate (per 1,000 live births) 18 2014

Vaccination rates (% of DTP3 coverage) 86 2012

Undernourished (%) 16 2012

Adult (15–49 years) HIV prevalence (per 100,000) 9.8 2012

HIV antiretroviral therapy coverage (%) 60 2009

Tuberculosis prevalence (per 100,000) 292 2013

DOTS coverage (%) 100 2000

Malaria cases (per 1,000) <1 2013

Government expenditure on health as % of total

government expenditure 10.3 2012

Government expenditure on health per capita

(international dollars/USD) 76, 45 2012

Total health expenditure per capita

(international dollars/USD) 203, 119 2012

Physician density (per 10,000) 12 2009

Nursing and midwifery density (per 10,000) 61 2009

Number of hospital beds (per 10,000) 10 2011


17

Exhibit 2 Tobacco in the Philippines: Timeline of Key Policy and Industry Events

Year Event

1987 The National Tobacco Administration (NTA) is established as the government agency

responsible for improving the economic conditions and quality of life of tobacco farmers

and promoting development of the tobacco industry to strengthen agriculture in the

Philippines. It manages the Tobacco Growers Assistance Program, aimed at supporting

tobacco farmers who voluntarily stop planting tobacco or who are displaced as a result of

government regulation of the industry.51

1997 Republic Act 8424, or the Tax Reform Act of 1997, is passed, converting tobacco taxes from

ad valorem to excise, instituting a one-time 12% increase in cigarette tax rates, and

introducing a multi-tiered system wherein expensive brands are taxed at higher rates than

cheaper brands.52

2001 The Philippines’ lead tobacco control advocacy organization, FCTC Alliance Philippines

(FCAP), is created.53

2003 Republic Act 9211, or the Tobacco Regulation Act of 2003, is passed—the first

comprehensive tobacco control legislation in the Philippines. It prohibits smoking in public

places and sales to minors; places new restrictions on tobacco product packaging and

labeling; increases regulation of promotion and sponsorship activities of tobacco

companies; and establishes the Inter-Agency Committee for Tobacco (IAC-T), one of the

first government-mandated inter-agencies charged with implementing tobacco control

policies. The law bans most tobacco product advertising, with the notable exception of

advertising at point-of-sale.

WHO launches the Framework Convention on Tobacco Control (FCTC), the first WHO-

stewarded international treaty.54 The treaty commits Parties to reduce tobacco

consumption by implementing a variety of supply- and demand-reduction measures.

2004 Republic Act 9334, or the Sin Tax Law of 2004, is passed. It maintains the multi-tiered

taxation structure introduced in 1997, increases excise taxes for high-priced cigarettes,

lowers taxes for low-priced cigarettes, and introduces a price classification freeze

privileging existing tobacco and alcohol brands by pegging their tax rates to their 1996 net

retail prices.54

2005 The WHO FCTC enters full force. The Philippines joins 167 other WHO member states in

signing the treaty. 54

2007 The first Global Youth Tobacco Survey (GYTS) is conducted in the Philippines. The

school-based survey is designed by WHO and implemented nationally by countries.

2009 The first Global Adult Tobacco Survey (GATS) is conducted in the Philippines. The

household survey is designed by WHO and implemented nationally by countries.

2010 In February, Philip Morris Philippines Manufacturing Inc. and Fortune Tobacco merge,

forming the Philip Morris Fortune Tobacco Corporation (PMFTC).55

In June, President Benigno Aquino III is elected the 15th President of the Republic of the

Philippines. He appoints Dr. Enrique Ona as Secretary of the Department of Health. 56,57


18

In November, civil society representatives from over 100 countries presented the Dirty

Ashtray Award to the Philippine delegation to the fourth session of the WHO FCTC

Conference of Parties. The Philippines was selected because of its alleged collusion with

tobacco industry interests to challenge draft guidelines that would regulate tobacco

product contents and require disclosure of those contents.58

2012 Republic Act 10351, or the Sin Tax Reform Act, is passed. Key provisions include removal

of the price classification freeze; indexation of tax rates to inflation; bringing the tax

structure for distilled spirits into compliance with World Trade Organization international

trade rules; earmarking of revenues for health and tobacco-growing regions, and a timeline

for transitioning alcohol and cigarette taxes to unitary, or uniform, tax rates.59

2014 Republic Act 10643, or the Graphic Health Warnings Law, is passed in July. Beginning in

2016, the law requires cigarette manufacturers to place graphic health warnings on 50% of

each of the principal display areas of cigarette packs.60

In December, Enrique Ona resigns as Health Secretary; Health Undersecretary Janette

Garin becomes Acting Secretary of Health.61

2015 In March, President Aquino appoints Acting Secretary Janette Garin as Health Secretary.61

Bloomberg Philanthropies announces the Philippines as one of the winners of its Awards

for Global Tobacco Control, honoring the Department of Health and the Department of

Finance for their work to raise the price of tobacco.62

2016 General elections are scheduled to take place in May. Filipinos will elect a new president,

12 senators, and all seats in the House of Representatives. They also will determine the

seats of governors (if applicable), mayors, and other local elected officials.

In the third quarter of 2016, the Congressional Oversight Committee will review the

impact of the increased tax rates enacted by RA 10351.59


19

Exhibit 3 Glossary of Taxation Terminology

Types of Taxes

Ad Valorem Tax: A tax on goods or property expressed as a percentage of the sales price or

assessed value, not the size, quantity, weight, or other characteristic of the taxed item.

o A value-added tax (VAT) is a type of ad valorem tax that is levied at each stage in the

production and distribution process for a specific good. Although VAT ultimately bears

on individual consumption of goods or services, liability for VAT is on the supplier of

goods or services. VAT normally utilizes a system of tax credits to place the ultimate

and real burden of the tax on the final consumer and to relieve the intermediaries of any

final tax cost.

Excise Tax: A tax imposed on a specific act, occupation, or good. Excise taxes are often included

in the price of the taxed product.

o Excise taxes on socially proscribed luxury goods and services such as alcohol, tobacco,

soft drinks, and gambling are often referred to as “sin taxes.”

Tax Policy Tools and Related Terms

Indexation: Over time, inflation can diminish or erode the value of taxes unless they are

increased to keep pace with the rate of inflation. Indexing is a method of tying taxes to an index

of inflation or other indices to preserve the public’s purchasing power and maintain the

government’s tax base during periods of inflation. For example, a government could index its

tobacco tax to inflation by increasing the tobacco tax rate annually by the same percentage as the

country’s average inflation rate.

Net Retail Price (NRP): The price of a product excluding the excise tax and value-added tax.

Tax Capacity: The predicted tax-to-gross domestic product ration that can be estimated

empirically, taking into account a country’s macroeconomic, demographic, and institutional

features. It is an estimate of how much tax revenue a country can expect to collect given these

factors.

Tax Effort: An index of the ratio between a country’s actual tax collections, expressed as a share

of its gross domestic product, and the country’s taxable capacity. It is a measure of how well a

country is doing in terms of tax collection relative to what could be reasonably expected given a

variety of factors—i.e., given its tax capacity.

Multi-tier Tax System: The taxed entity (e.g., cigarettes) is divided into different categories

based on a particular characteristic or characteristics of the product (e.g., net retail price, size,

weight, packaging type, etc.), and each category is assigned a different tax rate.

Price Elasticity of Demand: The percentage change in consumption of a good or service that

results from a 1% change in the price of that good or service. Elasticity estimates can be used to

predict how consumers will respond to an increase or decrease in the price of a good or service.

Source: Compiled by case writers using data from the World Bank and the Organisation for Economic Co-operation and Development (OECD) Centre for Tax Policy and Administration.


20

Exhibit 4a Nominal vs. Real Tobacco Tax Revenues in the Philippines, 1999-2009

Exhibit 4b Tobacco Excise Taxes in Relation to Government Revenues in the Philippines, 1990-2009

Source: Bureau of Internal Revenue; Filomeno St. Ana III and Jo-Ann Latuja (2010)63


21

Exhibit 5 Key Provisions of Republic Act 10351, the Sin Tax Reform Law of 2012

Removal of price classification freeze and transition to a two-tiered system: Taxes for all cigarette

and alcohol brands are based on their current prices; “legacy” brands no longer enjoy a tax advantage over

new market entrants. Taxes for cigarettes and fermented liquor are determined based on a two-tiered

system as opposed to a four-tiered system. On January 1, 2017, a unitary tax rate will take effect, requiring

all cigarette and fermented liquor brands to pay the same tax rate regardless of price. For distilled spirits,

the excise tax rate will be calculated as a percentage of net retail price (NPR) and applied uniformly to all

brands.

Increase in the tax rate: Cigarette tax rates increase to PhP 12 (USD 0.26) per pack for cigarette brands

in the lower price bracket and PhP 25 (USD 0.56) per pack for cigarette brands in the higher price bracket.

Cigarette taxes will increase annually by between 1 and 5 pesos (USD 0.02 to USD 0.11) until 2017, when the

unitary rate of PhP 30 (USD 0.67) takes effect. Taxes on distilled spirits and fermented liquor also increase

but to a lesser degree.

Indexation to inflation: Beginning January 1, 2018, taxes on cigarettes and fermented liquor will

increase annually by 4%, the average rate of inflation in the Philippines. For distilled spirits, the ad valorem

tax will increase by 4% annually beginning in 2016, whereas the excise tax will remain at 20% of NPR per

proof. Indexing the taxes to inflation will preserve the value of the tax over time.

Earmarking incremental revenues for universal health care and alternative livelihood programs:

Fifteen percent of incremental revenues generated from the tobacco tax increase are earmarked to help

tobacco farmers and workers pursue economically viable alternatives to tobacco production or

manufacturing. In addition, these revenues can be used to develop the tourism potential and basic

infrastructure (roads, schools, hospitals, rural health facilities) of tobacco-growing provinces. The remaining

incremental revenues (85% of the incremental tobacco tax revenues and 100% of the incremental alcohol tax

revenues) are dedicated to spending on health care: 80% are for universal health care under the National

Health Insurance Program (mainly for insurance premium subsidies), attainment of the Millennium

Development Goals, and health awareness programs. The remaining 20% will support medical assistance

for indigent patients and health infrastructure improvements through the Department of Health’s Medical

Assistance Program and the Health Facilities Enhancement Program.

Oversight: The Department of Budget and Management, the Department of Agriculture, the

Department of Health, and the Philippine National Insurance Corporation (PhilHealth) are required to

submit to the Congressional Oversight Committee detailed annual reports on the expenditure of earmarked

revenues. In the third quarter of 2016 the Committee will conduct a review of the legislation’s impact.

Source: Republic of the Philippines, Republic Act 10351, 2012


22

Exhibit 6 Cigarette and Alcohol Tax Rates Pre- and Post-Republic Act 10351 (prices and tax rates in Philippine Pesos)**

Cigarette Tax Rates from 2011-2012

NRP* (per pack) Price Tier Tax Rate (per pack)

Below 5.00 Low 2.72

Between 5.00 and 6.50 Medium 7.56

Between 6.50 and 10.00 High 12.00

Over 10.00 Premium 28.30

*Net retail price

Cigarette Tax Rates Effective January 1, 2013

NRP* (per pack) 2013 2014 2015 2016 2017 2018

11.50 and below 12.00 17.00 21.00 25.00 30.00

4% annual

increase

thereafter Above 11.50 25.00 27.00 28.00 29.00

*Net retail price

Distilled Spirit Tax Rates from 2011-2012

Local Products Tax Rate

(per proof liter)

All products taxed at uniform rate, regardless of price 14.68

Imported Products Tax Rate

(per proof liter)

Net retail price below 250.00 158.72

Net retail price between 250.00 and 575.00 317.45

Net retail price over 575.00 634.89

Distilled Liquor Tax Rates Effective January 1, 2013

2013 2015 2016

Ad Valorem Tax 20.00 20.00 4% annual increase thereafter

Specific Tax 15% of NRP 20% of NRP 20% of NRP

**

Approximate USD-to-PhP currency conversion rate: 1 USD = 44.7350 PhP


23

Fermented Liquor Tax Rates from 2011-2012

Net Retail Price (per pack) Tax Rate

(per liter)

Below 14.50 10.42

Between 14.50 and 22.00 15.49

Over 22.00 20.57

Fermented Liquor Tax Rates Effective January 1, 2013

Net Retail Price 2013 2014 2015 2016 2017 2018

50.60 and below 15.00 17.00 19.00 21.00 23.50

4% annual

increase

thereafter Over 50.60 20.00 21.00 22.00 23.00

Source: Republic Act 9334, Republic Act 10351; formatting adapted from Action for Economic Reforms’ Primer on the Sin Tax Law.


24

Exhibit 7 Estimated Impact of Tobacco Tax Increases on Smoking Prevalence and Excise Tax Revenues (excise tax revenues in PhP billions)

PTI

Ab

aya

San

tiag

o

% Increase in Excise Tax 0% 13% 100% 200% 225% 267% 300% 400%

Average retail price (PhP) 19.05 19.86 25.26 31.47 33.02 35.63 37.68 43.89

Elasticity = -0.4 (least price sensitive)

Excise Tax Revenue 25.4 28.2 45.4 62.6 66.5 73.1 78.0 92.4

Smoking Prevalence (%) 31.0 30.7 29.3 28.0 27.7 27.2 26.9 26.1

Elasticity = -0.5 (less price sensitive)



Elasticity = -0.6



Elasticity = -0.7 (more price sensitive)



Elasticity = -0.8 (most price sensitive)



Note: PTI stands for the Philippine Tobacco Institute and refers to the version of the sin tax reform bill PTI proposed to Congress. Representative Emilio Abaya was the lead author of the House of Representatives version of the reform bill, and Senator Miriam Defensor-Santiago was the lead author of the Senate version. The bold rectangle represents the elasticity (-0.5) that the government and civil society coalition recommended, and the smaller box within the rectangle indicates the tax revenue and smoking prevalence estimates that the government and coalition believed a 200% tax increase would generate.

Source: Antonio Dans, 2012


25

Exhibit 8 Department of Health Budget, Republic of the Philippines, 2009-2014

Source: Department of Health, Republic of the Philippines


26

Exhibit 9 Department of Health Budget Allocations of Incremental Tobacco and Alcohol Tax Revenues for 2014 (USD, thousands)

Programs, Activities, &

Projects

FY 2014 GAA

(baseline)

Sin Tax

incremental

revenue added to

the 2014 DOH

Budget

FY 2014 GAA

Allocation of

Relevant

Programs,

Activities, &

Projects

% Increase

Enrollment Coverage

(PhilHealth Premiums) 282,282 507,651 789,933 180%

Attainment of MDGs 155,071 37,620 192,691 24%

Non-Communicable

Diseases 1,582 11,532 13,114 729%

TB Control and Assistance

to Philippine Tuberculosis

Society

23,110 924 24,034 4%

Other Infectious Diseases

(HIV/AIDS, Dengue) and

Operation of PNAC

Secretariat

7,431 10,316 17,747 139%

Rabies Control Program 2,654 1,879 4,533 71%

Elimination of Diseases

(Malaria, Schistosomiasis,

Leprosy & Filariasis)

12,752 5,741 18,492 45%

Expanded Program on

Immunization 43,585 13,237 56,822 30%

Environmental and

Occupational Health 1,159 35 1,194 3%

Health Awareness

Program 3,632 61 3,693 2%

Implementation of

Doctors to the Barrios 64,399 1,989 66,388 3%

Hospital Operations 244,722 48,583 293,305 20%

Health Policy &

Regulations 136,667 3,159 140,199 3%

Quick Response Fund - 11,177 11,177 n/a

Assistance to Indigent

Patients Confined to

Gov’t Hospitals (MAP)

- 71,397 71,397 n/a

Total of Sin Tax

Increment 681,637

57%

Note: GAA refers to the General Appropriations Act. It is the national budget for the Philippines and includes appropriations for each department.

Source: Department of Health, Sin Tax Law Incremental Revenue for Health Report: Details on Expenditure of the Amounts Earmarked for Health, 2014


27

Exhibit 10 Domestic Market Share of Cigarette Manufacturers in the Philippines, 2011-2014

Source: The Wall Street Journal, 2014, http://www.wsj.com/articles/philip-morris-pushes-back-in-philippines-as-local-rival-surges-1423863002

http://www.wsj.com/articles/philip-morris-pushes-back-in-philippines-as-local-rival-surges-1423863002

http://www.wsj.com/articles/philip-morris-pushes-back-in-philippines-as-local-rival-surges-1423863002


28

Exhibit 11 Philip Morris Fortune Tobacco Corporation Advertisement Accusing Rival Cigarette Manufacturing Company of Tax Evasion

Source: Philipp Morris Fortune Tobacco Corporation, printed in November 2014


29

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