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2015/FMP/WKSP1/004 Session: 1
The Philippine Sin Tax Reform: Reforming Tobacco and Alcohol Taxation for Inclusive Growth
Submitted by: Philippines
Workshop on Fiscal Management Through Transparency and Reforms
Bagac, Philippines9-10 June 2015
JEREMIAS N. PAUL, JR.
Undersecretary, Department of Finance
Republic of the Philippines
THE PHILIPPINE SIN TAX REFORM:Reforming Tobacco and Alcohol
Taxation for Inclusive Growth
APEC Workshop on
Fiscal Management through Transparency and Reforms
9-10 June 2015
Bagac, Bataan, Philippines
Outline of Presentation
I. Background
II. The PH Sin Tax Reform
Rationale, Design, Issues
Wins of the Reform
III. ConclusionGains for Inclusive Growth
BACKGROUND
“The single overall lesson is that fiscal
policy can be a powerful instrument for
tackling inequality and creating a more
equitable economy”
(Hesmati, Kim, and Park. Fiscal Policy and Inclusive Growth
in Advanced Countries: Their Experience and Implications for Asia.)
BACKGROUND
Addressing income inequality has become of the
central issues of public debate in many
countries, including the Philippines.
The Department of Finance has sought to
address inequality through fiscal policy measures
under the Aquino Administration’s inclusive
growth agenda.
Recent PH experience shows that fiscal policy
can be an effective tool in the pursuit of
inclusive growth.
BACKGROUND
PH fiscal policy initiatives with implications
for inclusive growth
Better governance and enhanced public financial
management
Prudent debt management
Restructuring Excise Taxes on Tobacco
and Alcohol Products
Rationalizing Fiscal Incentives
Promoting the Transparency of Tax Expenditures
Reforming Fiscal Regime on Mining
In Focus:
The Philippine
SIN TAX REFORM
• An Act Restructuring the Excise Tax on Alcohol and Tobacco Products (19 December 2012)
• Landmark Legislation under the Aquino Administration
• Fundamentally a good governance measure with positive impact on both public health and fiscal health
Passage of Republic Act No. 10351
Help finance Universal Health Care (UHC)
Address public health issues relating to alcohol and
tobacco consumption
Simplify the current excise tax system on alcohol
and tobacco products and fix long-standing
structural weaknesses:
Remove price/brand classification freeze.
Level the playing field.
Reduce number of tiers.
Make tax system more buoyant by indexing tax
rates to inflation.
Rationale for the Reform
Simple to implement
Tax rates indexed to inflation
Rate increase enough to achieve health objectives
Remove price/brand classification freeze and level
the playing field
Aligned with international commitments under WHO
FCTC
Generate substantial revenues to finance Universal
Health Care (UHC)
Provide social safety nets to those affected
Main Design Considerations
Taxation based on 1996
net retail prices
(“price/brand
classification freeze”)
Multi-tiered system
Lack of price indexation
Non-compliant with WTO
rules (for distilled spirits)
Removal of price/brand
classification freeze
Gradual shift to unitary
taxation
Annual indexation of tax
rates
WTO compliance for
distilled spirits
Generation of additional
revenues for government
(especially for UHC)
Before RA 10351 After RA 10351
At a glance
2013 2014 2015 2016 2017
Tier 1In PhP 12.00 17.00 21.00 25.00
Unitary
PhP30.00In US $ 0.28 0.38 0.50 0.60
Tier 2In PhP 25.00 27.00 28.00 29.00
US$0.71In US $ 0.59 0.61 0.67 0.69
2012
LowIn Php 2.72
In US $ 0.06
MediumIn Php 7.56
In US $ 0.18
HighIn Php 12.00
In US $ 0.28
*PremiumIn Php 28.30
In US $ 0.67
Prior to Reform
After the Reform
*Tier 4 no production
Reformed Tax Structure for Cigarettes
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
2012 2013 2014 2015 2016 2017
In Philippine Peso
Low
Medium
High
Premium
Tier 2
Tier 1
Unitary
WINS OF THE SIN TAX REFORM
Credits to: Manix Abrera, GMA News Online
Share of tobacco and alcohol excise collections
to GDP in 2013 highest since 2000.
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
0.9%
1.0%
Tobacco & Alcohol Excise Collections as % of GDP
Tobacco & Alcohol Excise CollectionSource: BIR and NSCB
Prelim data for 2014
Win for Fiscal Health
Higher than projected incremental revenue collections
34.0
42.9
50.6
56.9
64.2
51.2 50.2
2013 2014 2015 2016 2017
Projected vs Actual Incremental Revenue from RA 10351 (In Billion Pesos)
Projected Actual
Win for Fiscal Health
FITCH RATINGS
Upgraded to BBB- /Stable from BBB+; Investment Grade
(March 27, 2013)
Affirmation (March 25, 2014)
JAPAN CREDIT RATING AGENCY
(JCRA)
Upgraded to BBB /Stable from BBB- /Positive; Investment Grade
(May 7, 2013)
Affirmation (May 30, 2014)
STANDARD & POOR’S
Upgraded to BBB-/Stable from BB+/Stable; Investment Grade
(May 2, 2013)
Upgraded to BBB /Stable from BBB- /Stable; Investment Grade
(May 8, 2014)
RATING & INVESTMENT (R&I)
INFORMATION, INC.
Upgraded to BBB /Stable from BBB- /Positive; Investment Grade
(July 9, 2014)
MOODY’SBaa3 Positive
Investment Grade (Oct. 3, 2013)
Win for Fiscal Health
11.418.9
23.7 24.631.8
42.2
53.3
83.7 87.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
2007 2008 2009 2010 2011 2012 2013 2014 2015
DOH Budget (In B PhP)$ 2.1 B
$ 2.0 B
$ 1.3 B
$ 1.0 B
$ 0.7 B
$ 0.5 B$ 0.5 B
$ 0.4 B
$ 0.2 B
Source: GAA, DBM
Win for Public Health
0.5 0.5 0.5 0.5 0.82.9 3.5
4.5 5.0 5.03.5
12.512.6
35.237.1
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
In Billion Pesos
National Government Allocation
for Health Insurance Premiums for the Poor
$ 0.3 B
$ 0.3 B
$ 0.8 B
Source: PhilHealth, DOH
2015 based on NEP
$ 0.9 B
Win for the Poor
Excise tax collections from locally manufactured cigarettes rise
steeply as volume drops.
Source: BIR
Win for Fiscal & Public Health
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
0.0
2.0
4.0
6.0
8.0
10.0
Volume of Removals (B Packs) Excise Tax Collections on Locally Manufactured Cigarettes (PB)
Significant increase in earmarks for
tobacco growing regions.
5,251
3,839
5,849
3,998
5,640
10,695
-
2,000
4,000
6,000
8,000
10,000
12,000
2010 2011 2012 2013 2014 2015
Total EarmarksIn Million Pesos
Win for the Farmers
CONCLUSION
EQUITY PROMOTION. By properly taxing products and behavior detrimental to health, the PH Sin Tax Reform redistributed profits from a rich industry to government enabling it to protect and support the more vulnerable sectors of society – the poor, the young, rural folk.
From Both Sides. From the revenue side (higher taxes to curb harmful behavior) to the spending side (earmarking for Universal Health Care), the Sin Tax Reform has shown reforming taxation of tobacco and alcohol products is good for both fiscal and public health.
CONCLUSION
Plus Efficiency. The reform also made
revenue administration with respect to
tobacco and alcohol excise taxes simpler and
less costly because it restructured the
system from multi-tiered to two-tiered and
eventually to a single uniform rate in 2017.
As such, the Sin Tax Reform has resulted in
concrete GAINS FOR INCLUSIVE GROWTH.
CONCLUSION
Challenges remain. Increasing domestic
sources of financing is a necessary but not
sufficient condition for higher and more
inclusive expenditures. Efficiency,
effectiveness, and execution capacity are
key to delivering the services on the ground
and to the people.
Continuing vigilance in implementation will
ultimately spell taxation’s success as a tool
for inclusive growth.
THANK YOU