Sin Taxes and Universal Health Care:

The Philippine Experience

Jeremias N. Paul Jr.
Coordinator
WHO/PND/TCE

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Disclaimer: The views expressed in this paper/presentation are the views of the
author and do not necessarily reflect the views or policies of the Asian
Development Bank (ADB), or its Board of Governors, or the governments they
represent. ADB does not guarantee the accuracy of the data included in this
paper and accepts no responsibility for any consequence of their
use.Terminology used may not necessarily be consistent with ADB official terms.

Outline of Presentation
I.

Background

II. Wins of Sin Tax Reform

III. Key Lessons Learned

IV. Concluding Remarks

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BACKGROUND

Aquino Administration Social Contract with the Filipino People including

Universal Health Care.

No new taxes promise of President Aquino.

Philippines among top smoking countries in Southeast Asia. Tobacco taxes

and prices among lowest in the world.

Strong tobacco lobby with deep business and political connections. Tobacco
lobby hindered previous excise tax reform efforts.

Alcohol: Deadline for Philippine compliance to WTO decision on distilled

spirits.

Tight deadline during Aquino Administration one year to make it happen.

The Philippines ratified the WHO Framework Convention on Tobacco Control in

2005.
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REPUBLIC ACT NO. 10351

Sintax Law Signed 19 Dec. 2012 : An Act Restructuring

the Excise Tax on Alcohol and Tobacco Products (RA
10351)

Landmark Legislation under the Aquino Administration.

Primarily a health measure with revenue implications.

Fundamentally a good governance measure with positive

impact on both public health and fiscal health.

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Philippine Tobacco Tax Reform Path at a Glance

In Philippine Peso
35.00

Premium

Unitary

Tier 1

30.00
25.00

Tier 2
20.00
15.00

High

10.00 Medium
5.00

341%

Low

0.00

2012

2013

2014

Key Features
Simplified tax structure - multi-tiered to
unitary by 2017.
Significantly increased tobacco taxes for
health reasons (341% in year 1)
Tax rates automatically increase 4%
annually starting 2017 to account for
inflation.
Bulk of incremental revenues earmarked
for |Universal Health Care.
5
Safety nets for tobacco farmers/others.

2015

In Billion Pesos

2016

2017

2013 2014 2015 2016 2017

Projected Incremental
23.4 29.6 33.5 37.1 40.9
Revenue (Tobacco)
Projected Incremental
10.6 13.3 17.1 19.8 23.3
Revenue (Alcohol)

Projected Incremental
34.0 42.9 50.6 56.9 64.2
Revenue (Total)
Estimated Earmark for
30.5 38.4 45.6 51.3 58.0
Health as of 2012

REPUBLIC ACT NO. 10351

Incremental revenues earmarked for health
Section 8 (C): After deducting the allocations under Republic Act
Nos. 7171 and 8240
Eighty percent (80%) for:
National Health Insurance Program (NHIP)
Attainment of the Millennium Development Goals (MDGs)
Health awareness programs (HAP)
Twenty percent (20%):
Medical assistance (MAP)
Health enhancement facilities program (HEFP)

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KEY ISSUES RAISED

Increasing tobacco taxes will:
S Increase Smuggling and illicit trade
C Invite Court and legal challenges
A Affect adversely the poor/Anti-poor rhetoric.
R Will decrease government Revenues
E Will cause Employment problems
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Wins of Sin Tax Law

Credits to: Manix Abrera, GMA News Online

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Win for Revenues

Generated US$ 3.9 billion in incremental excise tax revenues
during the first three years of implementation (2013 to 2015),
far exceeding government projections. About 80% of this
increase is accounted for by tobacco.

Tobacco and alcohol excise tax revenues as a percentage of

GDP, increased from 0.5% of GDP in 2012 to 1.1% of GDP in
2015.

The incremental revenues does not yet consider VAT and

additional fiscal space generated resulting from the
investment grade rating following passage of law.
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Win for Revenues

Actual incremental revenues higher than projected
Projected vs. Actual Incremental Revenue from RA 10351
(In Billion Pesos)
Projected

Annual
73.1
64.2

$ 1.61 B
51.2

50.2

50.6

$ 1.46 B

42.9

$ 1.29 B

$ 1.21 B
$ 1.13 B

34.0
$ 0.80 B

2013

56.9

$ 1.11 B

$ 0.97 B

2014

2015

2016

2017

Win for Debt Management

Sintax Law paved the way for first investment grade rating for the Philippines

MOODYS

FITCH RATINGS

Investment Grade Baa3 Positive (Oct. 3, 2013);

Upgraded to Baa2 Stable (Dec. 11, 2014)

Investment Grade BBB- Stable (March 27, 2013);

Affirmation (March 25, 2014);
Upgraded to BBB- Positive (Sept 24, 2015)

STANDARD & POORS

Investment Grade BBB-/Stable (May 2, 2013)

Upgraded to BBB /Stable (May 8, 2014)
Affirmation (April 24, 2015)

JAPAN CREDIT RATING AGENCY

(JCRA)

Investment Grade BBB/Stable (May 7, 2013);

Affirmation (May 30, 2014);
Upgraded to BBB+ /Stable (July 6, 2015)

RATING & INVESTMENT (R&I)

INFORMATION, INC.

Investment Grade BBB/Stable (July 9, 2014);

Affirmation (July 20, 2015)

Win for Revenues

Share of tobacco and alcohol excise collections to GDP in 2015.
Tobacco & Alcohol Excise Collection
1.2%

1.1%

1.1%
1.0%
0.9%

0.9%

0.9% 0.9%
0.8% 0.8% 0.8%

0.8%

0.8%
0.7%

0.7%

0.7% 0.7%
0.6% 0.6% 0.6% 0.6%

0.6%

0.5% 0.5%

0.5%
0.4%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Tobacco & Alcohol Excise Collection

12 | Source: BIR and NSCB

Win for Revenues

Share of tobacco excise tax collections to GDP in 2015.
Tobacco Excise Tax Collection
0.8%

0.8%
0.7%
0.6%

0.6%

0.6%
0.5%

0.5%

0.5%

0.5%

0.5%
0.4%

0.4%

0.5%

0.4%

0.4%
0.3%

0.4%

0.4%
0.3%

0.3%
0.3%

0.3%
0.2%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Tobacco Excise Tax Collection

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Source: BIR and NSCB

Win for Public Health

Department of Health (DOH) budget in 2016 (P122.6 billion) is
almost triple its budget in 2012 (P42.2 billion).

Earmarking enabled the National Government to subsidize the

health insurance premiums of 15.3 million poor primary members
in 2015, up from only 5.2 million registered primary members in
2012.

Philhealth has also expanded its services and introduced case

rates, no balance billing for indigents, more Z packages for cancer
patients and now has a primary care benefit package for the poor.

Sintax Law also now covers 2.8 million senior citizens with free
Philhealth insurance coverage.
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Win for Public Health

$ 2.0 B

$ 1.3 B
$ 1.0 B
$ 0.7 B
$ 0.4 B
$ 0.2 B

Source: GAA, DBM

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$ 0.5 B

$ 0.5 B

$ 1.9 B

Win for the Poor

National Government Allocation for
Health Insurance Premiums for the Poor
$0.92 B

50.0

43.9

45.0

$0.82 B

37.1

40.0

35.2

35.0
30.0
25.0
20.0
$0.30 B

12.5

15.0

10.0
$.06 B $.08 B

5.0

$0.01 B $0.01 B

$0.01 B $0.01 B

$0.02 B

0.5 0.5 0.5 0.5 0.8

2.9 3.5

$.10 B

$.10 B

4.5 5.0

$.11 B $.08 B

$0.30 B

12.6

5.0 3.5

0.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: PhilHealth, DOH, GAA

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KEY LESSONS LEARNED

Focus on health.

Do your homework. Use data and evidence

SINfully: Strategic, Innovative and Networked
(SIN).
Think political and build a coalition for reform.
Importance of strategic communications.
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FOCUS ON HEALTH
Importance of framing reform in terms of
health aspects.
Broad-based political support for Universal
Health Care.
Ultimate response to critics of sin tax
reform: This is a health measure.
Politicians do not want to be seen as being
against health.
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USE DATA AND EVIDENCE SINfully

Systematic review/collection of data and evidence to
support reform.
Importance of just in time analysis, evidence-based
research and scenario modeling.
Analytical support from World Bank, WHO, IMF and
academe.
Usefulness of knowledge portals on tobacco control
available in the Internet.
Constant vetting of analytical results.
Is a necessary but not sufficient condition.
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THINK POLITICAL AND

BUILD A COALITION FOR REFORM

Political support at the highest levels

Unwavering support of then President Aquino
Unqualified support from Chairs of Ways & Means Committees in both
Houses of Congress
Support from leadership of League of Mayors and League of Governors

Constructive engagement with stakeholders

Health advocates were critical partners.
Dialogue with stakeholders.
Disclosed both negotiable and non-negotiable reform parameters. Need to be
firm while maintaining flexibility.

Whole of government/society approach

Cooperation among Executive Departments, e.g. Finance, Health, Budget,
Agriculture, Office of the President, Internal Revenue and Customs, etc.

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IMPORTANCE OF
STRATEGIC COMMUNICATIONS
Grounded on evidence-based research.
Importance of issues being communicated and
understood by the man on the street.
Collaboration with stakeholders important so as to
leverage availability of evidence; to vet analytical
results; and to communicate with one voice.
Coordinated messaging but decentralized
implementation.
Quickly handle misinformation with counter evidence
and the correct information.
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CONCLUDING REMARKS
Raising tobacco taxes is a proven strategy to generate
substantial revenues for governments. It is a win-win
formula for improving both fiscal and public health
outcomes.
Sin Tax Reform in the Philippines generated US$3.9
billion in incremental revenues in its first three years of
implementation with 80% of the increase accounted
for by tobacco taxes. This enabled the Philippine
government to expand coverage and provide free
health insurance for the poor and the near poor.
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CONCLUDING REMARKS
Anticipate the SCARE tactics of the tobacco
industry and be prepared to apply pre-emptive
moves and countermeasures.
S Smuggling and illicit trade
C Court and legal challenges
A Anti-poor rhetoric
R Revenues will go down not up
E Employment related problems
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CONCLUDING REMARKS
Since finance ministry officials are tasked with tax
reform, health ministry officials and health advocates
need to engage their finance colleagues and
understand their mindset.
How to balance various competing financing demands,
i.e. health, education, infrastructure.
Spend wisely. Looks at value for money and outcomes.
Usually provides a budgetary ceiling per sector and
leaves prioritization to sectoral ministers.
Looks at opportunities to leverage resources.
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CONCLUDING REMARKS
Understand the Finance Ministry mindset

Predictable revenues are important to them.

Concerned that UHC can be a bottomless pit, thus
the need for cost effectiveness and efficiency
measures.
Generally against earmarking. Prefers the One Fund
concept.
Avoid silos and compartmentalized thinking.
Think convergence and leverage.
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CONCLUDING REMARKS
Money alone cant buy health. Availability of
financing is a necessary but not sufficient condition
for increasing spending on health. Efficiency,
effectiveness and execution capacity are key to
delivering services on the ground.
Money begets money. Better performance/
outcomes means more funds. Importance of
comprehensive, holistic approach under a medium
term expenditure framework.
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THANK YOU

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