The significance of tobacco taxes in post-pandemic restoration


In December 2020, Tobacconomics released the first edition of its “Cigarette Tax Scorecard,” a study evaluating the performance of cigarette tax policy in more than 170 countries between 2012 and 2018. The good news is that the Philippines ranks seventh in overall performance along with Bahrain occupy Canada and Saudi Arabia. Of all East Asian countries, the Philippines performed best with an overall score of 3.75 out of five.

The scorecard, using data from the World Health Organization, considered four components of the assessment: absolute cigarette price, changes in the affordability of cigarettes, the share of taxes in the retail price, and tax structure.

While highlighting the huge impact of tax increases on reducing tobacco use among vulnerable people, the study concluded that most countries do not effectively tax cigarettes. Almost half of the countries examined achieved fewer than two of the maximum five points.

However, the Philippines are named as one of the five countries with the greatest improvements in cigarette tax policy from 2012 to 2018. Regarding the change in the affordability of cigarettes and the tax structure, our cigarette tax policy received the highest possible score of five.

Our high overall score is due to our pioneering cigarette tax reforms over the past decade, particularly the Sin Tax Act of 2012 and the Acceleration and Inclusion Tax Reform Act (TRAIN) of 2017, which significantly increased taxes on tobacco products and made cigarettes less affordable and simplified our excise system.

The Sin Tax Act was the most critical of our excise tax reforms as it revamped our previously complicated excise tax system. Aside from an immediate increase in excise duty rates and an automatic annual increase in cigarette tax, uniform tax rates were introduced that simplified tax administration, removed the “price classification freeze” so that brands pay taxes based on their current prices instead of 1996 prices, and earmarked additional excise tax revenue to fund universal health care (UHC) for Filipinos and alternative livelihood programs for tobacco growers.

While the results of these reforms are commendable, the study acknowledged that the four assessment components in the scorecard failed to measure the effectiveness of tax administration, which is critical in minimizing tax avoidance and evasion. In order for the gains from our past reforms to remain sustainable, we must vigilantly monitor tax administration and compliance.

A 2020 study by Filomeno Sta. Ana III and Jo-ann Diosana showed that the tax rates introduced in the Philippines since 2012 create an incentive for cigarette producers to participate in the illegal trade. While we have strengthened the tax administration, which allows us to control the illicit trade relatively effectively, the government can do more to combat it by putting in place a tracing and tracking system to track the movement of packets of cigarettes through the supply chain and locally Government units to prevent the illegal trade.

Aside from evaluating countries’ cigarette tax policies, the study also formulated a crucial point for the future: In view of the COVID-19 pandemic and economic crisis, improved tobacco tax policies are a unique opportunity to increase revenue for economic recovery while improving public health promote.

In fact, the Philippines must mobilize revenue to recover from the pandemic. Numerous surges, lockdowns and our inability to keep the virus at bay have taken their toll on our economy.

The pandemic has resulted in a large budget deficit, although we urge the government to spend more aggressively on health and social protection. But as the pandemic subsides, the deficit will have to be gradually reduced, even if the necessary expenditures for better normalcy remain. In this context, new tax revenues, especially for health expenditure, are crucial. Today, more than ever, we see the urgency to increase funding for universal health coverage as the UHC bill has not had to be implemented since it was passed in 2019. We need more fiscal space to mitigate the effects of the pandemic and fund health system improvements, and further increases in tobacco taxes can give us that space. The next government will therefore consider it relevant to significantly increase tobacco taxes again.

Aside from the impact on revenue, tobacco taxation is primarily a public health strategy as it leads to higher cigarette prices, lowering the prevalence of smokers and preventing new smokers from taking in. The 2019 Department of Science and Technology – Food and Nutrition Research Institute’s Expanded National Nutrition Survey (ENNS) showed that smoking prevalence among adults over 20 is 19.9%, a sharp drop from 20.7% in 2018 , 25.4% in 2013 and 2008 rate of 31%. This huge drop in smoking prevalence is due to our tobacco tax reforms over the past decade.

Smoking is associated with an increased risk of disease severity in COVID-19 cases, making promoting public health and reducing smoking prevalence all the more important at this time. Reducing the prevalence of smoking will reduce the burden of tobacco-related diseases on our congested health systems and allow us to build a better, healthier new normal – one with a health system capable of handling future surges and pandemics.

Thus, tobacco taxes have three major benefits: they improve health outcomes in the short term and increase government revenues, but in the long run they could reduce the impact of future COVID-19 surges and crises on our health system.

We hope health advocates and lawmakers recognize the need for further increases in tobacco taxes after the pandemic. This is a critical step that we must take to rebuild and strengthen our health system and recover from this massive health and economic crisis.

The tobacco tax scorecard for tobacco products can be found here:

Pia Rodrigo is the Communications Officer for Action for Economic Reforms.