World Bank Human Development Week Washington, D.C., February 6, 2013

1. Making Sin Tax Reform Happen: The Philippine ExperiencePresented by:UNDERSECRETARY JEREMIAS PAUL, JR.Department of finance World Bank Human Development Week Washington, D.C., February 6, 2013

2. Outline of Presentation • Background • Rationale for Reform • Features of R.A. 10351 • Key Success Factors • Concluding Remarks

3. BACKGROUND • Philippines is among the top smoking countries in Southeast Asia. • Strongest tobacco lobby in Asia. • Cigarette taxes and prices are among lowest in the world. • Smoking is the no. 1 preventable risk factor for premature death. • Economic burden of smoking dwarfs revenues collected from cigarette excise taxes. • Annual cost of smoking to economy – Php 177 Billion

4. RATIONALE FOR REFORM • To help finance PNoy’s Universal Health Care Program (UHCP). • To simplify the current excise tax system on alcohol and tobacco (A&T) products and fix long standing, structural weaknesses: • Remove price/brand classification freeze • Reduce no. of tiers, preferably to one. • Make tax system more buoyant by indexing tax rates to inflation. • Address public health issues relating to alcohol and tobacco consumption.

5. FEATURES OF R.A. 10351 • Removal of price/brand classification freeze. • Gradual shift to unitary taxation. • Annual indexation of excise tax rates. • Funding of Universal Health Care. • Additional funding for tobacco farmer’s livelihood support. • WTO compliance on distilled spirits. • Adherence to WHO FCTC Commitment on cigarettes. • Generation of revenues for government.

6. KEY SUCCESS FACTORS • Focus on Health • Political Support at the highest levels • Constructive engagement with stakeholders • Just-in-time analytical support • Strategic communications • Effective use of strategy and tactics

7. 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.

8. Political Support • Unwavering support from President Aquino • Unqualified support from Chairs of Ways & Means Committees in Congress: Congressman Ungab and Senator Drilon • Support from leadership of League of Mayors and League of Governors • Cooperation among Executive Departments, e.g. DOF, DOH, DBM, DA, OP, BIR etc.

9. Constructive Engagement with Stakeholders • Importance of listening and reaching out. • Health advocates were critical partners. • Dialogue with industry players and other affected stakeholders. • Disclosed both negotiable and non-negotiable reform parameters. Need to be firm while maintaining flexibility.

10. Just-in-time Analytical Support • Importance of 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.

11. Strategic Communications • Grounded on evidence-based research. • Importance of issues being communicated and understood by the “man on the street”. • Coordinated messaging but decentralized implementation. • Focused on health aspects and how sin tax reform can generate more revenues while saving more lives.

12. Effective use of strategy • Begin with the end in mind. • Choose your battles. • Becomes more important in the context of budgetary constraints. • How to beat a protagonist with deep pockets.

13. CONCLUDING REMARKS • No single success factor. It is a confluence of many. • Sin tax reform is not only a revenue and health reform measure. It is also, more fundamentally, a good governance measure. • We cannot be complacent. We need to ensure effective implementation of reforms.

14. THANK YOU!

15. The poor smoke more and have less access to health care High incidence of smoking is highest among the poor – WHS and DHS DATA Bad access to health care when ill from tobacco- and other - illnesses

16. Low cigarette taxeskeep cigarettes affordable Prices are low internationally

17. IF REFORMS NOT INSTITUTED Excise tax collections of alcohol and tobacco as a % of GDP will continue to decline As % of GDP

18. % Increase in Excise Tax 267% 0% 13% 100% 200% 225% 300% 400% 500% Average retail price (PhP) 19.05 19.86 25.26 31.47 33.02 37.68 43.89 50.09 35.63 Elasticity = -0.4 Excise Tax Revenue (PhP B) 25.4 28.2 45.4 62.6 66.5 73.1 78.0 92.4 106.0 Smoking Prevalence (%) 31.0 30.7 29.3 28.0 27.7 26.9 26.1 25.4 27.2 Smoking Quitters (Millions) 0.00 0.14 0.92 1.62 1.76 2.16 2.59 2.95 1.99 60 Deaths prevented (thousands) 0 4 28 48 53 65 78 89 Elasticity = -0.5 Excise Tax Revenue (PhP B) 28.1 44.1 59.5 63.0 68.7 72.9 85.1 96.5 25.4 Smoking Prevalence (%) 30.7 28.8 27.2 26.8 25.9 24.9 24.0 26.3 31.0 Smoking Quitters (Millions) 0.17 1.15 2.02 2.20 2.70 3.24 3.69 2.49 0.00 75 Deaths prevented (thousands) 5 35 61 66 81 97 111 0 Elasticity = -0.6 Excise Tax Revenue (PhP B) 28.0 42.9 56.6 59.7 64.5 68.2 78.4 87.7 25.4 Smoking Prevalence (%) 30.6 28.4 26.4 26.0 24.9 23.7 22.6 25.4 31.0 Smoking Quitters (Millions) 0.20 1.38 2.42 2.64 3.24 3.89 4.43 2.99 0.00 90 Deaths prevented (thousands) 6 41 73 79 97 117 133 0 Elasticity = -0.7 Excise Tax Revenue (PhP B) 27.9 41.7 53.8 56.4 60.6 63.6 72.0 79.5 25.4 Smoking Prevalence (%) 30.5 28.0 25.7 25.2 23.9 22.4 21.3 24.4 31.0 3.49 3.78 Smoking Quitters (Millions) 0.24 1.61 2.83 3.09 4.54 5.16 0.00 Deaths prevented (thousands) 7 48 85 93 113 136 155 105 0 Elasticity = -0.8 Excise Tax Revenue (PhP B) 27.8 40.6 51.2 53.4 56.8 59.3 66.1 71.9 25.4 Smoking Prevalence (%) 30.5 27.5 24.9 24.3 22.9 21.2 19.9 23.5 31.0 Smoking Quitters (Millions) 0.27 1.84 3.23 3.53 4.32 5.19 5.90 3.99 0.00 120 Deaths prevented (thousands) 8 55 97 106 129 156 177 0