The Epic Sin Tax War

1. The Epic Sin Tax War Action for Economic Reforms (AER) and a Cast of Thousands

2. Original Main Objectives • Increase significantly the tax rates to meet health and revenue objectives. • Adopt a unitary rate to prevent downshifting of consumption and foregone revenues. • Remove the price classification freeze. • Index the tax rates to inflation to prevent revenue erosion. • Earmark funds for health and alternative livelihood for tobacco farmers.

3. Outcomes • Unitary specific tax, at a rate of 30 pesos per pack for cigarettes by 2017. • Unitary specific tax at a rate of 23.50 pesos per volume liter for beer by 2017. • A combination of specific tax of 20 pesos per proof liter and an ad valorem rate of 20 percent of net retail price per proof for distilled spirits.

4. Outcomes • Significant tax rate increases. For example, the tax rate for low-priced cigarette brands will increase from the present 2.72 pesos per pack to 12 pesos in 2013. • Tax regime for distilled spirits becomes compliant with World Trade Organization (WTO) obligations. • Automatic inflation indexation of specific tax, equivalent to four percent every year starting in 2017 for cigarettes and beer (upon adoption of unitary rates) and 2016 for distilled spirits.

5. Outcomes • Removal of price classification freeze. • Earmarking of 15 percent of incremental revenue from the tobacco excise tax for the alternative livelihood of tobacco farmers and workers. • Earmarking of the rest of the incremental revenue, the bulk of the incremental revenue (approximately 80 percent, or 27 billion pesos), to universal health care (UHC). • Adjustment support for possible displaced workers, to be sourced from general appropriations. • Anti-smuggling measures: a) Posting of bonds for both import and export of tobacco products. b) Unique, secure and non-removable identification markings.

6. Immediate Major Gains • A sharp volume reduction, resulting in significant reduction of smoking prevalence. For 2013-14, relative to 2011-12, a drastic cut of up to 60 percent in cigarette consumption. • Attainment of Department of Health’s target of reducing smoking prevalence by 10 percent by 2014. • Incremental revenue of close to 34 billion pesos in 2013.

7. Milestones • President’s statement making sin tax a priority bill, supplanting his earlier statement of “no new taxes yet.” • Resignation of Representative HermilandoMandanas as chair of the House ways and means committee. • Passage of reform bill at the House ways and means committee despite the odds. • Resignation of Senator Ralph Recto as chair of the Senate ways and means committee. • Senate caucus, agreeing to approval of sin tax based on a revenue target of 40 billion pesos and a 60%-40% sharing between tobacco and alcohol, respectively.

8. Key Factors • Having a solid core group of government champions, involving the Executive and Congress, with firm and consistent support from the President. • Having a strong alliance between government and civil society, with civil society being part of the inner core. • Forging the broadest civil society coalition, with the health professionals as the main force, plus motive forces like former Cabinet officials, economic reform groups, tobacco-control advocates, academe, business, youth, basic sectors of the poor (including some tobacco farmers). • Solving the coordination problem between government, between government and other stakeholders, and within civil society.

9. Key Factors • Getting support from mainstream media and sustaining media work by highlighting key messages and organizing special events. • Giving special attention to social media and actively involving the youth in intensifying social media propaganda. • Having solid policy and technical work, addressing the key issues like health impact, revenue estimates, welfare of tobacco farmers and workers, smuggling, etc.

10. Key Factors • Involving specialists in different fields—economics, health and tobacco control, agriculture, law, public administration. • Adopting appropriate strategy and tactics that employed conventional and unconventional means. • Attracting resources (with multiplier effect) to sustain the campaign. • Getting the support of the international community, including discreet support from official institutions.

11. Smart Strategy, Timely Tactics • Framing the issue: Sin tax as a health measure—emphasizing the number of lives saved because of reform; reducing smoking prevalence; reducing economic costs arising from smoking-related diseases; financing UHC. • Adopting a central but flexible strategy with clear, identifiable objectives at each sub-stage of the struggle. At the same time, encouraging initiatives decentralized operations and initiatives that serve the essential objectives. • Knowing when to attack and when to take defensive actions. • Identifying tactical objectives and formulating key messages at each stage of the struggle.

12. Smart Strategy, Timeless Tactics • Adopting various forms of organizations and forms of propaganda. • Deploying and combining different forces to win key battles. • Gathering sensitive information, splitting the enemy and creating tactical alliances. • Forming informal networks and using personal connections.

13. Key Messages • Protect the young and the poor. • Seven wins: a win for the poor, a win for the youth, a win for health, a win for the economy, a win for tobacco farmers, a win for politicians and governance, a win for the future. • A health measure; health being the primary objective, with increased revenues as a derivative gain.

14. Key Messages • Similarly, an anti-cancer tax, an anti-heart attack tax, and variations of this. • Incremental revenues mainly for universal heath care (including health insurance, prevention of communicable and non-communicable diseases, health promotion, etc.) and secondarily for the alternative livelihood of tobacco farmers and workers. • Branding the Recto Senate committee report as a “Recto Morris report,” essentially saying it was a bill crafted and designed to serve Philip Morris’s interests.

15. Overcoming Obstacles • How to address the President’s campaign promise not to impose new taxes: Sin tax, not a new tax but a restructuring to address fundamental weaknesses in the law. • How to defeat the pro-tobacco chairs of the ways and means committees in the House of Representatives and in the Senate: Coordination with government champions and aggressive initiatives (“Recto resign!” and “Junk Recto Morris bill.” Removal of Mandanas as chair of the Lower House’s ways and means committee and resignation of Recto as chair of the Senate ways and means committee. • How to prevent an alliance between the tobacco and the alcohol industries: Giving concessions to the alcohol lobby in the House bill l to obtain the swing vote from the Nationalist People’s Coalition (NPC).

16. Overcoming Obstacles • How to win over traditional politicians to support the sin tax: Offering the incentive that a portion of the incremental revenues for universal health care will benefit congressional districts. • How to deal with affected tobacco farmers and tobacco manufacturing workers: Ixdentifying allies among tobacco farmers and workers and having honest dialogue. • How to respond to the harsh criticisms from some tobacco-control groups or individuals that the AER advocacy agreed to a compromised bill in the Lower House and related with British-American Tobacco (BAT), which was supportive of the sin tax (necessary for BAT, which wants to get market share, to go along with the reform that will remove protection to legacy brands): Transparency and vigorous public debate.

17. New Challenges • Defend the gains in light of the counter-attack of vested interests. • Make the reform credible: address the issues on the threat of smuggling and the effective, efficient use of earmarked funds for tobacco farmers and UHC. • Monitor the health outcomes; establish baseline data to measure the health gains. • Consolidate the reform forces—the health professionals or the medical community, especially, have emerged as a potent political force.