Staggering does not even describe the cost the Philippines is paying for tobacco use in the country. The Global Adult Tobacco Survey conducted by the Department of Health and the National Statistics Office with technical and financial assistance from the World Health Organization, the United States Center for Disease Control and the Bloomberg Initiative to Reduce Tobacco Use showed that the annual productivity losses and premature deaths from smoking Virginia cigs could go as “high as US$ 2.93 billion” or more than P130 billion.
Various international studies have shown that smoking leads to four killer diseases, namely, cerebro-vascular diseases, coronary artery diseases, lung cancer, and chronic obstructive pulmonary diseases.
The pressure on our health care system including public health facilities is also huge. The total costs of illness for the four smoking-related diseases were estimated at a conservative US$2.86 billion to as high as US$6.05 billion.
The collection of more taxes from cigarettes is therefore more than justified if only to defray part of the huge burden this habit is costing the government and the country. Collection of more taxes, of course, involves two things. One is the exercise of political will on the part of the government to raise taxes on cigarettes and other tobacco products. Two, and even more important, is to adopt a system to ensure that the correct taxes are paid.
A more efficient and stringent tax administration system that would make sure that tobacco companies pay higher and correct taxes would lead to higher revenues for the government and promote public health by reducing the health risks from reduced tobacco use.
More revenues from increased tobacco tax would mean more funds for health care and more resources to allow the poorest of the poor to get health insurance and better access to quality medical care.
In fact, the law provides that part of the income from cigarette taxes should go to health care. Republic Act 9211, which regulates the Philippine tobacco industry, has a provision which says 2.5 percent of excise tax collections from tobacco, cigars and cigarettes would go to the National Health Insurance Program.
International agencies like WHO have pointed to the direct correlation between cigarette prices and reduced smoking most especially among the young and the poor. Higher taxes means higher cigarette prices and higher prices is a big discouragement for smoking among the young and the lower-income groups.
If their choice is between buying cigarettes and getting a load for their cell phones then the latter would probably win out.
Imposing higher taxes on the so-called “sin products” like tobacco and alcohol might, however, require a strong political will on the part of Pres. Benigno Aquino III because of the understandable opposition from legislators from the tobacco producing regions in the north.
However, a parallel program to implement alternative livelihood program for farmers affected increased tax on cigarettes could soften the opposition.
Imposing higher taxes on tobacco products would be less than effective if the government do not change the inefficient, leak-prone tax system on tobacco products.
GATS in its recent study noted that the share of value added taxes as a source of government revenue has increased from 15 percent to 22 percent in the last seven years while the share of excise taxes which is the taxation regime for tobacco and alcohol products has declined from 15 percent to nine percent in the percent in the same period.
It should be pointed out that the steep decline in excise tax collections was recorded even though tax rates for tobacco products have been increasing every two years up to 2011. The inevitable conclusion in the light of this situation is that there is something wrong with the collection system for tobacco.
It is clear that to increase revenues from cigarettes, what is needed is to impose increased taxes and for the government to adopt a more effective method of collecting them.
There are already existing technologies that would help ensure that the government collects the right amount of taxes from tobacco companies and prevent unscrupulous groups from smuggling and cheating on their tax declarations and payments.
Worldwide tobacco giant Philip Morris International says it has such a technology and it is said that it offering the technology to the Philippines for free or at minimal cost.
The special tracking system developed by Philip Morris for its tobacco products was developed after it was charged by the European Commission and 10 European countries led by Italy of smuggling.
To settle the case, Philip Morris agreed to pay $1 billion for a period of 12 years and it also agreed to control future smuggling of its brands.
As a result of the court case, Philip Morris also developed a special tracking system for its products in Europe.
However, people would be understandably apprehensive if the government agrees to use the system being offered Philip Morris to enable the government to track its product and ensure that there is no smuggling and correct taxes are paid.
Well, the government should consider the Philip Morris offer if there really is one. However the government should look even more closely at the fool-proof system of tracking the production and distribution of cigarettes proposed by Swiss-based Sicpa Security Solutions.
The Sicpa system has been tried and tested in Brazil, Turkey and California. In Brazil, Sicpa’s electronic system generated an additional $100 million in 2008 while California collected $110 million more in taxes.
The enhanced system provided by Sicpa, which uses sensors and strip stamps in all cigarettes and cigar packs along with monitoring scanners to electronically transfer data on tobacco production, reduces the risks of using counterfeit stamps. It also efficiently tracks and traces the manufacture of cigars and cigarettes so that tax laws may be better enforced.
Perhaps a measure of the effectiveness of the proposed Sicpa system is the intensity of the opposition of the cigarette companies to it.