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On Sin Tax: Raise direct taxes rather than consumer taxes –IBON

June 7, 2019

by IBON Media

Research group IBON said that the passing of the Sin Tax Reform Bill made the country’s tax system more regressive by increasing consumer taxes that burden the poor while cutting income tax and corporate tax that make the rich even richer.

As part of the government’s tax reform agenda, Senate Bill No.2233 or the Sin Tax Reform Bill was recently passed that imposed Php45 excise increase per pack on tobacco products in 2020, followed by Php5 hikes until the excise reaches Php60 per pack in 2023, and an annual 5% increase thereafter.

IBON emphasized that the Sin Tax Reform Bill takes advantage of poor Filipinos’ consumption of tobacco products to generate revenues, instead of taxing wealthier Filipinos who can better afford higher taxes. While richer Filipinos consume more tobacco compared to poorer ones based on the latest Family Income and Expenditure Survey (FIES), the latter spend a greater percentage of their small incomes on tobacco, added IBON.

IBON recalled that Senate passed TRAIN Package 1 that imposed higher consumer taxes on petroleum products and tobacco while reducing personal income tax. IBON said that with TRAIN, the richest 1% of Filipino families with incomes of Php1.5 million or more a year will have an average of Php100,000 to over Php300,000 additional take-home pay annually especially when income taxes are lowered further in 2023. This is on top of how the rich will pay billions of pesos less in estate and donor taxes. The 17.2 million poorest Filipino households do not benefit from lower personal income taxes, but all pay higher consumer taxes, explained IBON.

The Duterte government aims to use the Sin taxes collected from Filipinos to augment the Php62 billion funding gap needed for the Universal Health Care (UHC) Law. But IBON said that the said law would only further fund the privatization of healthcare in the country. UHC would divert government funds to create supplementary coverage by private health care providers such as private health insurance and Health Maintenance Organizations (HMOs) as well as provide network-based licensing, contracting, and accreditation of health facilities.

In the end, IBON said that consumer taxes such a petroleum, tobacco, and even alcohol excise are welcome only if there is a progressive tax system in place with high direct taxes and lower consumption taxes. However, the Duterte administration’s tax reform agenda is doing the opposite by shifting the tax burden from the rich to the poor and ensuring private profits rather than public health.###