Press Release
September 2, 2007

P26B cigarette tax collection not enough
to cover P46B in losses due to smoking

Honasan bats for sky-high tobacco taxes as health, not revenue measure

Sen. Gregorio Honasan, chairman of the Senate committee on public order, safety and illegal drugs, is pushing for new legislation that would make "sky-high" taxes on cigarettes the anchor of a multi-pronged government strategy "to willfully control smoking, particularly among the youth."

"The full measure of government's taxation powers should be brought to bear on cigarettes, if we are to discourage consumption and reduce in a big way the public health risks and costs associated with smoking," Honasan stressed.

The senator said the P26 billion in annual government revenues from cigarette taxes is not even enough to cover the health-care spending and productivity losses associated with smoking, which the Department of Health (DOH) estimates at P46 billion yearly.

According to the DOH, some P27 billion is spent every year for the health care of patients with lung cancer, chronic obstructive pulmonary disease, coronary artery disease and cerebrovascular disease -- the four major tobacco-related ailments.

Another P18 billion is lost every year due to the early deaths of these patients, while almost P1 billion is lost due to absenteeism from work of people with such diseases.

Honasan said Congress should now stop treating cigarette taxation as a simple revenue-generating initiative, and start regarding it as a high-priority public health protection measure.

"In the past, cigarette taxes were raised not because Congress wanted to boldly fight smoking, but because government desperately needed new money. In fact, the last time Congress moved to raise cigarette taxes was at the height of the fiscal crisis in late 2004," he pointed out.

"Congress should not care if cigarettes are taxed to a point where consumption declines considerably, and government revenues decrease as a result. Because this is precisely the intended effect, once we pursue a tax policy aimed at boldly discouraging consumption," he added.

Tobacco is government's biggest source of excise tax revenues. The government collected P26.81 billion in excise tax revenues from tobacco products last year, up 13.1 percent or P3.1 billion from the P23.7 billion gathered in 2005.

Cigarette excise tax revenues are expected to further grow this year, as the applicable tax rate also increased for the third consecutive year since 2005.

Honasan, however, said existing cigarette tax rates are still not high enough to dampen smoking.

He also said Congress should do away with the existing tax rate differential between expensive and low-priced cigarette brands, in favor of a uniform rate at the high end.

"This tax rate differential does not discourage smoking at all, but merely drives consumers to shift to cheaper brands," Honasan said.

"To say that cigarettes here are already heavily taxed is ridiculous. A 20-stick cigarette pack here retails for only about P25 to P30. In the US, the same pack costs $4, or about P188, mainly due to heavy taxes," he added.

He cited several studies in the US showing that higher taxes help to effectively reduce smoking. One such study indicates that every 10 percent increment in the price of cigarettes leads to a corresponding seven percent reduction in youth smoking, and four percent overall decline in cigarette consumption.

As part of a multi-pronged drive to reduce cigarette smoking, Honasan also sought a review of the 2003 Tobacco Regulation Act that controlled the way cigarettes are being advertised and promoted.

He likewise called for stronger law enforcement to check cigarette smuggling, and proposed a new program to develop alternative sources of livelihood for local tobacco farmers.

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