Philippines’ 2012 tobacco tax reform found effective, a model for other countries

In 2012, the Philippines passed landmark tobacco and alcohol tax reform, popularly known as the “Sin Tax Law.” The law greatly simplified and increased excise taxes and contributed to the government’s goal of universal health care by earmarking a substantial share of new the tax revenues for a dedicated health fund.

A report published by The World Bank describes the design of the Sin Tax Law, documents the technical and political processes leading to its passage, and assesses the impact of the reform after three years of implementation. Sin Tax Reform in the Philippines considers the extent to which the reform can serve as a model for other reform efforts in the Philippines and elsewhere in the world. The report also highlights the work leading up to the passage of the law, which included new ways of bringing about reform that required addressing powerful, industry-backed opposition operating both within and outside government and building broad-based coalitions to serve the public interest.

Selected Findings and Conclusions

Three years after implementation of the sin tax and with less than year to go until the transition to a unitary tax rate for tobacco in 2017, the Sin Tax Law in the Philippines appears to have been largely successful.

 

• The Sin Tax Law:
  • simplified and increased excise taxes on cigarettes;
  • increased revenue for the Government of the Philippines;
  • enabled the government to increase health care services for the poor; and o reduced smoking in the Philippines.
• The health impacts of the Sin Tax Law – both direct and indirect effects – are positive, though it is too early to assess the law’s full impact. For example, smoking rates have been reduced and the increased revenue from the law has enabled more families and senior citizens to have health insurance.
• There is much to be learned from the design and advocacy for the Sin Tax Law. Among the lessons are:
  • Important features of the Sin Tax Law include the earmarking of revenue for government health programs and for tobacco-growing regions.
  • Providing technical evidence to justify the proposed reform bill was not enough to ensure that effective legislation would emerge at the end of the political process.
  • Setting clear objectives, principles, and non-negotiables were critical for anchoring the strategic choices made in finalizing the bill.
  • Mobilizing and sustaining a multi-sectoral reform coalition was vital to success.
• Open and systematic monitoring is critical to ensuring effective implementation.
  • The World Bank report sets out an implementation monitoring framework that emphasizes regular data collection, evaluation, communication, and feedback. 
  • Informed consultation and continual feedback will make the Sin Tax Law reform stronger.

Key Message

• The 2012 Sin Tax Law improved health, financial sustainability, and good governance in the Philippines.

Full Citation:Kaiser K, Bredenkamp C, Iglesias R. 2016 Sin Tax Reform in the Philippines: Transforming Public Finance, Health, and Governance for More Inclusive Development. Directions in Development - Countries and Regions. Washington, DC: World Bank. doi:10.1596/978-1-4648-0806-7.

The report abstract [English only] can be accessed here:http://elibrary.worldbank.org/doi/abs/10.1596/978-1-4648-0806-7

Additional Resource:

• For a presentation on the rationale, structure, and impact of the Philippines Sin Tax Law [English only], see: http://pubdocs.worldbank.org/en/471521464893076072/6-VI-Jeremias-Paul-ppt-WB-Tax-Conference.pdf

The World Bank is a source of financial and technical assistance to developing countries around the world. Established in 1944, its mission is to fight poverty by helping people to help themselves and their environment by providing resources, sharing knowledge, building capacity and forging partnerships in the public and private sectors.