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Asian Pacic Journal of Cancer Prevention, Vol 21 27
DOI:10.31557/APJCP.2020.21.S1.27
Raising Tobacco Taxes
Asian Pac J Cancer Prev, 21, Progress of Tobacco Control in the Western Pacic Region Suppl, 27-31
Introduction
Before enactment of the Philippine Sin Tax Reform
Law (RA 10351) in 2012, the Philippines had some of the
most inexpensive cigarettes in the world. The most-sold
brand in the country was the cheapest brand among all the
ASEAN countries. Total tax as a percentage of the retail
price was also one of the lowest in the Region (World
Health Organization, 2013).
Consequently, smoking prevalence and tobacco-related
morbidity and mortality in the Philippines was one of the
highest in the Region. The 2009 Global Adult Tobacco
Survey (GATS) reported that 28.3% of Filipinos aged
15 years and older smoked tobacco. Seven out of the
country’s 10 leading causes of death were tobacco-related
(Asuncion et al., 2012). Economic costs due to the top
four tobacco-related diseases – lung cancer, chronic
obstructive pulmonary disease, coronary artery disease
and cardiovascular disease – were estimated at 188 billion
Philippine pesos (PhP) in 2012 (Defensor-Santiago, 2012).
Sociopolitical context of the reform
Raising taxes on tobacco products, alongside
implementing tobacco control policies, has always been
a challenge in the Philippines. Rampant corruption and
manipulation of public policies to protect vested interests
– known in economics as “rent-seeking” – have made the
Philippine tobacco industry “the strongest tobacco lobby
in Asia” (Alechnowicz and Chapman, 2004). For instance,
the Congressional Ways and Means Committee from
which all tax policies emanate has long been dominated
by legislators from the tobacco-growing districts (Sidel,
Abstract
The 2012 Philippine Sin Tax Reform Law or Republic Act No. 10351 (RA10351) offers important lessons on
tobacco taxation and tobacco control. In a span of ve years, it increased the excise tax rate on cigarettes to as high
as 1000% for low-priced brands. It is recognized by the international community not only because of the magnitude
of the tobacco tax increase that it stipulated but also because of the challenging context within which it was achieved.
This article presents the Philippine experience as a case study in pursuing bold reforms in tobacco taxation and tobacco
control amidst strong opposition by the tobacco industry. It considers: 1) the key events and factors that led to successful
reform of the Philippine tobacco tax system; 2) the impact of higher tobacco taxes on health and the economy; and 3)
the emerging challenges in tobacco taxation in the Philippines.
Keywords: Policy- taxation- cigarette smoking- tobacco smoking- tobacco control- health nancing- tobacco industry
RESEARCH ARTICLE
Raising Tobacco Taxes: The Philippine Experience
Jo-Ann L. Diosana*
2014).
As a result, the tobacco tax structure was problematic
and increases in excise taxes had been small and erratic
for decades. Varying specific taxes not indexed to
ination were imposed on four cigarette price categories:
low-, medium-, high- and premium-priced. Excise tax on
low-priced cigarettes increased from PhP 1 per pack in
1997 to only PhP 2.72 in 2012 (Philippines, 1997). Despite
increases in the excise tax rates due to amendments to
the tobacco tax law in 1997 and 2004, tobacco excise tax
collection as a percentage of GDP continued to decline
from 0.67% in 1988 to 0.30% in 2012 (Bangko Sentral Ng
Pilipinas, 2018; Department of Finance, 2018).
In 2010, reform advocates became hopeful that a
meaningful amendment to the Sin Tax Law – which covers
excise taxes imposed on tobacco and alcohol products –
would nally be achieved with the election of Benigno
Aquino III to the presidency. During his campaign, Aquino
had promised a clean and transparent government, one that
might challenge the tobacco industry’s usual method of
doing business (Sidel, 2014).
At the same time, the Philippines’ ratication of the
World Health Organization Framework Convention on
Tobacco Control (WHO-FCTC) in 2005, in addition to
growing evidence on the harms of tobacco consumption,
provided impetus for the government and health advocates’
push for stronger tobacco control policies. The MPOWER
strategy of the WHO-FCTC promotes key interventions
to effectively monitor and reduce demand for tobacco. In
particular, the “R” in MPOWER gives emphasis to raising
the price of tobacco through higher taxes – the single most
effective way to prevent people from starting to smoke
Editorial Process: Submission:03/05/2020 Acceptance:05/05/2020
Action for Economic Reforms, Inc., Quezon City, Philippines. *For Correspondence: jldiosana@gmail.com
Jo-Ann L Diosana
Asian Pacic Journal of Cancer Prevention, Vol 21
28
(World Health Organization, 2008).
Nevertheless, the election of Aquino also presented
challenges. Included in his campaign was the promise to
not impose new taxes but only focus on improving tax
administration (ABS-CBN News, 2010). Aquino, known
to be a heavy smoker, also did not seem supportive of
tobacco control (GMA News, 2010).
Enactment of RA 10351
It was not until one year into his presidency that
Aquino showed interest on reforming the Sin Tax Law.
This came about when the “restructuring of excise
taxes on alcohol and tobacco products” was included
in the list to be prioritized by the Legislative Executive
Development Advisory Council (LEDAC) (Business
World Online, 2011). Despite inclusion of the Sin Tax
Reform in the priority bills of the LEDAC and strong
commitment from the Executive, the measure continued to
face erce resistance in both Houses of Congress. Active
deliberations on the Sin Tax Reform lasted 14 months.
The Senate’s nal vote of 10-9 in favor of the bill is proof
of how difcult it was to pass this measure (House of
Representatives, 2012).
Fifteen years after the last restructuring of the Sin
Tax Law, RA 10351 was nally enacted on December
20, 2012. The law introduced signicant improvements
to the excise tax system for both tobacco and alcohol
products. Its main features include: (1) substantial increase
in excise tax rates; (2) shift from a multitiered system with
tax rates based on product prices to one tax rate for all
like-products; (3) annual 4% increase in excise tax; and
(4) substantial earmarking of revenues for universal health
care (Philippines, 1997).
Key factors in passing the law
Key to successful passage of RA 10351 was the broad
coalition that collaborated to defeat strong lobbying by
the tobacco industry. The coalition comprised government
officials from various agencies, legislators, former
Cabinet ofcials, development partners and civil society
organizations. Members of the informal alliance were
diverse and included economic reform–oriented groups,
health advocates, medical professional organizations,
farmers’ groups, academics, media partners and youth
groups.
At the core of the broad coalition was a devoted
team of government and civil society champions that
worked closely to manage the coalition. The coalition
was led by experienced activists and ofcials with a
deep understanding of the social, economic and political
contexts, and who had been advocating for tax reforms and
public health policies for decades. Guided by a whole-of-
government or whole-of-society approach, the core team
built the coalition, gathered intelligence and identied
stakeholders, mapped out the bottom-line objectives,
and set the direction of the coalition’s legislative and
communications strategies.
The strong research capacity of the coalition brought
to the fore evidence on the many benets of reforming
the law and exposed false claims made by the tobacco
industry. Policy briefs and technical papers were
produced covering a wide range of related issues. The
robust international literature on the harms of smoking
and benets of tobacco taxes was particularly helpful in
making a strong case for raising the tax.
Finally, effectively framing the Sin Tax Law as a health
measure and a “win for all”, and implementing a timely
and dynamic multimedia campaign were important in
creating public pressure for the legislation of RA 10351.
It was the rst time that taxation became a health issue
instead of just a revenue measure. The sound evidence was
translated into language that was relatable to the youth
and the general public. The use of media, particularly
social media, was maximized, and a pool of supportive
journalists and columnists were constantly updated and
engaged (Sidel, 2014).
Impact of RA 10351
After enactment of RA 10351, price per pack of the
most-sold brand increased from PhP 16.22 in 2012 to PhP
36.39 in 2017. For the same period, the total tax burden
per pack more than tripled from 27% of the retail price to
93% (Philippine Statistics Authority, 2018).
Tobacco tax revenue grew from PhP 32 billion in 2012
to PhP 70 billion in 2013, reaching PhP 106 billion in
2017 (Department of Finance, 2018). This increase was
instrumental in improving the country’s scal space and
credit ratings (Ordinario, 2013).
From 2008 to 2015, smoking prevalence declined in
the Philippines, as conrmed by two national surveys,
GATS and the National Nutrition Survey (NNS) (see
Figure 1). Both survey results mean a three-million
reduction in the number of smokers from 2012 to 2015.
NNS also shows that the biggest decline in smoking was
among the poorest households (Department of Science
and Technology Food and Nutrition Research Institute,
2018; Department of Health and Philippine Statistics
Authority, 2015).
The law earmarks around 80% of the incremental
revenue for health, resulting in tripling of the national
health budget from PhP 50 billion in 2013 to PhP 165
billion in 2019 (Philippines, 2012; Philippines, 2019).
This allowed the national government to fully subsidize
the health insurance premiums of the poor and the elderly,
resulting in 25 million more members and dependents
being covered under the national health insurance
program (Philippine Health Insurance Corporation, 2013;
Philippine Health Insurance Corporation, 2018).
Tobacco tax reform: A tailwind for tobacco control policies
Moreover, the tobacco tax reform in 2012 created
momentum for the legislation of other tobacco control
policies and another round of tobacco tax adjustments in
the country. The coalition that was formed was maintained,
making it a formidable force capable of neutralizing the
near-permanent tobacco industry. The breadth and depth of
knowledge gained from the passage of RA 10351 greatly
encouraged the coalition to pursue more reforms, despite
the strong lobby of the tobacco industry.
Shortly after the government started implementing RA
10351 in 2013, then-Senate President Franklin Drilon,
who also shepherded the passage of RA 10351 in the
Asian Pacic Journal of Cancer Prevention, Vol 21 29
DOI:10.31557/APJCP.2020.21.S1.27
Raising Tobacco Taxes
the Philippines. Two more amendments to the tobacco
excise tax law were legislated after RA 10351. The rst
was a biannual PhP 2.50-increase in the specic tax on
cigarettes equivalent to a 16% tax increase in 2018 under
the Tax Reform for Acceleration and Inclusion (TRAIN)
Law or Republic Act No. 10963 (RA 10963), which passed
in December 2017. The most recent amendment under
Republic Act No. 11346 (RA 1136), which was legislated
in July 2019, imposed a 29-percent increase in the excise
tax on cigarettes in 2020. This will be followed by 11-,
10-, and 9-percent increases for the years 2021, 2022, and
2023, respectively; after which, an annual adjustment of
5% will apply. RA 11346 also introduced excise taxes
Senate, expressed his strong commitment to pursue a
bill that will replace the text warnings on cigarette packs
with graphic health warnings. Drilon, together with other
tobacco tax champions in the Senate, posited that picture-
based health warnings would complement the recently
passed tobacco tax law (Sy, 2013; Macaraig, 2013). True
to Drilon’s promise, the Graphic Health Warnings Law
or Republic Act No. 10643 (RA10643), which requires
that graphic health warnings occupy 50% of the front and
back panels of a cigarette pack, was enacted in June 2014
(Philippines, 2014).
As opposed to the pre-RA 10351 period, regular
adjustment of tobacco taxes is now the new normal in
Republic Act No. 8424 9334 10351 10963 11346
Date of Enactment December 11,
1997
December 21, 2004 December 20, 2012 December 19,
2017
July 25, 2019
Number of Tiers 4 4 2013 to 2016: 2
2017 onwards: 1
1 1
Excise Tax
Increase
(cigarettes packed
by machine)
1998-2000:
12%
2000-2005: 14% to 86%
2005-2007: 4% to 12%
2007-2009: 4% to 11%
2009-2011: 4% to 10%
2011-2013: 108% to 341%
2013-2014: 8% to 42%
2014-2015: 4% to 24%
2015-2016: 4% to 19%
2016-2017: 3% to 20%
2017-2018: 16%
2018-2020: 7%
2020-2022: 7%
2022-2024: 4%
2018-2020: 29%
2020-2021: 11%
2021-2022: 10%
2022-2023: 9%
Adjusts tax rates
annually
No No Yes, by 4% every year
beginning in 2018
Yes, by 4% every
year beginning
2024
Yes, by 5% every
year beginning in
2024
Unitary tax system No No Yes Yes Yes
Earmarks for
health
No Yes, 2.5% of incremental
revenue for the National
Health Insurance Program and
2.5% of incremental revenue
for disease prevention program
Yes, more than 80% of
incremental revenue for
universal health care
No Yes, 50% of
total revenue for
universal health
care
Table 1. Philippine Laws on Excise Tax on Tobacco Products, 1997 to 2019
Figure 1. Price and Tax for the Most-Sold Brand among Low-Priced Cigarettes in the Philippines, and Smoking
Prevalence Rates, 1998—2018. Philippine Statistics Authority. Monthly price survey, January 1998 to April 2018
(Philippine Statistics Authority, 2018). Department of Science and Technology Food and Nutrition Research Institute.
National nutrition survey, 1998, 2003, 2008, 2013, 2015, and 2018 (Department of Science and Technology Food
and Nutrition Research Institute, 2018). Department of Health, Philippine Statistics Authority. Global adult tobacco
survey: Philippines country report (Department of Health and Philippine Statistics Authority, 2015).
Jo-Ann L Diosana
Asian Pacic Journal of Cancer Prevention, Vol 21
30
on heated tobacco (HTPs) and vapor products; albeit
differentiated rates on HTPs, salt nicotine vapes, and
freebase vapes will apply (Philippines, 1997).
New prospects for tobacco taxation
If it were not for the inclusion of another tobacco tax
increase under the TRAIN Law or RA 10963, the number
of smokers would have begun to increase again in 2018
even as RA 10351 stipulates a continued annual increase
of 4% in the excise tax rate. According to a tobacco excise
tax simulation model, due to increasing population and
strengthening of people’s purchasing power concurrent
with economic development, the number of smokers
would have increased by one million by 2022 even when
smoking prevalence would have slightly decreased if RA
10351 would have just been maintained (Van Walbeek,
2010; Action for Economic Reforms, 2017).
Hence, a more effective way to curb smoking is to
consider the absolute number of smokers when setting
health targets. Targeting just a reduction in the smoking
prevalence rates without looking at the absolute number
of smokers may fall short of the intended health impact
of any tobacco control policy.
Moreover, cigarettes in the Philippines remain cheap
compared to those in neighboring countries even as the
excise tax of the most-sold brand already stands at more
than 85% of the retail price (Kaiser et al., 2016). More
importantly, cigarettes are still affordable relative to other
commodities in the Philippines; for example, with the
current price of a cup of cooked rice (PhP 10), one can
already buy two cigarette sticks. In other words, reaching
the WHO benchmark of a 70% excise tax burden may
still not be enough to signicantly discourage smoking.
Moving forward, the final retail price and some
measure of affordability of cigarettes (i.e. price of
cigarettes relative to other local commodities), as opposed
to the excise tax burden, are more reliable indicators of the
effectiveness of a tobacco tax policy. It is also important
to monitor the pricing strategy of tobacco companies
since this can easily inuence the excise tax burden. Case
in point, notice how, between 2013 and 2017, the net
retail price of cigarettes seemed to have shrunk while the
excise tax was increasing; thereby, articially increasing
the excise tax burden (see Figure 1). Tobacco companies
were able to absorb the excise tax increases in the rst
few years of the reform but had to eventually bring back
the price to its pre-reform net retail level (in 2018), to
improve on their prot margin.
Hence, the 70% excise tax burden standard by the
WHO should not prevent countries from pursuing higher
tobacco tax levels. In setting tax level targets, each country
should consider other factors, such as the baseline tax
structure and tax rates, the tobacco industry’s pricing
behavior and competitiveness of the market, and the
relative price of other basic goods. In terms of measuring
affordability, however, comparison of real prices should
not be with other countries but should be within country,
since each country has a unique context.
Inasmuch as the tobacco industry is also quickly
transitioning to harm reduction strategies, taxation as
a regulatory policy for the industry’s next generation
products should be simultaneously pursued alongside
increasing excise taxes on the traditional tobacco products.
At the very least, heated tobacco products and vape
alternatives to smoking should be taxed at the same rate
as cigarettes to ensure that the next generation products
will not become cheaper alternatives to traditional tobacco
products.
Lastly, the series of tobacco control reforms legislated
in the past decade has also solidied the public’s support
for tobacco taxes, which once, like any other tax measure,
were considered as unpopular. This implies that further
tobacco tax increases, on top of the yearly 5-percent
increase, can be expected in the future.
In conclusion, the Philippine experience in raising
tobacco tax is proof that close collaboration between
government and civil society can trump the strongest
tobacco lobby even in an environment conducive to
corruption and rent-seeking. It also contributes to the
growing evidence that tobacco taxes are an effective
policy tool in curbing smoking, expanding the scal
space, and providing a sustainable source of nancing
for health. The Philippine tobacco tax reform in 2012 was
also instrumental in facilitating the legislation of other
tobacco control policies and further tobacco tax increases
in the country. While much still needs to be done, the
passage of RA 10351 offers valuable lessons for the global
advancement of tobacco control and health reforms.
Acknowledgments
I would like to thank Dr. Florante Trinidad of the
WHO Philippines Country Ofce, and Ashlee Teakle,
Mina Kashiwabara, Ramon De Guzman, and Charlotte
Kuo-Benit of the WHO Regional Ofce for the Western
Pacic for their support and valuable inputs in the writing
of this paper. I would also like to thank my colleagues
at Action for Economic Reforms, Filomeno Sta. Ana III
and Jenina Joy Chavez, for their guidance and review of
this paper.
Statement of Conict of Interest
Jo-Ann Diosana is a board member at Action
for Economic Reforms, Inc., one of the civil society
organizations advocating for higher tobacco excise taxes
in the Philippines.
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