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Better Health Better Higher Revenues Higher
Tobacco-Related Diseases
Maximizing Tobacco Tax Reform in Myanmar
Policy recommendations from the Southeast Asia Tobacco Control Alliance (2017)
Southeast Asia Tobacco Control Alliance Maximizing Tobacco Tax Reform in Myanmar Policy recommendations from the Southeast Asia Tobacco Control Alliance (2017)
Prepare by Southeast Asia Tobacco Control Alliance (SEATCA)
Any factual errors or omissions are unintentional. For any corrections, please contact SEATCA via email: [email protected].
© Southeast Asia Tobacco Control Alliance 2017 For more information, visit: www.seatca.org. Maximizing Tobacco Tax Reform in Myanmar 2017 1
Executive Summary Myanmar has attempted to reform tobacco tax policy since before 2011. In e ect since 2016, the current Union Tax Law introduced a Speci c Goods Tax to tackle the problem of transfer pricing. However, in comparison with the international best practices and the WHO FCTC Article 6 Guidelines, the tobacco tax system in Myanmar has inherent weakness that lead to tax avoidance by the industry. This is because the system is not the simplest due to di erent tax tiers while the tobacco rates as a percentage of retail price are low compared with other ASEAN countries.
Therefore, the Southeast Asia Tobacco Control Alliance (SEATCA) would like to recommend Myanmar government to:
Develop a long-term plan / road map to strengthen tobacco tax policy so that the government has a clear direction in obtaining higher revenue and reduce smoking prevalence in the country
Collapse the tobacco tax tiers to be a uniform speci c tax rate for all tobacco products, including introduce a comparable tax on cheroots and smokeless tobacco (to prevent tax avoidance by the industry and product substitution by consumers)
Increase tax annually, at least as much as in ation (7% in 2016) and income growth (6.5% GDP growth in 2016) or about 14% annual increase to make tobacco products less a ordable especially among youth
Impose authorization/licensing measure on manufactures and expanding it to wholesalers and retailer in the future to control the supply chain of tobacco business
Strengthen the technology of scal markings and monitor the law compliance in the market to achieve higher revenue collection and prevent the illicit trade of tobacco products
Regarding cheroots and smokeless tobacco products, SEATCA would like to recommend Myanmar government to:
License cheroots and smokeless tobacco producers so that they will be required to pay tax. It will enable the government to control the business and labor of the industry
Introduce higher tax rates on cheroots and smokeless tobacco. Ultimately the government should tax all types of tobacco products at the same rate to prevent the substitution of products
Impose tax stamp measure and monitoring of tax stamp compliance on cheroots in the market to prevent illicit products
Maximizing Tobacco Tax Reform in Myanmar 2017 2
I. Why Tobacco Tax? Tobacco taxation is a win-win for governments and timely for Sustainable Development Goals implementation!
Because of its combined scal and public health bene ts, the World Bank, the World Health Organization, and many other experts recommend robust tobacco taxation. Win for Revenue: Higher tobacco taxes are bene cial for the country’s revenues. According to the World Health Organization, by increasing cigarette taxes worldwide by US$1, an extra US$190 billion could be raised.1 Substantial tobacco tax increases will increase revenues even if consumption is reduced. This is in part because the reduction in demand is less than size of the tax increase, since addicted consumers respond relatively slowly to price rises. Win for Health: Higher taxes that lead to higher retail prices and make tobacco products less a ordable will discourage tobacco use, improve health and productivity, reduce healthcare costs, and save lives. Higher tax revenues can also be used to fund health and social development programs.
Source: The World Bank Group (http://www.worldbank.org/en/news/infographic/2017/05/31/stop-smoking-its-deadly-and-bad-for-the-economy)
Win for Sustainable Development!
In 2015, in adopting the 2030 Sustainable Development Agenda aimed at building an inclusive, sustainable, and resilient future for people and planet, the 193 United Nations member states, 2030 United Nations Agenda for including Myanmar, committed themselves to attaining 17 Sustainable Development Sustainable Development Goals (SDGs). Under SDG #3, which • 17 Sustainable Development commits governments to ensure health and wellbeing for all, the Goals (SDGs) WHO Framework Convention on Tobacco Control (FCTC) is • WHO FCTC is one of the four explicitly cited as one of the four means to achieve the health goal. Furthermore, since tobacco control is a cross-cutting means to achieve SDG3 development issue, implementing the WHO FCTC, particularly (ensure healthy lives and through increasing tobacco taxes, can also facilitate achieving promote well-being for all at other development goals. This is both opportune and timely for all ages) developing countries with limited nancial resources, such as Myanmar, to enable them to take local action towards achieving the SDG targets and securing a sustainable future for Myanmar by 2030.
1 World Health Organization. Available at: http://www.who.int/campaigns/no-tobacco-day/2017/event/en/ 3 Maximizing Tobacco Tax Reform in Myanmar 2017
Bene ts of tobacco taxation: country examples Evidence from Thailand: For Revenue! Thailand’s regular tobacco tax increases (Table 1) clearly led to a four-fold increase in revenues over time, while smoking prevalence declined (although over-all consumption remained stable). Table 1. Regular tax increases in Thailand, 1989-2016 Excise tax (%), cigarette sales, excise tax revenue and number of smokers
Year Excise Tax Sales Excise Tax Revenue Price of cigarette* No Smoker Prevalence (million of Baht) Per Pack (Baht) (million)
1989 35-55 1,843 14,664 1990 55 1,941 15,461 1991 55 1,942 15,898 12.2 1992 55 1,983 15,438 12 1993 55 2,135 15,345 12 1994 60 2,328 20,002 15 1995 62 2,171 20,736 1996 68 2,463 24,092 18 12.5 1997 68 2,415 29,755 1998 68 28,692 1999 70 1,810 26,708 24 2000 71.5 1,826 28,110 28 2001 75 1,727 29,627 32 11.9 2002 75 1,716 31,247 2003 75 1,904 33,582 2004 75 2,110 36,326 11.3 22.98 2005 75 2,187 39,690 2006 79 1,793 35,646 42 10.8 2007 80 1,958 41,528 45 21.22 2008 80 1,837 40,489 45 2009 85 1,790 44,167 58 10.9 20.70 2010 85 1,800 53,381 58 2011 85 2,038 57,196 58 11.5 21.35 2012 87 2,130 59,914 65 2013 87 2,172 67,863 19.94 2014 87 2,003 61,000 65 11.4 20.7 2015 87 2,191 62,733 65 19.9 2016 90 1,963 65,438 86
Source: National Statistics O ce, ASH Thailand Maximizing Tobacco Tax Reform in Myanmar 2017 4
Bene ts of tobacco taxation: country examples
Evidence from Philippines: For Health, For the Poor! In the Philippines, signi cant increases in tobacco taxes gave poor families free access to healthcare. The government was able to pay for universal health insurance premiums for more poor families. From coverage of 5.2 million poor families in 2013, coverage was expanded to 14.7 million poor families in 2014 because of increased tobacco tax revenues. The Department of Health budget also increased from PHP 53 Billion in 2013 to PHP 148 Billion in 2017 mainly due to Sin Tax reforms.
Figure 1. Allocation of Health Insurance Premiums from sin tax by the Philippines’ Government
WIN FOR THE POOR National Government Allocation for Health Insurance Premiums for the Poor 50 43.9 $0.92 B 45 40 37.1 35.2 $0.82 B 35 $0.79 B 30 25 PHP 20 $0.30 B $0.30 B 15 12.5 $0.08 B $0.10 B 12.6 10 $0.01 B $0.01 B $0.06 B $0.01 B $0.01 B $0.02 B 5.0 4.5 5.0 $0.11 B3.5 $.08 B 5 2.9 3.5 0.5 0.5 0.5 0.5 0.8 $0.10 B 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: PhilHealth, DOH, GAA
As a result, the excise revenue from tobacco has substantially contributed to the Department of Health budget which increased from 53 billion PHP in 2013 to 148 billion PHP in 2017. Figure 2. Philippines Department of Health Budget from 2010 to 2017
WIN FOR PUBLIC HEALTH Department of Health budget highest in 2015
DOH-OSEC + NHIP Budget 2010-2017(in Billion PhP) The DOH Budget increased from P53 160 148 Billion in 2013 to P 148 140 123 120 Billion in 2017 mainly 100 84 87 due to Sin Tax 80 53 60 42 32 40 25 20 0 Source: 2010 2011 2012 2013 2014 2015 2016 2017 Department of Health Philippines, 2017 5 Maximizing Tobacco Tax Reform in Myanmar 2017
Bene ts of tobacco taxation: country examples
Evidence from Africa: For Tax Administration In Kenya’s experience, revenue gains from tobacco tax increases can also be utilized for strengthening tax administration, thereby reducing illicit tobacco trade and improving revenue collections. 56% increase in legitimate cigarette and cigar sales from 2013 to 2014. 45% increase in tax compliance in 2014. Tobacco excise tax revenue increased by 19.9% from 2013 to 2015. Beer and wine/spirits excise tax collection increased by 15.6% and 102.5%, respectively, from 2013 to 2015. Companies reported better access to information and faster delivery of tax stamps. Plans to extend T&T to mineral water, juices, and soft drinks.
Tobacco industry interference with tax policy undermines public interests
It is evident that the ONLY interest of the tobacco industry is to gain pro t regardless of the harmful nature of their products, which kill half to two-thirds of regular consumers. With a growing young population, Asia is an emerging market for the tobacco business to exploit and a strong base to expand the industry’s pro ts.
In the tobacco industry’s own words: “In Asia, we operate in 23 markets with a growing population that is already above four billion. Excluding China, these markets represented a total cigarette volume of approximately 1.1 trillion units in 2015. Last year, our shipment volume reached 281 billion units and our operating income was $2.9 billion.” - Philip Morris International
Source: 2016 PMI Investor Day, 29 Sep 2016 http://edge.media-server.com/m/s/vhdtub3j/lan/en Maximizing Tobacco Tax Reform in Myanmar 2017 6
Figure 3. Tobacco Industry Market Shares in Myanmar Source: Euromonitor International (August 2017)
Rothmans of Pall Mall Myanmar Pte Ltd Myanmar Japan (40%) Tobacco Co (18%)
British American Tobacco Myanmar Others (18%) Service Ltd (24%)
Price strategy of tobacco business: local companies produce low-and-mid-priced brands, while international companies such as JTI and BAT locally produce mid-priced cigarettes. Of the 90 cigarette brands sold in Myanmar, majority is priced below MYK 600 per pack, and thus poor persons and youths could a ord to purchase according to the Price Survey done in 2017.
Table 2. Price range (kyats) of most popular cigarette brands per pack in selected regions/states in Myanmar, 2015
Price range of cigarette pack in Selected Region/State No. Brand Bago Magway Sagaing Shan Nay Pyi Taw Mandalay
1 Red Ruby 600-800 500-800 600-1000 600-800 600-750 600-1000 2 Premium Gold 500-600 450-600 450-500 500-600 450-500 350-500 3 London 500-700 500-800 600 500-700 500-700 450-800 4 London (Gold) 500-600 500-800 500-650 500-700 550 NA 5 London (Blue) 600-750 NA 600 500-700 NA NA 6 London (Red) 600 NA NA NA NA NA 7 Duya 300-500 300-550 250-300 200-300 NA 250-300 8 Duya (Gold) 300 300 NA 300 NA 300 9 Duya (Green) NA 200 250 200 NA 250 10 Valiant 300-500 300-500 500 NA 450 400-500 7 Maximizing Tobacco Tax Reform in Myanmar 2017
Figure 4. Tobacco products are cheaper over time especially in Myanmar Percentage Change in the Share of GDP per capita needed to purchase 100 cigarette packs between 2010 and 2014 in the ASEAN
Brunei Philippines Lao PDR Note: Philippines: the tobacco tax Singapore reform occurred Cambodia between 2010 and 2014. Indonesia For these countries, Malaysia cigarettes became more a ordable Thailand from 2010-2014 Vietnam Myanmar
-50% 0% 50% 100% 150% 200% 250% 300% Source: WHO report on the global tobacco epidemic, 2015
Figure 5. GDP per capita growth in Myanmar between 2006 and 2016 1600 Myanmar GDP Per Capita 1420.5 1346 1400 1266.1 1183.3 1200 1101.2
1034.8 USD 987.7 1000 907.4 826.1 754 800
600 2006 2008 2010 2012 2014 2016
Source: Tradingeconomics.com | World Bank
With the growing GDP per capita in Myanmar, cigarettes are cheaper and more a ordable. According to the Youth Opinion Survey on Cigarette Prices in Myanmar 2017: 39% of youths said that cigarette price is reasonable (standard like any other consumable items), 41.6% had indicated that cigarette prices are cheap Majority of youths (79.4%) believed that raising cigarette price will have an impact on their consumption. The price of rice (daily consumption of 250gm) is around Kyat 150 and one egg is also at the same price. Average price of one meal for lunch is Kyat 1,000. Instead of daily required meal, youths are spending on cigarettes and smoking. Maximizing Tobacco Tax Reform in Myanmar 2017 8
The problem in Myanmar: tobacco consumption is increasing (Figure 6 and Figure 7). Tobacco use is the main driver of Non-Communicable Diseases (NCDs) and the total deaths from NCDs are rising, from 45% of all deaths in 2011 to 59% in 2014.
Figure 6. Prevalence of Tobacco use among Adults (>15 years) in Myanmar, Sentinel Prevalence Surveys’ results
Current Smoker Current Smokeless Users 70 70
60 60
50 46.8 50 42.9 41.95 39.62 41.2 40 40 33.3 31.8 30 30 2001 13.5 23.8 21.9 2007 20 20 15 14.36 12.1 8.8 2011 10 10 8 8.19 2013 0 0 Male Female Male Female
Figure 7. Prevalence of tobacco use among school youths in Myanmar, Global Youth Tobacco Survey results
Tobacco use (Smoked) Tobacco use (Smokeless) 30 25 27.6
21 25 20 19 20.3 20 17.4 15 13 15 14.1 11 10.2 11 10 8.5 10 9 6.8 7.9 6.7 5.7 6 5 4.9 3.2 5 2 3.1 1.3 2 0.5 0 0 Total Boys Girls Total Boys Girls
GYTS2001 GYTS2007 GYTS2011 GYTS2016
Conclusion! Prices are low and a ordable Smoking: leading cause of NCDs and deaths and disability which leads to more health care cost and productivity loss in Myanmar 9 Maximizing Tobacco Tax Reform in Myanmar 2017
II. MOVING FORWARD WITH TOBACCO
TAX POLICY REFORMS IN MYANMAR TOBACCO TAX
A WHO FCTC Article 6: Global evidence, legal obligations, and Myanmar’s compliance
The WHO FCTC: A Global Health Treaty Myanmar was among the rst countries to ratify the WHO FCTC, having done so on April 21, 2004, and it entered into force on February 27, 2005. The country has shown its commitment to implement the WHO FCTC through enactment of the Control of Smoking and Consumption of Tobacco Product Law in 2006, but this law does not have “The Parties recognize that any speci c provisions for tobacco taxation, despite the price and tax measures are an fact that “tax and price policies are widely recognized to be e ective and important means one of the most e ective means of in uencing the of reducing tobacco consumption demand for and thus the consumption of tobacco by various segments of the products” and that “tobacco taxes should be implemented population, in particular young as part of a comprehensive tobacco-control strategy in line persons.” with other articles of the WHO FCTC” (Article 6 Guidelines). (Article 6.1)
In 2014, the Conference of Parties to the WHO FCTC Article 6 Guidelines Key Message: adopted implementing guidelines2 to assist Parties E ective and e cient tobacco tax systems in meeting their objectives and obligations under with regular tobacco tax increases that Article 6 of the WHO FCTC. The Article 6 Guidelines reduce a ordability of tobacco products are based on the best available evidence, best can reduce tobacco use while practices and experiences of the Parties that have successfully implemented tax and price measures generating signi cant revenues. to reduce tobacco consumption.
Guiding Principles for Implementing the WHO FCTC Article 6
Determining Tobacco taxes tobacco taxation are economically policies is a e cient and sovereign right reduce health of the Parties E ective tobacco inequities taxes signi cantly reduce tobacco consumption and prevalence and are a Tobacco tax good source of Tobacco tax system and revenue policies should be administration protected from should be e cient vested interests and e ective
2 World Health Organization. Available at: http://www.who.int/fctc/guidelines/adopted/Guidelines_article_6.pdf Maximizing Tobacco Tax Reform in Myanmar 2017 10
In recent years, Myanmar has attempted to enforce the tax law by imposing taxes on tobacco products:
Before 2011, 75% commercial tax levied on ex-factory cigarette price 2011 In 2011, commercial tax reduced to 50% for local cigarettes, and increased to 100% for imported cigarettes
2012 In April 2012, commercial tax equalized at 100% for both local and imported cigarettes
The Union Tax Law was enacted in March 2014 changed from Commercial Tax to Special 2014 Goods Tax
Current 2016 Union Tax Law introduced Speci c Goods Tax in e ect April 1, 2016 Clear rules and penalties, aiming to reduce tax evasion 2016 Most tax rates unchanged with the exception of tobacco and alcohol For cigarettes and cheroots: Switched from ad valorem to speci c system to prevent transfer pricing Introduced multi-tiered speci c rates
General Recommendation
Develop a long-term plan / road map to strengthen tobacco tax policy so that the government has a clear direction in obtaining higher revenue and reduce smoking prevalence in the country The Union Tax Law is aimed at scal targets and has not yet taken into account the key recommendations of the WHO FCTC Article 6 Guidelines. Recognizing its obligations under the WHO FCTC, Myanmar should improve its tobacco tax policies to achieve the objectives of the FCTC, while also achieving its scal targets. In this regard, Myanmar should develop a long-term plan or road map for tobacco tax policy. The long-term plan will assist the government achieve the e ective tobacco tax system as well as revenue and public health targets. The plan should specify the revenue and public health goals that Myanmar would like to achieve in the next 3-5 years through the reform of tobacco tax system and administration including the tobacco tax increase projection.
In 2013, Australia reformed its overall tax system by introducing the tax reform road map. The tax reform aimed to establish stronger, smarter and fairer tax system including tobacco taxation, recognizing that tobacco is a major cause of death and disability in Australia. The road map set the target to index tobacco excise and excise equivalent customs duty to average weekly ordinary time earnings (AWOTE), replacing the current Consumer Price Index (CPI) indexation ensuring that the excise component of tobacco keeps pace with incomes.3
The target of the tax reform road map of Australia was to reduce tobacco-related diseases and death. Currently, Australia imposes a speci c tax on cigarettes which is increased by 12.5% annually (based on in ation).4
Myanmar’s tobacco tax road map can either stand alone or be part of an overall tax road map similar to Australia. By having the road map in place, Myanmar will have a clear direction in achieving revenue and public health targets in the long-term.
3 Commonwealth of Australia (2013). Tax Reform Road Map: A Stronger, Smarter and Fairer Tax System. 4 Australian Government: The Department of Health. Available at: http://www.health.gov.au/internet/main/publishing.nsf/ content/tobacco-tax 11 Maximizing Tobacco Tax Reform in Myanmar 2017
B Tobacco tax system and tax rate challenges
Article 6 Guidelines “When establishing or increasing their national levels of taxation Parties should take into account – among other things – both price elasticity and income elasticity of demand, as well as in ation and changes in household income, to make tobacco products less a ordable over time in order to reduce consumption and prevalence. Therefore, Parties should consider having regular adjustment processes or procedures for periodic revaluation of tobacco tax levels.”
Compared with other countries, the tobacco tax as a percentage of retail price in Myanmar is as low as 35%. The WHO recommends a tax share or tax burden of at least 70% of retail price.
The low tobacco tax share in the retail price limits the government’s collection of higher revenues, giving a much larger portion to the tobacco industry. In addition, it contributes to the low tobacco prices particularly for smokeless tobacco and cheroot products, making them easily a ordable to the price-sensitive young and the poor, ultimately encouraging tobacco consumption that will increase the burden of tobacco-related diseases on the national health care budget.
Prices of most popular local and foreign Red Ruby (0.57) brands (in USD) per pack 2016 Marlboro (2.03) Adeng (0.86) Marlboro (1.85) Local brand Foreign brand
Myanmar Lao PDR Fortune (1.08) Krongthip (1.94) Marlboro (1.52) L&M (3.28) VINATABA (0.90) Marlboro (1.08) ARA (0.50) FINE (0.875) Philippines Thailand Vietnam
Cambodia Djarum Super (5.1)
*Dunhill (4.17) *SAAT (2.15) Brunei Darussalam
Malaysia Marlboro (9.62)
Singapore Moving Myanmar’s current A Mild (1.42) tobacco taxation from a Marlboro (1.49) ZERO-SUM game to a WIN-WIN
Indonesia * Dunhill is premium brand and SAAT is minimum price brand. Maximizing Tobacco Tax Reform in Myanmar 2017 12
Article 6 Guidelines Parties should implement the simplest and most e cient system that meets their public health and social needs, and taking into account their national circumstances.
Parties should consider implementing speci c or mixed excise systems with a minimum speci c tax oor, as these systems have considerable advantages over purely ad valorem systems.
Myanmar currently applies either an ad valorem or speci c tobacco tax on tobacco. The Speci c Goods Tax (SGT) imposed on tobacco products under the 2016 Union Tax Law has a four-tiered speci c system for cigarettes, a two-tiered speci c system for cheroots, and an ad valorem system for betel nut, Virginia tobacco, cigar and piped tobacco, with a minimal increase for cigarettes between 2016-2017 (Table 3).
Table 3. Myanmar Speci c Goods Tax (SGT), 2016-2017
Category No. Tobacco products Speci c Goods Tax (Sale Price per pack) 2016 2017
1 Cigarette
Although the shift to a speci c tax system for cigarettes and cheroots may potentially generate higher revenues and bene t public health, the multi-tiered tax system implemented by Myanmar negates these scal and public health bene ts, because it creates:
The four tax tiers for cigarettes and a separate tax rate for cheroots mimic an Price gaps that ad valorem system. Together with the ad valorem system for other types of promote tax tobacco, these create wide tax gaps that lead to wide price gaps between avoidance and lower and higher priced brands and types of products. This allows the product industry to expand their range of lower priced brands and even undervalue substitution their products in order to pay lower SGT (tax avoidance), which will lead to lower tax revenues for the government and encourage consumers to consume cheaper tobacco products instead of stopping their use (trading down and product substitution).
Tax Ad valorem tax systems and those with multiple tax tiers are more dicult to administration administer and require signi cant tax administration capacity with a more burden complicated tax reporting system, while tax ocers have to conduct more frequent monitoring of production volumes, pricing schemes, and tax payments in order to prevent tax evasion. 13 Maximizing Tobacco Tax Reform in Myanmar 2017
Ad valorem and multi-tiered tax systems are less e ective and less ecient than speci c or mixed (speci c combined with ad valorem) systems; however, speci c systems require regular tax rate increases to respond to higher in ation and incomes in order to continually reduce a ordability over time. As recommended by the WHO FCTC Article 6 Guidelines, the most e ective tobacco tax system to reach scal and public health goals is the simplest system, preferably with uniform speci c tax rates indexed to in ation and income growth. Recommendations
1. Impose a uniform speci c tobacco tax rate on all types of tobacco products Myanmar should simplify its tobacco tax system and adjust tobacco tax rates to reduce the a ordability of tobacco products. The best practice from the Philippines during its Sin Tax Reform in 2012 has proven that imposing a uniform speci c tax system and raising tobacco tax rate highly contributed to the positive impact on scal and public health policy. Figure 8. Philippines tobacco tax reform
35.00 Unitary 30.00 Premium Tier 1
25.00
20.00 Tier 2
15.00 High 10.00 Medium 341% 5.00 Low
0.00 2012 2013 2014 2015 2016
Projected Incremental Revenue (Tobacco) 23.4 29.6 33.5 37.1 40.9 H P P
s Projected Incremental Revenue (Alcohol) 10.6 13.3 17.1 19.8 23.3 n o i l l Projected Incremental Revenue (TOTAL) 34.0 42.9 50.6 56.9 64.2 B i
n I Estimated Earmark for Health as of 2012 30.5 38.4 45.6 51.3 58.0
©2017 Hana Ross Before 2012, Philippines imposed a 4-tier speci c tax on di erent cigarette brands based on the Net Retail Price (Premium, High, Medium and Low price) set by law since 1996.
Table 4. Comparison of the old and new tax law of Philippines
Old system RA 10351 2012 2013 2014 2015 2016 2017 2018 2012 Excise Tax NRP Excise Tax 11.50 below 5.00 2.72 and 12.00 17.00 21.00 25.00 5.00 to 6.50 7.56 below annual 30.00 4% 6.51 to 10.00 12.00 more than 25.00 27.00 28.00 29.00 increase more than 10.00 28.30 11.50 Maximizing Tobacco Tax Reform in Myanmar 2017 14
The Sin Tax Reform Law (Republic Act 10351) reduced the tax tiers from 4 to 2 tiers with an average rate increase of 341% in 2013. In 2017, the tax rate became uniform at PHP 30 per pack, with indexation to in ation (4% annual increase) from 2018 onwards. As a result, the tobacco excise revenue increased dramatically to 0.6% of the GDP in 2013 (from 0.35% of GDP in 2012).
Figure 9. Projected vs actual incremental revenues from RA 10351, 2013-2017
80 73.1 10 9 70 64.2 8 60 56.9 51.2 50.2 50.6 7 50 42.9 6 40 5 34 30 4 in billion Pesos 3 20 2 10 1 0 0 2013 2014 2015 2016 2017
Projected Actual
Figure 10. Philippines tobacco excise collection as percentage of GDP
0.8% 0.7% Tobacco Excise Taxes as of % of GDP 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Tobacco Excise Collections as % to GDP Source: Department of Health Philippines, 2017 15 Maximizing Tobacco Tax Reform in Myanmar 2017
Meanwhile, the smoking prevalence rate has dropped from 29.7% in 2008 to 23.8% in 2015 according to the Global Adult Tobacco survey. Figure 11. Adult smoking prevalence (%) in Philippines (2008-2015) 32.0 31.0 30.0 30.0 29.7 29.0 28.0
26.0 26.0 25.4
24.0 23.8 NNHeS (National Nutrition and Health Survey) 22.0 GATS (Global Adult Tobacco Survey) SWS (Social Weather Stations Survey) 20.0 2008 2009 2010 2011 2012 2013 2014 2015
Source: Department of Health Philippines, 2017
The case study from the Sin Tax Law showed that; Uniform speci c tax is a Win-Win for revenue and health.
Aggressive tax increase brought about dramatic revenue increases that the government can utilize for health and social development, while also lowering tobacco consumption.
Tax increase rate can be as high as 341% of the previous tax rate since tobacco products were cheap and a ordable.
The speci c tax rate needs to be indexed to in ation rates and income growth to reduce a ordability of tobacco products.
Myanmar should: Collapse the tobacco tax tiers to be a uniform speci c tax rate for all tobacco products, including introduce a comparable tax on cheroots and smokeless tobacco (to prevent tax avoidance by the industry and product substitution by consumers)
Increase tax annually, at least as much as in ation (7% in 2016) and income growth (6.5% GDP growth in 2016) or about 14% annual increase to make tobacco products less a ordable especially among youth Maximizing Tobacco Tax Reform in Myanmar 2017 16
C Tobacco tax administration challenges
Article 6 Guidelines Parties should ensure that transparent license or equivalent approval or control systems are in place.
1. Authorization/Licensing In Myanmar, tobacco businesses are not required to obtain a license for any kind of business activity. However, the majority of ASEAN countries establish licenses to control the manufacture and importation of tobacco products.5 Without the comprehensive authorization/licensing of tobacco businesses, the government cannot e ectively control tobacco businesses and impose the appropriate taxes. The government could lose a large number of revenue from this situation.
The WHO FCTC Article 6 Guidelines recommended licensing the whole tobacco supply chain. Enforcing comprehensive licensing measures will help the government control the overall tobacco business including the small-scale cheroot producers. Ultimately this will help the government generate more revenue and understand the nature of their business including the number of factories, employees, and production volumes, which will assist the monitoring of law compliance of tobacco business.
In Thailand, the licensing of tobacco business supply chain was stipulated in the Thailand Excise Tax Act B.E. 2560 (2017) which allows the government to enforce a comprehensive control of the tobacco business supply chain (from tobacco growers to retailers), including collection of license fees and business inspections to ensure legal compliance.
Figure 12. Tobacco supply chain in Thailand
Tobacco Supply chain Cigarette
TTM
Tobacco Farm Tobacco Cultivation
Dehumidifying station
Curing Station Cured Tobacco
Exporter
Source: Ministry of Finance Thailand, 2017 Export
5 Southeast Asia Tobacco Control Alliance (SEATCA) (2017). SEATCA Tobacco Tax Index (2017). 17 Maximizing Tobacco Tax Reform in Myanmar 2017
Article 6 Guidelines Where appropriate, Parties should consider requiring the application of scal markings to increase compliance with tax laws.
2. Fiscal markings Myanmar imposes tax stamps on di erent types of tobacco products; however, the tax stamps are not part of a tracking and tracing system for tobacco products, and approximately 10-20% of cigarette packs sold in the market are without tax stamps. The unstamped products are mostly imported brands that are illegally manufactured locally or smuggled from abroad.6 The WHO FCTC Article 6 Guidelines recommend that governments require scal markings on tobacco products to prevent illicit tobacco trade and increase tobacco tax compliance.
In the Philippines, the use of tax stamps with multiple security features has improved tax collections under the Sin Tax Law. Three types of tax stamps are in use: for domestic, imported and exported products, each bearing the image of the whale shark, locally known as “butanding”. Each stamp has a Unique Identi er Code generated only upon order, and each and every stamp is unique, with no one stamp like another. The Bureau of Internal Revenue also set up the Internal Revenue Stamps Integrated System (IRSIS) - a web-based application system that allows the on-line ordering, distribution of stamps with security features, and payment of excise taxes thereof.
Figure 13. Tobacco excise tax stamps, Philippines
Domestic (Pink) Imported (Orange) Export (Green)
3. Tax avoidance and evasion With its multi-tiered and ad valorem systems, Myanmar risks product undervaluation by the tobacco industry. For example, Red Ruby brand costs around 600 Kyat per pack. However, the tax rate di erence between category 2 and 3 tax rate is only 80 Kyat. The producers can set their product price low to be able to pay the lower tax in category 2.
The results of the Tobacco Products and Price Survey Myanmar 2015 con rm that majority of tax stamps sold are in the lowest price category. In addition, the Internal Revenue Department (IRD) sets the price for tax purposes as 60% of tobacco market price, or the producers set their own price, whichever is higher. However, there are no clear guidelines or criteria to set the market price for tax purposes which leaves room for the tobacco industry to manipulate the price declared to the IRD. Lastly, imported cigarettes were taxed more than domestic cigarettes (120% of CIF) in 2016 and banned in 2017. Therefore, the international tobacco businesses are likely to invest or register themselves as local companies to avoid paying higher tax or being banned by the government.
In conclusion, e ective tobacco tax administration remains a key challenge for Myanmar. The issues of authorization/licensing, scal markings and tax avoidance/evasion by the industry are the top priority for the government to be solved in order to achieve the revenue and public health.
6 People Health Foundation (2015). Tobacco Products and Price Survey Myanmar 2015. Maximizing Tobacco Tax Reform in Myanmar 2017 18
Recommendations
1. Authorization/Licensing Myanmar should enforce the license on manufacturers of tobacco products rst while in the future the entire tobacco business supply chain should be licensed (tobacco growers, transportation of tobacco products, wholesalers and retailers). As a consequence, the government can monitor and control the tobacco business, both large and small businesses, that produce smoked and smokeless tobacco products. Additionally, the government will be able to require the tobacco companies to submit key information such as volume of production, price of various tobacco products, number and location of factories and employees, etc.) in order to obtain/renew the license annually. The information gained from manufacturers can provide data to develop future tax policy reforms. Moreover, the government should use its State power to inspect businesses for compliance with the law and revoke licenses in the case of non-compliance.
2. Fiscal markings Myanmar should strengthen its tax stamp system by introducing security technology with tracking and tracing capabilities, with implementation costs to be borne by the industry, to achieve higher revenue collection and prevent the illicit trade of tobacco products. In addition, the government should monitor the tax stamps compliance in the market and enforce penalty on products sold without tax stamps (as these are considered illicit products).
3. Tax avoidance and evasion In order to prevent tax avoidance and evasion, Myanmar should consider collapsing the tax tiers to be a uniform system for all types of tobacco products, and strengthen the tax administration system in order to help audit the tax payment from the tobacco industry. Around the world, there is existing evidence that the tobacco industry manipulates loopholes of weak tax administration systems. By tackling the tax avoidance and evasion problem, the government can implement the uniform speci c tax system as well as raise the tobacco tax rate high enough to reduce the a ordability of tobacco product. In addition, as mentioned above, strengthening the tax administration system through licensing of tobacco business supply chain and improving scal markings measure can bring about the increased revenue since more legal products will be sold in the market.
Myanmar should: • Impose authorization/licensing measure on manufactures and expanding it to wholesalers and retailers in the future to control the supply chain of tobacco business
Strengthen the technology of scal markings and monitor the law compliance in the market to achieve higher revenue collection and prevent the illicit trade of tobacco products 19 Maximizing Tobacco Tax Reform in Myanmar 2017
D Recommendations for Cheroots and Smokeless Tobacco Products
Image 2: Betel Nut
Image 1: Cheroots
Cheroots are the most commonly used tobacco product in Myanmar (49% of the tobacco products consumed in the country).7 Similarly for Betel Nut, when compared with other ASEAN countries, Myanmar has the highest smokeless tobacco use (43.2%).8
Figure 14. Number and percentage of adults who use smokeless tobacco in ASEAN
2.7% (758) Brunei 1.3% (532) (2014) 1.8% (1,290) 8.6% (451,126) Smokeless Cambodia 0.8% (36,191) (2014) 4.9% (487,317) tobacco use the highest in 4.8% (4,320,033) Indonesia 3.9% (3,493,678) Female Male Total Myanmar (43.2%), (2013) 4.3% (4,813,711) Malaysia (10.9%) and Cambodia 8.6% (141,835) (4.9%). Lao PDR 0.5% (8,117) (2015) 4.3% (149,952) 0.8% (89,643) Malaysia 20.4% (2,293,463) (2015) 10.9% (2,383,106) 24.1% (5,678) 62.2% (3,079) Myanmar (2014) 43.2% (8,758) 0.7% (240,084) Philippines 2.7% (924,203) (2015) 1.7% (1,164,966) 3.9% (1,115,466) Thailand 2.5% (671,212) (2014) 3.3% (1,786,678) 2% (1,386,666) Vietnam 0.8% (554,667) (2015) 1.4% (1,941,333)
7 Kyaing, N N. (2003). Tobacco Economics in Myanmar. The World Bank and The Tobacco Free Initiative of The World Health Organization. 8 Tan YL. and Dorotheo U. (2016). The Tobacco Control Atlas: ASEAN Region, Third Edition, November 2016. Southeast Asia Tobacco Control Alliance (SEATCA), Bangkok. Thailand. Maximizing Tobacco Tax Reform in Myanmar 2017 20
Due to the lack of current data, the number of cheroots and smokeless tobacco producers and employees are unknown. However, the data in 1997 stated that there were about 2,508 cheroot workers at the factories in 7 states and divisions with about 940 cheroots industries operating between 2000-2001.9 It is presumed that the number of industries and employees have increased since 1997. Cheroot producers are known to be a domestic, so-called “cottage industry” in which women are mostly employed. The 1997 data showed that the cheroots industry does not register all those who are employed on a daily wage, particularly women workers, as they usually take materials to roll cheroots at home.10 Therefore, the employees, particularly women, are not protected by access to labor rights such as daily wage and health care. Because Myanmar does not enforce licensing measures on the cheroots and smokeless tobacco producers, the government is unable to impose any types of taxes on these producers or their products. This causes a large amount of revenue loss to the government, because almost of half of tobacco users in the country consume cheroots and smokeless tobacco.
Myanmar should: License cheroots and smokeless tobacco producers so that they will be required to pay tax. It will enable the government to control the business and labor of the industry Introduce higher tax rates on cheroots and smokeless tobacco. Ultimately the government should tax all types of tobacco products at the same rate to prevent the substitution of products Impose tax stamp measure and monitoring of tax stamp compliance on cheroots in the market to prevent illicit products
III. CONCLUSION
In e ect since 2016, the current Union Tax Law introduced a Speci c Goods Tax to tackle the problem of transfer pricing. However, the tobacco tax system in Myanmar, comprised of 10 categories for di erent types of tobacco products and market prices, with four sub-tiers for cigarettes and two sub-tiers for cheroots, has inherent weakness that invite tax avoidance by the industry. This is because the system creates loopholes for the industry to manipulate the market prices and introduce cheap product brands for lower tax payment.
The complex tax system is also technically more dicult to implement and, without a strong tax administration, encourages tax evasion and illicit trade. It is urgent for the government of Myanmar to consider improving both tobacco tax system/tax rate and tax administration measures to prevent revenue losses, increase tax collections, and discourage tobacco consumption in the country.
As a win-win policy, enforcing strong tobacco tax measures will help the country gain much higher revenues from tobacco products, reduce health care costs for tobacco-caused diseases, and save lives through decreasing tobacco consumption. By all means, Myanmar should take into account the recommendations of the WHO FCTC Article 6 Guidelines in future tax reforms.
9 Department of Labor Myanmar. (1997 and 2001). Ocial Document. 10 Kyaing, N N. (2003). Tobacco Economics in Myanmar. The World Bank and The Tobacco Free Initiative of The World Health Organization. Southeast Asia Tobacco Control Alliance