Shadow Report on the Implementation of WHO Framework Convention on Tobacco Control in the Philippines (2011) HealthJustice Table of Contents Executive Summary……...………………………………………….. 6 Tobacco Tax……………………………………………………..………. 8 Smoke Free Environments……………………………………… 15 Graphic Health Warnings………………………………..……… 20 Tobacco Industry Interference………………………………. 25 2 Abbreviations CSC Civil Service Commission CTGA Cagayan Tobacco Growers Association DILG Department of Interior and Local Government DOF Department of Finance DOH Department of Health FDA Food and Drug Administration FTC Fortune Tobacco Corporation IAC-T Inter-agency Committee-Tobacco ICESCR International Covenant on Economic, Social, and Cultural Rights JMC Joint Memorandum Circular LTFRB Land Transportation Franchising and Regulatory BoarD LEDAC Legislative-Executive Development Advisory Council LGUs Local Government Units MMDA Metro Manila Development Authority NTA National Tobacco Administration PATDA Philippine Aromatic Tobacco Development Association Inc. PMFTC Philip Morris Fortune Tobacco Corporation PMPMI Philip Morris Philippines Manufacturing Inc. PTGA Philippine Tobacco Growers Association PTI Philippine Tobacco Institute SEATCA Southeast Asia Tobacco Control Alliance SITT Southeast Asia Initiative on Tobacco Tax TAPS Tobacco Advertisement, Promotion, and Sponsorship TESDA Technical Education Skills Development Authority VAT Value-Added Tax WHO World Health Organization WHO FCTC World Health Organization Framework Convention on Tobacco Control 3 17.3 million adult smokers. i The Philippines Has one of tHe HigHest smoking prevalence in the worlD. th 9 highest in male adult smoking prevalence. ii It is estimateD that 47.7% of the Filipino male population smoke. iii th 16 highest in female aDult smoking prevalence. iv Tobacco companies continue to glamorize smoking to entice women anD tHe youtH to continue smoking. YoutH smoking increaseD by witHin a span of 4 40% v years. Even Homes are not safe. Almost of Filipino households are not 50% smoke-free.vi 4 Annual revenue collection from tobacco companies: vii PhP 26 Billion Economic cost of four tobacco-related diseases: viii PhP 218 to 461 Billion Over of 90% tobacco products consumed in the country are in the form of cigarettes Philip Morris Fortune Tobacco Corporation controls 93%of the cigarette market 87,600 Filipinos die every year due to tobacco-relateD illnesses ix 5 EXECUTIVE SUMMARY WHile there are tobacco control efforts in the Philippines, tHe prevalence of tobacco use remains high, with 28.3% adultsx anD 27.3% youtHxi currently using tobacco proDucts. THis can be attributed to weak laws, lack of strict implementation of policies, and strong tobacco industry interference. As a result, it is estimated that 87,600 Filipinos die from tobacco- related diseases per year. In other words, if the Philippines wants to win the war against tobacco, it needs to strengthen its efforts in implementing tobacco control measures. This Shadow Report aims to explore four key areas of tobacco control in the Philippines – tobacco taxation, smoke free environments, graphic health warnings, and tobacco industry interference. These key areas address crucial problems or gaps, namely: • The availability of cheap, affordable cigarettes • An environment that supports the culture of smoking • Lack of appropriate and effective health warnings • The strong influence of the tobacco industry in the country Tobacco Taxes The tobacco tax structure must be simplified, and the excise tax of tobacco products must be significantly increased. In addition it must be regularly increased so that tobacco product prices would be high enough to reduce tobacco use. Part of the revenue from tobacco taxes sHould be allocateD for preventative Health programs and systems or ”health promotion” as a complementary effort to reduce tobacco consumption and the growing burden of NCDs in the country. Funds from tobacco tax must also be channeled towards promoting alternative livelihood for tobacco farmers. Smoke Free Environments The efforts of different agencies and local government units (LGUs) in implementing smoke free initiatives must be encouraged to protect the public from secondhand smoke.xii In addition, strict implementation of smoke free public places will also encourage smokers to quit smoking and support smoking cessation efforts. Graphic Health Warnings The Department of Health (DOH) Administrative Order 2010-13 on Graphic Health Information must be implemented despite the challenges filed by the tobacco industry in court.xiii The DOH has the authority to implement the Administrative Order, except in certain territories where the tobacco industry has secured a preliminary injunction. In addition, the DOH can also support and encourage LGUs to implement the Administrative OrDer.xiv 6 Tobacco Industry Interference Tobacco industry interference must be countered through the implementation of Article 5.3 of the FCTC and the DOH-CSC Joint Memorandum Circular on the Protection of the Bureaucracy Against Tobacco Industry Interference. It is essential to sustain the efforts to raise awareness and to report tobacco industry interference in order to denormalize the strategies of the tobacco industry. 7 TOBACCO TAX Compared with neighboring countries, Singapore, Malaysia, and Thailand, cigarette price in the Philippines is the lowest, while smoking prevalence is the highest. Price of Cigarettes and Smoking Prevalence Rates in Selected Southeast Asian Countriesxv Article 6 of the FCTC Parties shoulD take account of its national health objectives concerning tobacco control anD aDopt or maintain measures, wHicH may incluDe: Implementing tax anD price policies on tobacco proDucts so as to contribute to the health objectives aimeD at reDucing tobacco consumption Prohibiting or restricting, as appropriate, sales to anD/or importations by international Weaknesses of the Tobacco Excise Tax System travelers of tax- anD Different types of tax are imposed on tobacco: Value-adDeD duty-free tobacco proDucts tax (VAT), import tariff, and excise tax. Among these, excise tax has the highest impact on price and serves a regulatory purpose to adDress health objectives. The current system does not take into account health objectives. The tax rates are too low and the tax burden has decreased remarkably over the past decade. Based on 2010 cigarette prices, the cigarette excise tax as a percentage of GRP ranges from 19 percent to 48 percent, whereas in 1997, it was between 30 percent and 60 percent.xvi THe current tax burden is below the recommended levels of the World Health Organization (WHO) and World Bank whicH is for tobacco taxes to be at least 70% of the retail price.xvii Excise tax for cigarettes provides for specific taxes, which takes the nature of an ad valorem because of 8 the four price classifications of cigarettes wherein low specific rates are imposed on the lower-priced cigarettes A 2010 stuDy tHat first analyzed the tobacco excise tax system from a health perspective resulted in bringing together various government officials in health, economics and finance. The study recommended a specific rate/ value of tobacco tax and identified key issues that must be addressed, namely: price classification freeze, multi-level tax structure, lack of price indexation, low incremental change in tax and price, and the imbalance of funding that accrues to health promotion in contrast with that which is dedicated for tobacco farming provinces xviii 1. Price Classification Freeze The lawxix made a classification between old brands and those registered after January 1, 1997. Existing or old brands of cigarettes, or those that form over 90 percent of the total market, are taxed based on their net retail price as of October 1, 1996. The price classification freeze is advantageous to old brands but disadvantageous to new entrants because new brands are taxed based on their current net retail prices instead of the lower NRP of the tax base.xx Government Revenue Losses Due to Price Classification Freezexxi Government Revenue Losses (PhP) in billions Current Price price classificati 2005 2006 2007 2008 2009 2010xxii classificati on if freeze on is removeD 6.23 7.96 8.03 9.04 8.74 10.04 Low MiDDle 2.71 2.55 2.40 2.39 1.85 2.12 MiDDle HigH 15.75 17.76 14.04 18.01 14.99 17.26 HigH Premium 24.69 28.62 24.47 29.44 25.58 29.42 TOTAL 2. Multi-level Tax Structure 9 The current tax structure is classified into four tiers with different specific tax rates depending on their prices classification as premium-priced, high-priced, medium- priced, and low-priced. The specific tax rates Depend upon the price classification, thus, cigarettes that are classified at a lower bracket pay a lower rate. Market Segment, Tax Rate, and Market Sharexxiii Market Segment 2009 Tax Rate Market Share (PhP) estimate (%) Low 2.47 48.3 MeDium 7.14 20.4 HigH 11.43 30.2 Premium 27.16 1.2 The system keeps low-priced cigarettes low and widens the gap between high-priced and low-priced cigarettesxxiv anD has contributeD to tHe substitution of branDs. THe wiDe gap between low-, middle-, and high-priced cigarettes has encouraged a trend of shifting from high-priced brands to low-priced brands, with an indication that the consumption of low-priced cigarettes is rising.xxv Majority of the cigarettes sold belong to the low-priced category.xxvi 3. Lack of Price Indexation Current specific rates under the law do not allow for adjustments based on inflation and the real value of excise taxes have decreased over time. On the