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Raising revenues for universal health care

The Philippine Statistics Authority has confirmed what many Filipinos knew all along. Our economy is now in a recession after two consecutive quarters of negative growth. Thousands of companies closed, unemployment registered an all-time high, public transport ground to a halt, and the country’s GDP shrank by 16.5% during the second quarter – the deepest decline ever in our history.

Revenue collections suffered as a result of the COVID-19 pandemic, prompting government officials to lower their targets for the year. These adjustments took into consideration the devastating impact of the public health crisis on the nation’s economic lifeblood, with businesses literally at a standstill for two and a half months.

Due to the series of lockdowns, the Department of Finance (DOF) has downscaled the 2020 collection targets of its attached agency, the Bureau of Internal Revenue (BIR). Initial data showed that the BIR’s excise tax collections in the first half of the year declined by 33% compared to the same period in 2019.

Last year, President Rodrigo Duterte signed Republic Act No. 11346 increasing excise taxes on tobacco products and imposing a new excise tax on electronic cigarettes. In December 2019, Congress passed Republic Act No. 11467 that further increased taxes on excisable e-cigarettes, heated tobacco products, and alcoholic drinks effective this year.

RA 11346 has earmarked for the government’s Universal Health Care (UHC) program a portion of the total excise collections from sugar-sweetened beverages, alcohol, tobacco, and vapor products. On the other hand, RA 11467 reinforced the regulatory purview of the Food and Drug Administration over heated tobacco and e-cigarette products.

As result of these two new laws, the DOF projected the BIR’s excise tax collections for 2020 to reach P332 billion. It also expects to generate P102 billion for the UHC program’s medical assistance and health facilities requirements nationwide in the next five years as well as to support the Philippines’ commitment to the United Nations’ Sustainable Development Goals.

But after lowering its revenue goals, the BIR’s excise tax collection in the first semester was only one-third of the DOF’s original target. At the peak of the enhanced community quarantine (ECQ) last April, the collection of these so-called sin taxes plunged 99% to only P200 million vis-a-vis the year-ago level of P18 billion.

Economic activity gradually came back to life under a modified enhanced community quarantine (MECQ) protocol that eased restrictions in the latter part of May. Sin tax collections of P11.9 billion vastly improved from the previous month, although still down by 43% year-on-year.

It was a mix of good and bad news as Mega Manila transitioned to general community quarantine (GCQ) in June. Revenues from sin products increased, but this was based on a significantly trimmed target compared to pre-pandemic projections. Overall excise tax collections for the first semester of 2020 were still way below the corresponding period in 2019 even when downscaled, though the figure was up 13% compared to the adjusted target.

We don’t have the numbers yet for July, which most likely improved because of more relaxed GCQ conditions. But here we are again under MECQ in the National Capital Region and adjoining provinces this August, with the re-imposition of lockdown restrictions in the metropolitan area amid the spike in COVID-19 cases.

Faced with such a grim situation, our revenue officials will have to work triple time the rest of the year to raise collections and make up for the huge shortfall in the first half. Without sufficient funds, what will happen to the government’s essential programs like the UHC?

Providing some form of relief are the excise tax collections amounting to P18.1 billion from tobacco products and P7.4 billion from alcohol products. However, these figures do not necessarily mean that consumers have increased their spending on sin products. In fact, cigarette consumption fell either because smokers could not go out and buy, or they were simply holding on to their hard-earned cash. It may also be noted that production plants were shut down during ECQ but have been allowed under MECQ and GCQ.

Clearly, the government needs taxes from excisable products for the social amelioration program in multiple regions. The number of tax stamps ordered by alcohol and cigarette manufacturers during the quarantine period is the best indicator of their production volume. As recent BIR collection figures have cited, the procurement of tax stamps has dropped considerably from pre-COVID levels.

Only time will tell how this tug-of-war between public health and the economy can be resolved to create a harmonious balance for all.

nextgenmedia@gmail.com


Source: Manila Bulletin (https://mb.com.ph/2020/08/10/raising-revenues-for-universal-health-care/?utm_source=rss&utm_medium=rss&utm_campaign=raising-revenues-for-universal-health-care)

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