BWorld 161, The sin of smuggling and corruption in the Sin tax law

* This is my article in BusinessWorld last October 23, 2017.

The intent or purpose of higher taxation is to further penalize an act, work, or consumption, hoping to discourage them by making their prices higher while giving government and lobbyists more freebies and more money.

The unintended result of higher taxation is to encourage illicit trade, production of cheaper but lower quality goods and services while giving the corrupt and extortionists in government more money.

Such may be the experience of the Sin Tax law of 2012 or RA 10351. It has raised lots of money for government, benefitted the universal health care program of DoH-PhilHealth while enriching the smugglers, illicit traders and their government protectors.

Revenues from sin tax has significantly increased in 2013, the first year of implementation of the law. Tobacco tax in particular has more than doubled from P32B in 2012 to P70B in 2013. Meanwhile, estimates of cigarettes smuggling have also increased from 35 million packs in 2012 to 40 million packs in 2013 (see table).

The CRC estimates are partly derived from the Oxford Economics report in 2016, “Asia: Illicit Tobacco Indicators 2015.”

The rise in smuggling and illicit trade of cigarettes is also shown by the haul of the BoC and BIR in raids in November 2016 in Bulacan, Pampanga and Pangasinan where more than P1 billion worth of illegally produced cigarettes and counterfeits were discovered. In Pangasinan alone, an illegal factory was raided, which led to the discovery of fake stamps and cigarette making/packing machines that can produce up to 3.6B cigarettes a year.

So claims by the government and advocates of RA 10351 that “8 million Filipinos have stopped smoking since the passage of the law” or “at least 70,000 smoking-related deaths have been averted since 2013” and similar pronouncements may not be true after all? Or are these numbers exaggerated?

The numbers in the table and the huge number of discovered smuggled cigarettes by government raids mean one thing — demand and consumption for tobacco products remained high despite the tax hike. Consumers simply shifted from higher-price to lower-price products, and from legal to illegal or informal sources of tobacco and alcohol products. Like lambanog and tuba.

I made an informal, verbal survey of some small sari-sari stores in a rice farming village in Bugallon, Pangasinan when I went there last month, accompanied by a local. I asked the store owners, “Has smoking and drinking incidence by the people declined, stayed about the same, or increased?”

They replied that they do not have the numbers but they observe that smoking and drinking incidence did not drop or decline. Poor people simply shifted to cheaper brands as new brands with cheap products like Mighty sprouted. The well-off continued patronizing the established higher-price brands despite the rise in prices, they simply reduced their smoking by several sticks a day.

For alcohol products, San Miguel beer is literally wiped out in poorer villages because of its higher price but the consumption of Ginebra, Emperador, Red Horse, and other products has remained the same if not increased. Drinkers usually start with the high alcohol drinks and before going home or elsewhere, they wind down to Red Horse.

Sen. Manny Pacquiao introduced Senate Bill 1599 that aims to increase the unitary excise tax on tobacco products from P30 to P60 per pack, and the annual increase be raised from 4% to 9%. His goal is to parrot the goals of the Sin tax law of 2012 — more money for government, less smoking incidence by the people.

Given the above numbers and facts on the ground, what the boxer-Senator would achieve if his bill becomes a law would be more illicit trade and more corruption in government while gaining more political pogi points for his political plans in 2022.

Instead of introducing another round of higher sin tax, legislators and executive agencies should focus on strictly implementing the existing law and plug loopholes. The proliferation of counterfeit products and stamps mean there is proliferation of corruption in government that allowed such things to happen for several years.

There is a limit to state nannyism and government intervention on how people should run their own lives. Government should limit its unlimited itch to tax-tax-tax, regulate-regulate-regulate, spend-spend-spend.

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See also:
BWorld 158, Why a carbon tax is wrong, October 16, 2017 

BWorld 159, Electoral reforms and the President, October 19, 2017 

BWorld 160, A high carbon tax is irrational, October 25, 2017

Sugar tax and nanny state

Why the DOF's sugar tax bill in Congress is lousy.

1. The state is further addicted to tax-tax-tax mentality and policy.

2. This 2-tier taxation (higher tax for imported sugar) is anti-WTO rules, DFA is correct.

3. State nannyism ('protect public health' alibi) is fuelling more state interventionism. Tax alcohol, tobacco, soft drinks, juices. Soon it will tax litson baboy, litson manok. 

See this report from BusinessWorld last week.

That the state has hiked the tax on alcohol and tobacco products is generally accepted by the public. But taxing further soft drinks, powdered juice drinks, etc. is OA state nannyism. People own their body, not the state and politicians, not the health NGOs, etc. Simple joys by the poor like drinking powdered juice, the state will make these products become more expensive, and certain sectors like health NGOs, medical groups are clapping partly because they will get more tax money.

Earlier, a lady Senator wanted to file a bill banning unlimited rice ("unli-rice") in restaurants. The usual alibi is "public health concern." Trying-hard state nannyism, those politicians and state bureaucrats think they are so bright they can plan other people's lives. Next they will penalize climbing trees and climbing roofs because they might fall and it's bad for their health and it's bad for public health budget.

The silent motive here is that Dutertenomics will need lots of tax-tax-tax because it will go into endless borrow-borrow-borrow from China. Improving public infra is good and there are many big private companies, local and foreign, willing to bankroll many infra projects, but this administration intends to please China -- the communist dictatorial government, its banks and contractors.

Welfarism 28: Nanny State Cares Too Much for its Citizens, UK Style

A welfare and nanny state will ultimately over-extend its "care" for the citizens. Spy, stop and penalize them because it cares for them so much. This is from a Filipino-British friend living in UK, he wrote this yesterday.

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We now have a heavy police presence. There are frequent checkpoints with teams of maybe 10-20 police, their vans, cars and motorbikes spread out along the road. They randomly check motorists to make sure their papers are in order. I have never seen this as part of normal police procedure in the UK. Now it's like an every day thing.

The other day they stopped two buses and had police checking IDs and questioning passengers. It's difficult to describe how unusual this is if you've never lived in the UK. But people don't seem to care. I'm sure they are comforted by it. You have to understand that these are not like Philippine checkpoints. They have mobile computers linked to their databases where they can check your details and past history.

Last month we were all in the car with my dad driving. We were stopped because the policeman saw that my daughter wasn't using an approved child car seat. The policeman took photos of the whole car with everyone in it. He crawled around (yes, crawled around the car!) inspecting underneath, checking tire pressure and looking for other violations. (Do you see a Philippine cop doing that?) He then put my dad's ID into his computer and found a tax violation. The tax on our car had expired the week before and my dad had forgotten to renew it. Bam...two fines and a warning for a soft tire. Total cost: £160 (appox. Php12,000). You can pay online. Further, he made us to go to the nearest car shop to buy an approved child car seat before we could continue with our journey.

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I told my friend that it's indeed discomforting. As societies modernize, the degree of individual freedom -- freedom to be wise or unwise, to innovate or commit mistakes -- should expand, not decrease. Here. freedom of mobility of people is curtailed, they can be stopped by the police anytime anywhere even for no apparent traffic violation. It would seem that those in the Philippines and other developing countries have higher degree of freedom in this respect.

Two friends made these comments when I posted this in Government and Taxes, Liberty and Responsibility fb group.

(1) technology minus liberalism = orwell's worst nightmare.

a step-by-step strategy, the ultimate aim of which is to treat all citizens as potential law breakers and to criminalise as many citizens as possible? the more of this i see, the more radical my libertarian convictions become

(2) Am surprised to hear that from a brit--I've always known that compared to the US, UK has always had tighter "monitoring" of its citizenry & residents. Even pet dogs' barking is controlled in Central London!

If even a Beatles' impromptu rooftop concert at a city building was cut short by London police as it was causing some commuter distraction (not even traffic), it's not surprising that things have come to this. And these are just visible physical signs of police presence. In London, all TV and cable is registered--one cannot simply install one's own unregistered device without being found out. Even immigration keeps a close tab of all foreign residents & visitors--overstaying without being penalized is practically unheard of in this country. These are less visible signs (am not even talking about Snowden's revelations) but definite proof of tighter & more sophisticated control in a seemingly free world.

More news links that my British-Filipino friend posted. (1) From The Guardian last February 7th.

Police stopped nearly 250 drivers during a crackdown.

A total of 242 vehicles were pulled over by the police, two of which were seized, during an operation on Wednesday, February 5, in Sutton.

One driver was arrested for drink driving, one received a cannabis warning and two are due to be summonsed to court for having unroadworthy vehicles.

Another driver was fined and received penalty points for having a bald tyre and one was fined for not wearing a seatbelt.

Officers used automatic number plate recognition to target uninsured, untased and unregistered vehicles. Safer Neighbourhoods Insp Ian Hicks said: "This operation and others like it are all about catching criminals, deterring criminal activities and keeping the streets safe. These operations will continue and you will be caught if you don't have insurance or the correct insurance."

(2) From The Guardian's youtube clip, Stop and search: police battle for controlof London's streets. My friend made these two observations:

(1) As expected, the community, even while they were victimised, supported the powers as a necessary thing. Just listen to them and the cognitive dissonance is glaring.

(2) The motorist stops I described above must obviously be an extension to the 'Stop and Search' protocol. They tried it, liked it, and wanted to extend it into other areas. Anyone who says that the slippery slope fallacy is an invalid argument probably have never slipped down that slope themselves.

Meanwhile, another new development in UK. From WUWT.

UK’s only climate skeptic party crushingly wins the EU election

By Christopher Monckton of Brenchley

The United Kingdom Independence Party, the only climate-skeptical party in Britain, has scored a crushing victory in Sunday’s elections to the Duma of the European Union.

Britain’s most true-believing party, the Greens, won one or two new seats, but the second most true-believing party and junior partner in the Children’s Coalition that currently governs at Westminster, the “Liberal” “Democrats” (who are neither), were all but wiped off the map.

The European Duma, like that of Tsar Nicholas II in Russia, has no real power. It cannot even bring forward a Bill, for that vital probouleutic function is the sole right of the unelected Kommissars – the official German name for the tiny, secretive clique of cuisses-de-cuir who wield all real power in the EU behind closed doors….

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See also:

Welfarism 24: Comments on the Kasambahay, Solo Parents Bills, December 03, 2012 

Welfarism 25: Centenarians and Populist Legislators, May 30, 2013 

Welfarism 26: John Mangun on Economic Decline of the West, July 31, 2013

Welfarism 27: On Support for Single Mothers and HIV Patients, November 29, 2013

Globalization, Mobility and Inequality, February 18, 2014

Fat-Free Econ 27: Sin Tax and Nannyism

* My article yesterday in TV5's news portal,
http://www.interaksyon.com/business/46120/fat-free-economics-sin-tax-and-nannyism
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The bill raising the excise tax for tobacco and alcohol products – a.k.a. “sin tax” bill - is a tax bill mainly, and a health bill only second. It is a tax bill because its main goal is to raise revenue for the government, from a minimum target of P20 billion on year one alone, to a maximum target of P60 billion.


It is also a health bill because its second purpose is to discourage more people from smoking and drinking more by raising the price of cigarettes and alcoholic products. Various studies cited by physicians and health groups who supported the tax hike bill show that many debilitating diseases that affect millions of Filipinos each year are directly or indirectly related to smoking. Hence, less smoking, less diseases. And that makes the bill plausible and worthy of public support. This writer is among the many supporters of the tax hike for these products.

Certain sectors though go far beyond and suggest that the tax hike should be as high as possible while some suggest that cigarettes should simply be banned and prohibited, and government should not expect revenues from this “sin” and unhealthy product.

And that is how governments become more interventionist because many people themselves are interventionists. They have a particular worldview or opinion on how the rest of humanity should behave and run their own lives, so they concoct or devise various forms of regulations, restrictions and prohibitions. There is intolerance, explicit or implicit, in the diversity and spontaneity of the lifestyle of other people, so the “solution” is to invite and impose new regulations and restrictions by government so that the specific worldview as advanced will hopefully be realized.

And so while this writer is in favor of raising the excise tax on tobacco and alcohol products, preferably with just one rate and not two or three, the public should also recognize that people own their bodies, not the government or physicians or media or anybody else. Thus, even if government will raise the price of cigarettes to P500 per pack, people who want to smoke will always find a way to smoke, like usingnga-nga, buy smuggled cigarettes, make their own cigarettes or sell low-keykarinderia type, and so on.

And this brings us to three issues.

First, banning and prohibiting the consumption of cigarettes is wrong and unenforceable. There are many services that are currently banned by the government now, like prostitution, dangerous drugs, jueteng and other forms of gambling. And the result is more corruption in government as all these services and goods are available in many places in the country. Government officials simply allowed these in exchange for huge bribe money.

Second, using taxpayers’ money to subsidize the healthcare of people who deliberately abuse their body is wrong and economically distortionary.  If many people will over-smoke, -drink, -eat, or -sit,  and they become sickly later on, the rest of society should not be penalized by taxing them more, or denying the tax cut proposal. If those guys can buy lots of cigarettes and/or beer/alcoholic products, fatty food and drinks, and can afford to be couch potatoes, then it is assumed that they also have some resources to buy private health insurance to augment their Philhealth membership benefits.

Third, potential revenues from the excise tax hike should be delinked from funding universal health care. The new tax revenues should instead be used to reduce the public debt, or reduce the programmed annual borrowings. Any savings in interest payment can be used to expand the funding for UHC. For 2013, for instance, interest payment is projected at P334 billion, up from P317 billion this year. If such spending can be reduced to, say P300 billion, the P34 billion savings in one year can be used for UHC and other social programs. 

Reducing the public debt and the high interest payment is possibly the single biggest anti-poverty program that the government can do. To achieve this, raising the sin tax is one measure, privatizing some government corporations like Pagcor is another, and cutting the budget of certain agencies is another measure.

Of the three issues mentioned above, only the last two are problematic due to the nanny-state thinking in many sectors in the country. The first issue is not getting wide public support and this is a piece of good news.
The second issue in particular is tricky. A friend asked (a) if sin taxes are issue of civil liberties, (b) if every adult citizen should have an unabridged right to smoke cigarettes and drink alcoholic products, and (c) whether we should valorize individual freedom above all other values.

For this writer, the quick answer to the three questions is, yes. If people will say no - that government has the right to curtail an individual’s itch to smoke and drink as much as he wants, say inside his own house and not disturbing the neighbors - then they are implying that the state has jurisdiction and even ownership of a person’s body.

If that is true, then the government will have the “right” to prevent or restrict other people from eating fatty and oily food, carcinogenic food, as their healthcare later on will be assumed by the government. Or the government can also restrict or prohibit people from climbing steep mountains, trees and rooftops because if they fall, their treatment will fall again under public healthcare spending.

People should recognize that they do not own other people’s bodies. Let other people do what they want with their body. Since there are potentially adverse health outcomes, then let the people get private health insurance from various service providers -- NGOs, corporations, local governments, others. This is on top of the state-run Philhealth system.

This way, the “negative externality” of people’s unhealthy or risky lifestyle will be internalized solely by them, and the rest of us will be spared more taxes and fees to finance more public healthcare spending.

There is a limit to nannyism. As the world modernizes further, people’s lifestyles will continue to evolve. People should learn to be more tolerant of other people’s lifestyle evolution and modernization. And they should learn to protect their turf by opposing government moves to further socialize and collectivize their incomes and savings, purportedly to expand healthcare for others, including those who deliberately abuse their own body.


See also:
Fat-Free Econ 23: Penang Workshop on Markets in Healthcare, September 10, 2012
Fat-Free Econ 24: Government Fat and Public Expectations, September 21, 2012
Fat Free Econ 25: Property Rights and the Cybercrime Prevention Law, October 01, 2012
Fat-Free Econ 26: US Public Debt and the November Elections, October 10, 2012

Tobacco Tax 3: When Supply is Killed But Demand Persists, November 15, 2010
Tobacco Tax 4: Finding the Optimum, Not Maximum Cigarette Tax, May 26, 2011
Tobacco Tax 5: Consumer Demand After Tax Hike and Smuggling, February 23, 2012
Tobacco Tax 6: On Cigarette Smuggling, February 27, 2012.
Tobacco Tax 7: DOH on NCDs and Tax Hike, March 04, 2012
Tobacco Tax 8: Ban Smoking, or Raise its Tax? March 15, 2012

Lifestyle Diseases 20: On Nanny State and Obesity

A guest post from my friend, Jules Calagui, collated from one of his recent facebook status updates. Photos below, I just added.

Health and Personal Responsibility

by Jules Calagui

I don’t eat McDonald’s food, but I vehemently defend the right of people to eat it. As soon as the government becomes the arbiter, by edict, of what we can and cannot ingest, the frenzy in the marketplace to gain concessionary privileges never ceases.

Indeed, the incessant cry to demonize one thing over another, criminalize one food over another, thunders in the ears of politicians as businesses jockey for favors and indulgences from legislative priests.

The questions/ issues often raised have a lot more to do with Liberty than with healthcare which I think is the main point of Joel Salatin.

Politicians, bureaucrats have lots to learn from John Mill with matters relating to public policy and liberty when he said, "Over himself, over his own body and mind, the individual is sovereign."

NOBODY, not even the state, has the right to force, limit and worse define what a person should not or ought to do UNLESS he causes harm to others.

Even the person's own physical or "moral" harm IS NOT a justification for limiting his/her liberty. Exception will be children/minors who couldnt make "rational decisions" yet.

How will that translate in public policy?

The state has no business telling you and I what we should consume (eat, drink, inhale...), choices we make that affect our body, preferences in matters relating to personal taste as well as private life (music, art, sports, who to marry including dissolution of marriage, and even the right to end one's life).

Along with it is the RESPONSIBILITY, that we let others enjoy the same liberty and that the choices and things we do causes no harm to others.

Drink as much as you like, as long as you dont drive. Smoke as much as you like as long as you respect others their right to breath clean air. Again, the assumption herein is that you are a rational person. Unfortunately, the capacity to act rationally has to be quantified with such concepts such as age of consent, age of criminal responsibility etc.

The State should only intervene when our actions causes harm to others. An equally important point raised by Joel Salatin is the danger of government regulation.

When ever, "government becomes the arbiter, by edict, of what we can and cannot ingest, the frenzy in the marketplace to gain concessionary privileges never ceases." Concessionary privileges - corruption for short.

Healthcare - every wants it but no one is willing to pay for it.

There ought to be a distinction between Public Health and Personal Health.

Public Health Policy should be mainly revolve around what they call Primary Health Care. Unfortunately, even Public health experts cant agree on what it should be.

I think the priorities of Public Health Policy should be Prevention, well being(safe and clean environment), care for children/pregnant women as well prevention and control of communicable disease.

When people talk about Health, unfortunately, they often mean Healthcare - treatment, and management of illness specifically those offered by medical/health professions/institutions.

UNLESS it is care for children/pregnant women and control/management of infectious disease and epidemic - Healthcare is a personal responsibility.

The Freedom to Chose (Liberty) is inseparable with the responsibility to be accountable for the consequences of the choices we make. Are you willing to pay for the cost of treating my illnesses which are a result of my own personal choices?

Much of most Healthcare treatment that we want to be part of Government services are mainly diseases resulting from personal choices. Stroke, diseases of the heart, lungs, liver, colon and to large extent even breast cancer are lifestyle diseases. Public Health Policy should be geared towards education and prevention - that I think is where taxpayers money should be spent.

Most of these lifestyle disease can be prevented if we only: eat the right amount (mas marami namamatay sa katakawan kaysa gutom!), consume more fibers, vegetables and less of fat and excessive carbohydrates, sweet. And exercise regularly - which could be a daily walk of 10,000 strides/steps. Studies also points to evidence that women who postpone pregnancy late in life, specially those who chose not to have kids at all, are more likely to have breast cancer.

What is also critically lacking, especially in Manila, I think are safe public spaces to walk and cycle. Public spaces should not be devoted merely to building roads for cars - efforts should be made that we have safe (dedicated) places to pedestrians and cyclist.

On the question, Should we tax tobacco and alcohol? I think we should, but mainly on one ground - to make it expensive for young people/children to afford. And when we do tax them, the revenues should only be earmark to efforts in promoting awarness about the their harm as well as creating facilities where smokers can enjoy their fix.
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Migration and Freedom 8: Denmark's immigration policy

A Filipino friend working in Denmark posted in his fb wall a news report from Politiken.dk, Affirmative action for some foreigners. Portion of the report says,

“The government and Danish People’s Party believe that it should be easier to come here if you have a good education and a lot of money. But this is about Danish citizens who fall in love. So now it’s better to fall in love with an American than a Brazilian,” says Social Democratic Integration Spokesman Henrik Damm Kristensen.

The Marriage Without Borders organisation says it is ‘ridiculous’ to suggest that it is easier to integrate Americans than other nationalities.

Then my Filipino friend added his own comments and observations about Denmark's immigration policy:

Denmark's welfare and social policies remain one of the most humane in the world, but its immigration policy so inhumane. Even the UN concurs. Imagine, there's a government literally telling its people who to marry, who to partner or live with. There's really something rotten in the state of Denmark.