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June 10th, 2012:

708% ‘sin tax’ hike stuns Big Tobacco

MANILA, Philippines – A 708% tax increase on low-priced cigarettes in the country, as set by the lower House-approved “sin tax” bill, has been described as “unprecedented” by the head of the country’s largest tobacco company.

Philip Morris Fortune Tobacco Corp. (PMFTC) president Chris Nelson, in an interview with ANC Friday night, said no other country in Asia has come close to the tax rate hikes that House Bill 5727 wants to impose on tobacco products in the Philippines.

“If you look at what’s being proposed, the rate increase is 708% on low-tier (cigarette brands) over 2 years, 150% on the high tier, and on the medium it goes up nearly 300%,” Nelson said.

“Seven hundred percent on the low, that’s unprecedented. I can’t think of any country that has done that,” he said.

He said the tax hike will have a detrimental effect on tobacco farmers, workers, and the entire industry.

“Let us not destroy this industry,” he said.

Nelson said PMFTC does not oppose taxes, but any additional levy should be moderate.

He said the tobacco giant earlier advocated a P1 across-the-tier increase in 2004.

“The reason for that is we recognize the dynamic of the market,” he said.

“We’re not against the tax increase. In fact, Philip Morris is working with the government. What we’re recommending is a tax increase sustainable for the industry and which gives future revenue streams for the government,” he added.

“We are looking for moderate tax increases. We like increases that are planned out because we can plan our business,” Nelson said.

He said that under House Bill 5727, the tax increase for beer is between 8% to 32%.

“That is what we call a moderate increase, as opposed to 700%,” he said.


PTFMC said if the Senate approves a similar measure to HB 5727 and the proposal is signed into law by President Benigno Aquino, the cigarette manufacturer expects a 50% drop in demand for tobacco for domestic consumption.

This, in turn, will affect the livelihood of around 22,000 farmers nationwide, the company said.

It may also result in oversupply of domestic capacity and affect jobs.

Nelson said PMFTC will definitely reduce the number of its workers that currently number around 3,000.

He also believes that the sin tax bill, once enacted, will result in a rise in cigarette smuggling and counterfeit products.

“We already have smuggling in cigarettes in Mindanao. We already have brands coming in that sell for retail at P5. There’s counterfeiting even on my own brands,” he said.

“If you assume that taxes will go 100% and 700%, that (smuggling, counterfeiting) will increase significantly. The problem will grow massively,” he warned.

Nelson said the battle over the “sin tax” measure will now move to the Senate.

“I think we made a lot of good representation (in the lower House). Unfortunately, the whole process was cut short and we proposed some amendments that were not accepted,” he said. “But obviously, (we) hope that the debate will continue and obviously engage in the Senate.”

Praise for ‘sin tax’ hikes

Action For Economic Reforms (AER), a non-government watchdog that pushed for reforms in sin taxes, earlier praised congressmen for approving House Bill 5727.

It said the bill, as amended, “corrects all the mistakes in the law.”

“Representative Isidro Ungab, the chair of the ways and means committee, has done his homework. Not only did he brilliantly engineer the landslide vote for the Abaya bill at the committee level. With his avuncular mien, he has been very persuasive in defending the bill and parrying the arguments of the vested interests,” AER said.

The group said opponents of the measure cannot dispute the health argument, that the sharp increase in taxes will significantly lower consumption of tobacco and liquor, thus reducing problems associated with smoking and excessive drinking.

AER said the high tax rate for low-priced cigarette brands will deter young and poor smokers from either starting to smoke or force them to quit smoking.

According to AER’s Jo-Ann Latuja, retail price for PTFMC products will increase by 76% in the first year if the “sin tax” bill becomes law.

“Studies have shown that a 10% increase in cigarette prices in the Philippines will decrease consumption by 5%. With a 76% price increase, consumption will decrease by 44%,” Latuja said.

The group also does not believe that higher taxes on tobacco and liquor products will result in a sharp spike in smuggling and counterfeiting.

Quoting Customs Commissioner Ruffy Biazon, AER said the price of the country’s most popular tobacco brand — Fortune International Filter Kings — would rise to P35.26 per pack by 2014.

The price will still be lower than the 2009 prices of top-selling cigarettes in Cambodia (P52.36), Indonesia (P64.68), Thailand (P103.84), Malaysia (P146.08) and Singapore (P365.2), according to the group.

Again quoting Biazon, AER said cigarette smuggling will only flow out of — rather than into — the Philippines, if House Bill 5727 becomes law.

Tax revenues for health programs, tobacco farmers

Budget Secretary Florencio Abad also welcomed the bill’s approval by the lower House.

“Through this groundbreaking move, we are much closer to reforming the current tax regime for tobacco and alcohol products, which has been in place for more than 15 years and has proven ineffective and outdated,” he said in a press statement.

He said an updated “sin tax” system will boost tax efficiencies in the country, as well as increase government revenues by around P33 billion in the first year of its implementation.

He said most of the revenues to be collected from higher taxes on tobacco and liquor will go to health services.

“Once approved, 15 percent of sin tax revenues will also be used to support tobacco farmers, who may be adversely affected by the measure,” Abad said.

“Tobacco- and non-tobacco growing provinces will likewise have a share in the revenues generated by an updated excise tax regime. In its original form, HB 5727 was expected to generate at least P60.7 billion, which will be channeled to 81 beneficiary provinces. This is a far cry from the 16 provinces now being supported by the present excise tax scheme,” he added.

“More importantly, however, restructuring the sin tax system will go a long way toward improving the health and well-being of Filipinos. At present, tobacco and alcohol products enjoy very low retail prices in the country, and an updated sin tax scheme will help discourage Filipinos—particularly the youth—from engaging in harmful health practices,” Abad said.

Alberta officially files $10B tobacco lawsuit

EDMONTON – Alberta officially sued big tobacco for $10 billion Friday, following through on a promise made last month to launch one of the province’s largest-ever legal actions.

The lawsuit, filed in the Court of Queen’s Bench in Calgary, is meant to recover the estimated costs of delivering health care to Albertans who smoked or chewed tobacco.

The 35-page statement of claim lists “breaches of duty” such as “deliberately designing tobacco products to be highly addictive,” “deceiving Albertans” by misrepresenting the extent to which tobacco products are addictive, minimizing the dangers of second-hand smoke, presenting certain products as less harmful, and specifically targeting children and teenagers as potential customers. Among the breaches of duty, the lawsuit charges companies have been responsible for “concocting and perpetuating a fallacious controversy as to whether there was a real health risk.”

The defendants have not yet filed statements of defence.

The provincial government’s statement of claim lays out historic “particulars of conspiracy,” which include meetings that took place and publications and letters issued in the early 1950s, all of which contributed to an argument that cigarette smoke was not a proven cause of lung cancer. The historic case speaks further to work done internationally and in Canada throughout the latter half of the 20th century to muddy the science around the health effects of smoking and second-hand smoke.

To argue tobacco organizations should be responsible for paying back health care service costs, the province lists a number of tobacco-related diseases, including lung cancer, heart disease, chronic bronchitis and emphysema, bladder cancer, throat cancer, kidney cancer, mouth cancer, pancreatic cancer, cataracts, low bone density, reduced fertility, stomach cancer, uterine and cervical cancer, liver cancer, and “overall diminished health and increased risk of morbidity and mortality.”

According to the statement of claim, “Albertans exposed to tobacco products would not have been exposed … or at least not to the same extent” had companies not misrepresented the dangers of tobacco use.

Quebec announced its own $60-billion lawsuit Friday, basing its estimates on the cost of treating smoking-related illnesses from 1970 through to 2030.

Five other provinces have filed similar lawsuits — British Columbia, Ontario, New Brunswick, Newfoundland, and Manitoba.

Phone calls to the Canadian Tobacco Manufacturers Council, Imperial Tobacco and JTI-MacDonald were not returned Friday afternoon.

In a statement issued Friday, Imperial Tobacco vice-president Donald McCarty characterized Quebec’s lawsuit as a hypocritical cash grab.

“Governments have licensed us, have taxed us and our consumers, and have regulated us, all in full knowledge of the risks associated with tobacco use,” McCarty said. “This lawsuit is a cash grab by a provincial government looking to score political points while conveniently forgetting that it has been a senior partner in the tobacco industry for decades.”

The statement said provincial governments have made more money in taxes than the companies themselves have earned, and called the lawsuit a waste of taxpayers’ money.

Fourteen defendants are named in the lawsuit, including: the Canadian Tobacco Manufacturers Council, Imperial Tobacco Canada Ltd., Canadian JTI-MacDonald Corp., Toronto-based Rothmans, Benson & Hedges Inc.; U.S.-based companies Altria Group, Philip Morris International, R.J. Reynolds Tobacco Co.; and United Kingdom-based British American Tobacco and Carreras Rothmans Ltd.

Click here to read the lawsuit.

With files from The Canadian Press

© Copyright (c) The Edmonton Journal

Stub out tobacco donations to political parties, health activists say

Bindu Shajan Perappadan


Concern for public health goes up in smoke

India’s leading cigarette manufacturer, ITC Ltd, made financial contributions of Rs. 6.78 crore in the last two years to all major political parties in the country, causing public health activists here to question the possible interference of tobacco companies “in the Central government’s efforts to bring in tougher anti-tobacco laws in the country.”

Figures disclosed by ITC Ltd — and released recently by activists as part of their campaign against tobacco — note that the company paid the Indian National Congress (Rs. 3 crore), the Bharatiya Janata Party (Rs. 2.50 crore), the Samajwadi Party (Rs. 0.42 crore), the Rashtriya Janata Dal (Rs. 0.33 crore), the Dravida Munnetra Kazhagam ( Rs. 0.22 crore), the Shiv Sena (Rs. 0.17 crore) and the Nationalist Congress Party (Rs. 0.14 crore) in the last two years (2010-2011).

“What does it mean when India’s largest cigarette manufacturer donates money to all the major political parties in the country? It means that it is trying to enhance its trade and dilute any policies that the political parties might bring in to curb its sales and profit. We are opposed to this conflict of interest and in this case the main casualty is public health,” said Amit Yadav, lawyer with the Public Health Foundation of India, a non-government organisation working in the area of tobacco control.

“Besides this, the World Health Organisation’s Framework Convention on Tobacco Control (FCTC) — a global health treaty that India ratified in February 2004 — requires that signatories in setting and implementing their public health policies with respect to tobacco control should act to protect these policies from commercial and other vested interests of the tobacco industry in accordance with national law. This is as per Article 5.3 of the FCTC,” said Bhavna Mukhopadhyay, executive director with non-government organisation Voluntary Health Association of India.

Responding to the allegations, ITC’s corporate communications vice-president Nazeeb Arif says, “Article 5.3 of FCTC does not say anything about donations from ‘tobacco’ firms. You may also note that FCTC is not the law of the country.” He adds: “ITC, like other responsible corporate, has made contributions to political parties in a transparent manner.”

Mr. Yadav concedes that “there isn’t anything illegal about what the company is doing” but says the fact that “the government is taking money from ITC also goes against its talk of trying to bring more stringent tobacco control policies.”

Pointing the rampant abuse of tobacco and its rising health ramifications, health activist and Mumbai Tata Memorial Hospital’s leading cancer surgeon Dr. Pankaj Chaturvedi said: “It is for the government to take a stand here and refuse monetary help from organisations [Indian or foreign] that deal with goods detrimental to public health. You can’t have the goodwill and monetary help of the tobacco industry and form policies against them. The practice is not illegal it is just unethical. Here we aren’t targeting only one organisation. The government has to take the side of public health and work for the common man.”

“The Central government is now actively looking into the question of government firms investing in tobacco companies,” said a senior health official who, however, refused to comment on political parties getting money from tobacco manufacturers. As on March 31, 2011, five of the top ten shareholders of ITC were government insurance companies including the Life Insurance Corporation of India.

Mr. Arif, however, insists criticism of ITC is misplaced. “In India, cigarettes constitute only 15 per cent of tobacco consumed — the rest comprising chewing tobacco, beedis etc — but contribute to more than 75 per cent of taxes from this sector. There is also evidence of a nexus between international cigarette companies and organised smuggling, especially in developing countries. Such growth in the illegal industry in cigarettes robs the national exchequer of potential taxes apart from offering inferior quality products. India now ranks 6th globally in cigarette illicit trade [domestic illegal and contraband] and has one of the highest growth rates which increased by 58 per cent over the period 2004- 2009 while the world market witnessed a decline of 4.2 per cent over the same period. As per industry estimates, revenue losses on account of this are estimated to be Rs. 3,000 crore per annum. The creation of strong Indian cigarette brands has succeeded in curtailing the huge inflow of smuggled foreign cigarettes into the country,” he argues.

He notes that if tobacco control is the objective, then duty-free sales of cigarettes need to be banned as they enable the unscrupulous diversion of such cigarettes into the domestic market, once again robbing the Indian exchequer of taxes as well as the Indian farmers of their livelihoods.