MIXED SIGNALS?

The government is dead set to discourage cigarette smoking and liquor drinking for health reasons. But the more intensive effort is against smoking.

It started by prohibiting advertising the merits of cigarettes. Billboards no long proclaim the “virtue” of smoking. Packs of cigarettes warn smokers of the dangers of smoking, if not by printing the physical horrors of getting various diseases such as mouth cancers, etc.

And then enclosed spaces began to have signs and notices prohibiting smoking in the premises. Eventually entire buildings became hostile areas for smokers. It is now declared that smoking is a “sin” although not in its theological sense.
Smoking is not as yet considered a crime, unless the smoke comes from a prohibited leaf, the marijuana. (Marijuana, however, has some medicinal value.)

Even as these activities are being pronounced by the government, the manufacture of cigarettes continues to be tolerated. The reality is that smoking tobacco can never be totally eradicated. There will always be smokers. In the same manner the “sin” of drinking booze can never be eradicated. The historical example of Prohibition in the United States showed the futility of criminalizing drinking. (In the Muslim countries, drinking liquor is punishable by public lashing during Fridays.)

If governments cannot eradicate a vice, they impose taxes to somehow make the vice pay for being tolerated. The heavy taxation is the “productive” venture in terms of extracting money from the vice. Instead of criminalizing smoking, where every violator is arrested and incarcerated, the violator is made to pay beforehand his penalty in the form of taxes imposed on the cigarette he smokes. (However, we cannot equate “tax” with “penalty” because there are other taxed items that are not prohibited but necessary.)

In the Philippines the tax laws on cigarettes somehow recognized that our social classes have differing capacities to be able to afford the sin commodity. For the poor, cigarettes that are classed Low are taxed at P2.72 per pack, including those packed in thirties. The Medium-priced brands are taxed at P7.56 per pack. The High-priced brands are taxed at P12.00 per pack and the Premium class at P28.30 per pack. Most of the classes are packed in twenties, although lately, perhaps to make it affordable to consumers, the cigarettes are packed in tens. The tax system mentioned ends this year, 2012. Thus there are bills in the House of Representatives proposing new tax rates, one of which is HB 5727. The new proposed law also prohibits machine packed cigarettes to be more than twenty.

However, there is the significant provision to remove the classifications among cigarettes. The entire gamut of cigarette types will be merged into one class and taxed under one rate – at P30 per pack. This concept is being pushed by the Department of Finance for ease in revenue collection as well as to increase in collection expected to reach P60 billion for both cigarettes and liquor. The Department of Health does not object to the concept even as it is for total eradication of smoking because the revenues to be collected as sin taxes are to be shared to deal with the health problems. As well, although the new tax system will truly reduce the production of cigarettes, it is not a fool-proof solution to reduce smoking. Consumption will still continue. Consumers who cannot afford the prohibitive prices will look for other means to satisfy their cravings.

Although all local cigarette manufacturers object to the new proposal, the British American Tobacco is pushing for the House bill’s approval. This company left in 2009 but hopes to reenter the field if HB 5727 is passed. It claims that the unitary tax proposal will “level the battlefield” in the Philippines which is presently being almost monopolized by the merged Philip Morris and Fortune Tobacco companies. The other small cigarette companies, namely La Suerte, the Associated Anglo American, and Mighty are engaged in the production of the lower types of brands in the market. They will be the most disadvantaged producers under the system.

If the House bill on the unitary tax is approved BAT promises to invest in the country, set up plants in some provinces and give employment. It pooh-poohs the possibility of Bocalizing the country where smuggling of cigarettes will again be one of the serious peace and order problems to be faced by the government. The contention of BAT is -- why will smugglers bring in their goods in the country since the prices of cigarettes here are supposed to be the lowest in the region? Perhaps this is true, but this situation is under the present tax system. With the new rates of taxing all types with only one rate the Low (which is increased by more than 1,000 percent) and Medium types of cigarettes become unaffordable to most of consumers. These consumers will patronize the smuggled types that are “tax-free” and of low cost. It is doubtful if the Bureau of Customs can effectively counter the smuggling issue. As of now, smuggling already exists in the Southern Philippines although still in a small scale.

The question remains: what does the government intend to pursue?

Does it want to eliminate or seriously limit the use of tobacco by Filipinos for health reasons? Surely, the measure is expected to reduce the manufacture of certain brands of cigarettes, but not the consumption by smokers.

Or does it want to eliminate monopolies by encouraging foreign investors engaged in cigarette manufacture?

If investments in cigarette manufacture are allowed and encouraged, then the government’s purpose is different – it would prefer to kill local businesses and tolerate the influx of imports. By the way, the British American Tobacco organization has a sullied reputation in dealing with governments and competition. We ought not to add to our problems by taking them in once again. It is easier to deal with a monopoly that is engaged in an unwanted but difficult industry to eradicate than allow a free market competition in the country.

SMOKERS, QUO VADIS?

Smoking is no longer a status symbol in our time.

I remember the old days when even sophisticated ladies were shown in the movies as brandishing long-stemmed cigarette holders to indicate their high social stature. Business tycoons had their cigars and tobacco pipes, and business meetings were filled with smoke. I used to be a military assistant to the late Executive Secretary Rafael Salas who used to carry along his tobacco pouch and pipe. On the other hand, we used to call ex-General and ex-President Fidel V. Ramos as “Tabacco” since he was in the habit of having a cigar stuck in his mouth.

These days, almost everywhere there are signs that prohibit smoking. Public conveyances, including the small tricycles, have the sign “no smoking” posted in their interiors. I have noticed that even the building where a tobacco company holds office has signs all over cautioning against smoking. There is also one municipality that prohibits smoking inside the house. Eventually, even smoking in the open spaces may be prohibited as cigarette smoke will add to the pollution and hasten climate catastrophes.

There was a time long long ago when tobacco was used for religious purposes. It seems that smoke emanating from tobacco symbolizes our worshipful spirits rising to the ever powerful deity in outer space. A scene had been memorialized when a peace process between the English colonists and Indians were consummated by smoking the peace pipe… and what was in that peace pipe but tobacco. That event was supposed to be during the time of Sir Walter Raleigh who introduced tobacco to England.

But developments in the industries made tobacco an ordinary commodity available to commoners and no longer an object as symbol of veneration. We now only have incense to produce smoke inside churches to rise to the skies.

Even as tobacco in cigarettes is being declared these days as dangerous to our health, instead of coming out with laws banning its use, our lawmakers still come up with laws that seek to make money out of it. And there are still big companies that compete and engage in “to the death struggles” to eliminate each other. Of late, House Bill 5727 being sponsored by Representative Abaya of Cavite seeks to reduce the different classes of cigarettes from four to one. All classes will be taxed P30 per pack regardless of quality. The new tax rate increases the High priced cigarettes by 2.5 times, the Medium by almost 4 times, and the Low by 11 times.

Lately, the international company, the British American Tobacco, is supporting a lobby to pass the Abaya bill in order to eliminate competition in the Philippines or to “level the playing field”. It has targeted the merged company, Philip Morris Fortune Tobacco Corporation, as its main opponent since BAT claims that PMFTC accounts for 94 per cent of the market.

The figures from the Bureau of Internal revenue for 2010 show otherwise. Assuming that PMFTC produces all the Medium and High priced cigarettes in the country, the data for 2010 show that it only produced 46 per cent of all cigarettes, while the Low end accounted for the rest, or 54 per cent. If the Low-priced cigarettes are included as products of PMFTC, the total quantity produced amounted to over 70 per cent only. On the other hand, in terms of revenues collected by the government, the combined Medium and High priced cigarettes accounted for 78 per cent.

Nonetheless, according to BAT this situation “levels the playing field” since it only produces cigarettes of the High end, namely, Lucky Strike and Pall Mall among others, in competition against PMFTC’s Philip Morris and Hope. The tax rates for the Low priced cigarettes will effectively wipe out or drown the manufacturers of this class, particularly the Mighty and the Associated Anglo American companies. These companies also produce the local brands that are packed in thirties, but are to be taxed at P30 per pack as well. These small companies may continue to survive by resizing their work forces. Or, they may sell out their facilities to BAT which claims and promises to install plants all over the country if the Abaya bill is passed.

If the Abaya bill is passed, heavily affected, as well, are consumers of the Low priced brands. As of now, these brands are taxed at P2.72 per pack but will have to eventually absorb the P30 tax rate. The economy has not improved the earning capacities of the consumers, and they therefore cannot afford the increased prices of cigarettes. They will have to look for alternative sources that may satisfy their cravings for nicotine. Under this situation, smugglers will find it lucrative to bring in their untaxed goods that may prove affordable than legitimate products. We may also expect brisk sales of cigarettes in the duty- and tax-free outlets at our airports.

The anti-smoking lobby may have occasion to rejoice since indications show that it is winning the war against smoking. They may even succeed in totally banning cigarettes, although lawmakers still would continue to “bleed” the industry to “death” with higher tax rates. However the retrenched workers, both in the direct or indirect sectors of the tobacco industry, may have to look for other means to earn their living. (I don’t see how BAT can prevail and survive the anti-smoking onslaughts by assailing its competitors instead of cooperating with them. Perhaps, its strategy is to appear being cooperative with the lawmakers in order to weave its way back and monopolize the local stream.)

For the tobacco farmers, they shall have to look for other agricultural products to plant, or invent a new way to use tobacco plants for medicine. Or possibly convert to producing snuff which still use tobacco but not to smoke it. We will see how the anti-smoking lobby will convert into an anti-snuff movement if only to persecute and exterminate the tobacco users.