Jeremias N. Paul Jr.

Earmarking Revenues for

Health: A Finance

Perspective on the

Philippine Sintax Reform

Aquino Administration Social Contract with the Filipino People including Universal Health Care.

“No new taxes” promise of President Aquino.

Philippines among top smoking countries in Southeast Asia. Tobacco taxes and prices among lowest in the world.

Strong tobacco lobby with deep business and political connections. Tobacco lobby hindered previous excise tax reform efforts.

Alcohol: Deadline for Philippine compliance to WTO decision on distilled spirits.

Tight deadline during Aquino Administration – one year to make it happen.

The Philippines ratified the WHO Framework Convention on Tobacco Control in 2005.

CONTEXT

REPUBLIC ACT NO. 10351 An Act Restructuring the Excise Tax on

Alcohol and Tobacco Products (RA

10351)

(Signed into Law - Dec. 19, 2012)

Landmark Legislation under the

Aquino Administration.

Fundamentally a good governance

measure with positive impact on both

fiscal and public health.

Philippine Tobacco Tax Reform Path at a Glance

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

2012 2013 2014 2015 2016 2017

In Philippine Peso

Key Features Removal of price classification freeze/tax

advantages of legacy brands.

Unitary tax structure by 2017.

Tax rates indexed to inflation starting

2017.

Health impact/WHO FCTC compliance a

major consideration in rate setting.

Bulk of incremental revenues earmarked

for UHC.

Safety nets for tobacco farmers/others.

Low

Medium

High

Premium

Tier 2

Tier 1 Unitary

341%

2013 2014 2015 2016 2017

Projected Incremental

Revenue (Tobacco) 23.4 29.6 33.5 37.1 40.9

Projected Incremental

Revenue (Alcohol) 10.6 13.3 17.1 19.8 23.3

Projected Incremental

Revenue (Total) 34.0 42.9 50.6 56.9 64.2

Estimated Earmark for

Health as of 2012 30.5 38.4 45.6 51.3 58.0

Section 8 (C): After deducting the allocations under

Republic Act Nos. 7171 and 8240,

Eighty percent (80%) for:

National Health Insurance Program

Attainment of the Millennium Development Goals

Health awareness programs

Twenty percent (20%):

Medical assistance

Health enhancement facilities program

Incremental revenues earmarked for health

REPUBLIC ACT NO. 10351

Sintax Reform – Win for Revenues

Generated US$ 3.9 billion in incremental excise tax

revenues during the first three years of implementation,

far exceeding government projections. About 80% of this

increase is accounted for by tobacco.

Tobacco and alcohol excise tax revenues as a

percentage of GDP, increased from 0.5% of GDP in

2012 to 1.1% of GDP in 2015. Sintax Reform reversed

the declining trend of share of these excise taxes to

GDP beginning 1997.

The incremental revenues does not yet consider VAT

and additional fiscal space generated resulting from the

investment grade rating following passage of law.

Win for Revenues

34

42.9

50.6

56.9

64.2

51.2 50.2

73.1 6.1 6.0

8.8

0

1

2

3

4

5

6

7

8

9

10

0

10

20

30

40

50

60

70

80

2013 2014 2015 2016 2017

In b

illiio

n P

eso

s

Projected vs. Actual Incremental Revenue from RA 10351

Projected Actual BIR VAT

$ 0.80 B

$ 1.21 B

$0.15 $0.14

$0.19

$ 0.97 B

$ 1.13 B

$ 1.11 B

$ 1.61 B

$ 1.29 B $ 1.46 B

Win for Revenues

0. 9%

0. 8%0. 8%

0. 8%

0. 7%0. 8%

0. 7%

0. 7%

0. 6% 0. 6%

0. 6%

0. 6%

0. 5%0. 5%

0. 9% 0. 9%

0. 3%

0. 4%

0. 5%

0. 6%

0. 7%

0. 8%

0. 9%

1. 0%

To b acco & Alcohol Excise Collections as % of GDP

Tobacco & Alcohol Excise Collect ion

Share of tobacco and alcohol excise

collections to GDP highest in 2015.

Source: BIR and NSCB

0.9%

0.8% 0.8% 0.8%

0.7%

0.8%

0.7% 0.7%

0.6% 0.6% 0.6% 0.6%

0.5% 0.5%

0.9% 0.9%

1.1%

0.4%

0.5%

0.6%

0.7%

0.8%

0.9%

1.0%

1.1%

1.2%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Tobacco & Alcohol Excise Collection

Tobacco & Alcohol Excise Collection

Earmarking Sintaxes – Win for Health

DOF primary responsibility is revenue. Did its homework to

ensure that all risks that will affect revenue are properly

evaluated.

DOF supported earmarking as a political imperative. As a

result sintax reform was framed as a health measure and not a

revenue measure.

DOF chaired the interagency team that drafted the Sintax

Implementing Rules and Regulations to ensure PFM

safeguards were incorporated.

Soft earmarking - While DOH is assured of funding from the

Sintax Law, details of its expenditure program still have to go

through the annual General Appropriations Act.

Earmarking for health is not time bound.

5.6

14

19

0

1

2

3

4

5

6

0

2

4

6

8

10

12

14

16

18

20

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Weighted Average Tax Rate (Peso per Pack) Volume of Removals (Billion Packs)

Tax rate

rose

150%

36% One time, 12%

increase in 2000

(RA 8240)

2004 Sin Tax Law (RA 9334)

Bi-annual tax increases

(2005 – 2011)

2012 Sin Tax

Law

(RA 10351)

Framing Sintax Law as a health measure than a

revenue measure paved way for significant tax

increases.

Earmarking Sin Taxes – Win for Health

DOH budget in 2016 (P122.6 billion) almost triple its budget

in 2012 (P42.2 billion). If you use 2013 as the baseline, DOH

budget increased by 57.3% in 2014, 63.5% in 2015 and

130.4% over 2013 levels.

Earmarking enabled the National Government to subsidize

the health insurance premiums of 15.4 million poor primary

members in 2015, up from only 5.2 million registered primary

members in 2012.

Philhealth has also expanded its services and now

implementing case rates, no balance billing for indigents,

more Z packages for cancer patients and has introduced

primary care benefit package for the poor.

Sintax Law also now covers 2.8 million senior citizens with

free Philhealth insurance coverage.

$ 1.9 B $ 2.0 B

$ 1.3 B

$ 1.0 B

$ 0.7 B $ 0.5 B

$ 0.5 B $ 0.4 B $ 0.2 B

Source: GAA, DBM

Win for Public Health

53.2 53.2 53.2 53.2

30.5 33.8

69.4

0

20

40

60

80

100

120

140

2013 2014 2015 2016

Baseline Sin Tax Rev for Health

Prescribed Allocation 2016

Universal

Health Care

Expenditure 80% 55.5

Medical

Assistance

& HEFP 20% 13.9

Total 69.4

Sin Tax Revenues for Health

122.6

87.0 83.7

0.5 0.5 0.5 0.5 0.8 2.9 3.5 4.5 5.0 5.0 3.5

12.5 12.6

35.3 37.1

43.8

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

National Government Allocation for

Health Insurance Premiums for the Poor

Source: PhilHealth, DOH, GAA

Win for the Poor

$0.01 B $0.01 B

$0.01 B $0.02 B

$.06 B $.08 B $.10 B

$.10 B

$.11 B

$.08 B

$.30 B

$.30 B

$.79 B

$.92 B

$.82 B

$0.01 B

Physical Accomplishment Targets 2014 2015 2016

National Health Insurance Program Php 35,338 M Php 37,060 M Php 43,836 M

No. of NHTS-PR Indigents covered 14.7 M 15.4 M 15.4 M

No. of Senior Citizens enrolled 2.8 M

Health Facilities Enhancement Program Php 13,829M Php 13,356 M Php 26,984 M

No. of Barangay Health Stations upgraded

Birthing Facilities 1,754 1,661 3,886

PHIC-TSEKAP Accredited BHS 17,541 796

Rural Health Units/ City Health Centers 1,028 2,617 2,623

School-Based BHS 3,200 3,200

Preventive and Promotive Health Program

Health Human Resource Php 2,970 M Php 4,256 M Php 7,073 M

Doctors 320 398 946

Nurses 11,292 13,500 15,727

Midwives 2,700 3,100 3,100

Dentists - 214 324

Public Health Associates - 787 713

Medical Technologists - 308 308

National Immunization Program Php 2,542 M Php 3,884 M Php 3,990 M

No. of children fully immunized 2.07 M 2.2 M 2.2 M

No. of pneumococcal vaccines provided

infants 429,000 429,000

senior citizens 1.4 M 1.2 M

Particulars

Source: DBM

2014 2015 2016

Family Health and Responsible Parenting Php 2,539 M Php 3,274 M Php 3,275 M

of which:

Micronutrient Supplementation

No. of children below 5years old provided with vitamin A

supplement.

4.4 M 4.4 M

Family Planning

No. of clients provided with FP commodities & services 2.2 M 2.7 M 2.7 M

TB Control Program Php1,062 M Php1,094 M Php1,080 M

No. of cases treated 257,972 253,089 253,381

Treatment of Public Health Diseases Php 827.3 M Php 788.5 M Php793.0 M

No. of persons treated:

Malaria (No. of Diagnosed & Treated cases) 6,962 4,365 3,885

Schistosomiasis (No. of mass drug treatment) 2 M 2.58 M 2.48 M

Filariasis (No. of mass drug treatment plus ICT and

disability kit)

17 M 17.6 M 17.9 M

Other Infectious Diseases Php 781.7 M Php 744 M Php1,058 M

No. of HIV/AIDS cases diagnosed and given treatment 8,030 16,000 35,000

Hospital Staffing Standards Php 2,900 M Php 5,800 M Php4,336 M

No. of Positions 2,152 6,686 3,488

Particulars

Physical Accomplishment Targets

Source: DBM

Challenges Remain

Improving absorptive capacity and budget

execution.

Managing political expectations and

effectively communicating wins on the ground.

Strengthening Philheath’s information

systems and risk management capabilities.

Enhancing health systems delivery under a

decentralized system.

CONCLUDING REMARKS

Raising tobacco taxes is a low lying fruit for raising

revenues for health. Without additional revenues,

there is nothing to earmark.

Think Political and Win-Win. Listen and understand

the mindset of finance officials. Finance ministries

generally do not like earmarking but politicians do.

Take advantage of this political reality and get the

support of your finance colleagues by demonstrating

you can spend wisely. They look at value for money,

outcomes and concerned that UHC can be a

bottomless pit, if left uncontrolled.

CONCLUDING REMARKS

Money can’t buy health. It is a necessary but not

sufficient condition for increasing spending on

health. Efficiency, effectiveness and execution

capacity are key to delivering services on the

ground.

Perfection is the enemy of the good. Focus on the

substance rather than the form.

Importance of strategic communications and

coalition building.

Legislative earmarks are not a guarantee that there

will be more resources for health. Need to monitor

budget execution closely.

CONCLUDING REMARKS Work with finance and other ministries to adopt a

systems and whole of government/society approach.

Avoid Silos. Compartmentalized thinking must

change.

Think Convergence. Work with other sectoral

agencies to achieve a common goal and an

integrated response to cross cutting issues. e.g.

water and sanitation.

Actively look for synergies. Work towards achieving

synergies with other sectors. eg. Tobacco taxation

and prevention of NCDs/Support for WHO FCTC

implementation.

THANK YOU

Any excess over projections is carried

over to the next year

53.2 53.2 53.2

30.5 33.8

14.2 8.8

-10

10

30

50

70

90

110

2013 2014 2015

Baseline Projected Balance fromActual Collection

Sin Tax Balance

2014 Balance 14.2

2015 Balance 8.8

Total 23.0

Allocation of Balance

DOH 2015 MBPF 9.1

PGH 2015 GAA 3.2

Total 12.3

Remaining Balance 10.7