The health and social cost of smoking could be 17 times more than government revenues from cigarettes

The government’s failure to impose higher taxes on tobacco products in the past four years has widened the gap between government earnings and the cost, borne by citizens, of treating diseases and of losing productivity due to premature deaths linked to smoking.

Government data showed that from 2000 to 2002, government excise tax from tobacco products averaged P18.92 billion a year. In those years, smoking’s health and economic cost to the population was at P46 billion a year, according to estimates made by epidemiologist Dr. Antonio Dans of the University of the Philippines. It was more than double the amount of tobacco excise taxes collected.

In succeeding years, from 2003 to 2006, the health and economic cost increased to more than six times the excise tax collection. Government earnings averaged P23.26 billion annually, while health and economic cost averaged P148.5 billion, based on estimates by the World Health Organization.

There are no official figures available for the succeeding years, but given the pattern of health and economic cost tripling every three or four years, Newsbreak estimates that the average amount could have increased to P445.5 billion in 2007 and in 2008. That would be more than 17 times the P25.28 billion annual average excise tax collection in those two years. (Click here for RP’s Annual Tobacco Tax Revenues vs Healthcare and Economic Costs, from 2000 to 2008)

“Smoking decreases the productivity of the Filipino workforce once they get afflicted with smoking-related diseases. If they die prematurely due to these diseases, it will cut their future income streams,” said health economist Stella Quimbo of the University of the Philippines.

“On top of this, the healthcare costs for these diseases are substantial. The aggregate cost of these diseases in terms of health care and productivity losses is the impact on the economy,” she said.

Biggest Taxpayers

The tobacco industry in the Philippines pumps in an average of P25 billion to government coffers every year. Records at the National Tobacco Administration (NTA)—the agency tasked to monitor the tobacco industry and look after the condition of the Filipinos whose livelihood is dependent on it—showed that the government collected P25.3 billion to P26 billion in tobacco tax revenues from 2000 to 2002.

These included excise taxes, corporate taxes, value-added tax, duties, and inspection fees. Almost 70 percent of the revenue collected on tobacco comes from excise tax.

From 2003 to 2008, taxes collected from the industry ranged from P23 billion to P27 billion. In 2008, revenue generated from tobacco accounted for 1.3 percent of the country’s gross domestic product. 

Major cigarette producers, like Fortune Tobacco Corporation and Philip Morris Philippines, were even listed as the biggest corporate taxpayers in the country. In 2003, Fortune Tobacco Corporation, owner of cigarette brands Fortune, Hope, and Champion, paid P13.27 billion in taxes. Philip Morris Philippines, maker of top-selling brand Marlboro, paid P8.36 billion in the same year.

Aside from paying taxes to government, the tobacco industry in the Philippines is a source of livelihood to about 57,398 farmers and 300,000 members of their families. There are around 1.56 million other industry workers and dependents.

In almost two decades, the Philippine government had adjusted tax rates for tobacco and alcohol products twice, in 1993 and in 2005.

The finance department wants to be able to increase the tax rates automatically every year using the relevant price index. However, the tax rates are fixed by law, which can only be changed by Congress. In the hearings on the tax bill the past several weeks, however, congressmen have made it obvious that they would not touch the law.

The Price of Smoking

The taxes that the government collected—and has yet to collect—have its price.

Smoking has been linked to several otherwise preventable diseases that the Department of Health (DOH) has identified as among the leading causes of deaths in the country. Most of these diseases are connected to the pulmonary system, like lung cancer and chronic obstructive pulmonary diseases or COPD (or diseases that obstruct the flow of air in the lungs). Other diseases associated with tobacco use are coronary heart disease, stroke, and cancer of the lips, nose, or larynx.

Even cigarette manufacturer Philip Morris International, in their official website, acknowledges that tobacco use may result to serious diseases: “We agree with the overwhelming medical and scientific consensus that cigarette smoking causes lung cancer, heart disease, emphysema (a type of COPD causing shortness of breath) and other serious diseases in smokers. Smokers are far more likely to develop serious diseases, like lung cancer, than non-smokers. There is no ‘safe’ cigarette.”

In a study in 1999, Dr. Dans, a professor of medicine and clinical epidemiology at UP, estimated that the country would lose P46 billion annually from smoking related-diseases—P27 billion for treatment, P1 billion in lost wages due to smokers’ absence from work when they get ill, and P18 billion in productivity losses caused by premature deaths.

By 2003, the health and economic cost had ballooned to three times, rising to an average of P148.5 billion a year, this time according to a study by the World Health Organization (WHO) published in 2006.

Healthcare cost for the four major smoking-related diseases (chronic obstructive lung diseases, heart attacks, lung cancer, and stroke) was at P26.1 billion; lost wages due to sick smokers’ absences, P6.3 billion; and productivity loss due to premature deaths, P116 billion.

‘Obvious Imbalance’

Ulysses Dorotheo, coordinator for Southeast Asia and Western Pacific Regions of the Southeast Asian Tobacco Control Alliance (SEATCA), says the figures show an “obvious imbalance between economic gains versus losses” from the tobacco industry.

In the Philippines, lung cancer kills 43 persons every day, according to the Philippine Cancer Society and the DOH.

Unlike in other common diseases, lung cancer patients carry the burden of frequent hospital visits, drug intake, therapies, and surgeries. The Lung Center of the Philippines (LCP) estimates that a lung cancer patient in its charity ward spends P100,000 to P150,000 for the treatment.

These may include diagnostic tests, such as physical examination, sputum test, X-ray, computer tomography (CT) scan, and needle biopsy. It may also cover surgery for the removal of the tumor from the lungs, and series of chemotherapy or radiotherapy.

Chemotherapy costs a patient P12, 000 to P15, 000 every session, which is usually done once or twice a month.

At the LCP, the Philippine Charity Sweepstakes Office shoulders the hospital fees and medicines of indigents.

Healthcare costs for lung cancer amounted to P403 million in 2003, according to WHO.

Chain Effect

Aside from treatment expenses, many lung cancer patients missed more days of work, and therefore income, because they are inclined to stay home or in a hospital. For chemotherapy sessions, for example, patients stay in the hospital for a maximum of four days every session, or up to eight days every month.

The unpaid workdays increase the indirect cost of smoking-related diseases. If a lung cancer patient is earning the minimum daily wage of P345 to P382 in Metro Manila, he could lose P1,380 to P1,528 (four-day absence) or P2,760 to P3,056 (eight-day absence) of his income during chemotherapy sessions every month.

The lost wages double when an employed family member also skips work to attend to the patient. The WHO study pegged productivity losses from lung cancer in 2003 at P152 million.

Treatment of lung cancer does not guarantee a complete cure from the disease. International research shows that fewer than 10 percent of the patients are alive after diagnosis. Survival for the late stage of lung cancer last for only eight months, and medication for its early stage may extend the patient’s life up to five years. Untreated patients, on the other hand, die as early as three to four months after diagnosis.

Deaths from lung cancer, especially at a young age, deepen productivity losses. With the country’s life expectancy of 67 years, a lung cancer patient who dies at 40 loses 27 potential years when he could have earned more than P2.4 million. The WHO study estimated that the country lost P3.4 billion from lung cancer deaths in 2003. There is an average of 90,000 premature deaths from smoking-related diseases.

SEATCA’S Dorotheo explains the chain effect of getting sick from smoking: “If a smoker gets sick, there is not only the huge cost of healthcare borne by the patient and his family, but also the income lost by the patient who is unable to work, the income lost by family members who need to watch over the patient, and the use of human and other resources of the healthcare provider, such as government hospitals, that could have been focused on other patients' needs instead for a highly preventable disease.” (Newsbreak)