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An Evaluation of Sin Taxes’ Implementation and Health Expenditure Earmarking


This paper evaluates the implementation of the sin tax reform during the period 2012 to 2021 using tax and expenditure earmarking indicators provided under the sin tax monitoring framework of the World Bank. During the review period, four tax laws were passed that adjusted the excise taxation on tobacco and alcohol products with objectives to reduce consumption of sin products and generate additional revenues to augment health spending. The findings of the evaluation show that the reform has significantly boosted government revenues during the period, owing to good tax design and regular tax rate adjustments. Consequently, earmarked revenues from sin taxes have increased the budgets of key health programs that expand health insurance coverage, attain the MDG/SDG goals, improve public health facilities, and provide medical assistance to indigents. In the medium term, sin tax revenues are expected to continue to be a sustainable source of health financing based on projections using estimated elasticity of demand of sin products. However, some areas of implementation need close monitoring by the government moving forward, such as revenue leakages due to illicit tobacco trade, the uptick in smoking prevalence, declines in utilization rates of programs funded by sin tax revenues, and transparency of usage of earmarked revenues for tobacco-producing LGUs.         

 


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