Higher tax on cigarette alternatives opposed

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    E-cigarette company JUUL Labs is opposing the timing of the proposed excise tax increase on electronic nicotine delivery system (ENDS) or vapor products, especially since the firm has only been operating in the Philippines for barely two months.

    “Taxing us at this point with a proposed 200 percent hike is onerous as it might just kill the category.

    As such, there is nothing to tax and no revenues collected,” the company said in its comments on House Bill (HB) No. 1026 which seeks to increase the excise tax on ENDS.

    The firm said while the bill originally intends to raise excise tax on alcohol products, the committee report was “hastily amended on the floor” to include, among others, a provision mandating an increase in excise tax on ENDS “without the benefit of any committee hearing.”

    JUUL Labs added this comes less than a month after Republic Act 11346 was signed into law, imposing excise tax on ENDS for the first time, and was only supposed to be implemented starting next year.

    HB 1026, however, seeks to impose higher rates: for heated tobacco products, a tax of P45 per pack of 20 units or lesser will be imposed by January and will increase by P5 every year thereafter until 2023. The tax will increase by 5 percent every year starting 2024.

    For vapor products, a tax of P35 per milliliter of nicotine salt, or a fraction thereof, will be imposed by 2020 and will increase by P5 every year until 2023. The tax will go up by 5 percent every year thereafter.

    JUUL Labs said the excise tax rate should be proportional to harm posed by ENDS compared to combustible cigarettes, thus ENDS should be taxed at a lower rate.

    Under the new tobacco tax reform law, the excise tax on cigarettes will go up from the current P35 per pack to P45 starting January 1 next year. This will be followed by a P5 increase every year until the rate reaches P60 in 2023. Starting 2024, the rate will go up by 5 percent every year.

    Tikki Pang, former World Health Organization research policy and cooperation director, and now visiting professor of the Lee Kuan Yew School of Public Policy in the National University of Singapore, in a press briefing Tuesday said in principle, ENDS products should be taxed 95 percent less than combustible cigarettes.

    “I think, it’s just in principle, in terms of harm reduction, if these products are 95 percent less harmful than cigarettes, they should be taxed at 95 percent less,” Pang said at the briefing organized by JUUL Labs in Manila.

    “But these arguments are not just based on risk… these arguments are also based on economic factors. So in principle that would be the way to do it, in practice I think really this is something that has to be negotiated. How do you balance not making the tax so high that people that can benefit can no longer afford it, but how do you make it also at the same time not so low so that it can become also a target for people doing counterfeit products,” he added.

    Pang said it would be okay to gradually raise taxes on ENDS, but this should be lower than combustible cigarettes.

    “As long as it’s a lower rate, in principle, if you want to do a gradual increase. But as I said, it should be risk proportionate. The policy on tax should be proportionate to the risk. If the e-cigarette is 95 percent less harmful, the tax should be 95 percent less. Why tax it at the same rate as a product which is so much more dangerous,” Pang said.

    “Your regulators are basically not buying that argument because one of the main arguments many governments say is that they don’t believe that it’s less harmful. They believe it’s as harmful as combustible cigarettes. Which once again, from my own personal assessment, that’s not true. They are plain wrong,” he added.

    Carlos Dominguez, Department of Finance secretary, earlier said the Department of Health (DOH) is not convinced with claims that e-cigarettes are safer compared to traditional cigarettes citing that the data is “too little and too short.”

    “We don’t know the long term effects of these vaping. So they are saying that the assumption that you wanted to shift is because it’s safer, it’s an assumption. They are not willing to concede at this particular point in time. I see their point, I mean scientifically you have to have a long series of data before you do it,” Dominguez said.

    “So rather than discriminate, we will just take the conservative approach, that this is not exactly, its safety is not proven. Of course, they show that thing when you clean it up, there’s less tar and stuff like that. It’s true it looks cleaner for the ordinary man in the street, but according to the DOH, it’s not scientifically proven,” he added.

    Pang, on the other hand, said the lack of sufficient evidence or basis is a standard response of policyholders or regulators.

    “It’s a standard response, when faced with a new technology, to say, there’s not enough research. Devices are too new. We need more studies before we are convinced, they said. My response to that is that no new device, no new drug, no new vaccine…can be a hundred percent effective, can be a hundred percent free of risk. It’s just not possible. That’s not just the way science operates,” Pang said.

    “But remember, vaping has been around for 10 years. If there’s going to be anything bad, it would have come up right now. But it doesn’t mean to say that in the next 10 years, it won’t happen. But the evidence I’ve seen so far is that, I repeat again, less harmful. It helps people quit smoking. Why not, instead of making it difficult, instead of raising the taxes, why not keep an open mind? Say, okay, we’ll give it a try. We will be more liberal, we will allow e-cigarettes, but we keep an eye, we do research, we monitor the smokers, we do research with the academics in the Philippines. We allow a time, three years, five years. Give it a try. That’s called learning by doing. No product can be a hundred percent safe,” he added.

    JUUL Labs also said imposing an “exorbitant and abrupt tax” increase could trigger unintended consequences, as it could provide an incentive to illicit traders.

    The company is also opposing the prohibition of flavourings apart from “plain tobacco or
    plain menthol” Graphic Health Warnings on ENDS packs, saying textual health warnings will suffice, and the proposal to impose an additional 20 percent tax based on the wholesale price or value of importation, net of excise tax and VAT for the electronic or mechanical device used by ENDS products.

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