*FT Confidential Research-11 June 2018
First published in the Nikkei Asian Review and accessible at: https://asia.nikkei.com/Editor-s-Picks/FT-Confidential-Research/As-Filipinos-quit-smoking-Indonesians-puff-away
Rodrigo Duterte has often made headlines since becoming president of the Philippines, most notably for his pledge to kill drug traffickers. Less well known is Duterte’s success in tackling a different form of addiction: reducing smoking.
This is reflected in an FT Confidential Research (FTCR) survey showing that the Philippines has the lowest smoking rate among ASEAN’s five big economies, while Indonesia, which has made little serious effort to fight smoking, has the highest.
Less than a year after taking office, Mr Duterte signed an executive order in May 2017 banning smoking in public, imposing a maximum penalty of a four-month jail term and a 5,000-peso ($95) fine, making it one of the strictest anti-tobacco regimes in Southeast Asia. The executive order reinforced an existing law against smoking in public, but many point to Mr Duterte’s popularity and his strongman image as boosting the potency of anti-smoking policies, including hefty penalties for providing and advertising tobacco products to minors.
Mr Duterte’s campaign intensified the Philippines’ aggressive clampdown on tobacco use. This started under his predecessor with a January 2013 law that raised taxes on cigarettes from as little as 2.7 pesos a pack to 12 pesos, with annual increases every year since. The law has been a success: government data show that the proportion of 20-year-old Filipinos who smoke dropped to 25.4% in 2013 from 31% in 2008.
Under Mr Duterte’s tax changes, levies on cigarettes will increase next month to 35 pesos a pack — about 40% of the pack price — from the current 32.5 pesos. By 2023, taxes are expected to reach 40 pesos and increase 4% a year from then.
Our survey of 5,000 consumers showed nearly two out of three smokers in the Philippines have quit, the highest ratio among the five ASEAN countries surveyed. While taxes played a role in discouraging smoking, our survey suggests it is not the main motive. Most respondents cited “health reasons” and “stopped enjoying smoking” as reasons for giving up — a trend that is evident in all five countries surveyed.
Although some of the same policies have been implemented in the other four ASEAN economies tracked by FTCR, they have not been as effective as in the Philippines. Steps such as bans on smoking in public places, graphic warnings on cigarette packs, and the establishment of a hotline to the World Health Organization (WHO) to help smokers quit, have contributed to falling rates of tobacco use.
The Philippines has reduced smoking rates even though cigarette prices are still among the lowest in the region. A pack of Marlboro, the most popular brand in the country, retails for 81 pesos, or about $1.60, compared with $1.80 in Indonesia, $3.80 in Thailand and $4.20 in Malaysia.
As a result, there is still room for further price increases in the Philippines without hurting government revenue. In January, when the latest levies came into effect, excise tax collection rose 82 per cent year on year. The fact that cigarettes are still relatively cheap in the Philippines indicates that rising costs are not the main reason why people are quitting.
Our survey shows that across the ASEAN 5, the Philippines has the lowest number of smokers in the 18-24 age group. The Philippines already has the highest proportion of people who have stopped smoking. Unless the other ASEAN governments take similarly aggressive stances against tobacco, Filipino smoking rates are likely to remain the lowest.
Indonesia, where 41.1% of men and 10.2% of women said they smoke, is unlikely to challenge the Philippines as a champion of anti-smoking.
Jakarta has enacted anti-smoking laws but they lack enforcement. Smoking is banned in designated public facilities, such as schools and hospitals, but violations are common and prosecutions very rare. This is less about the shortcomings of the country’s justice system than it is about poor policy design. Since 2009, a number of cities, led by Jakarta, have imposed a six-month jail term and Rp50m ($3,560) fine for smoking in public facilities. In a country where the average monthly per capita income is $187, this financial penalty is so exorbitant it is meaningless.
But the political leadership also lacks the appetite for strict anti-tobacco rules. Tobacco is central to the Indonesian economy. It is the fifth largest tobacco producer in the world, with 398 registered small and large cigarette manufacturers employing 6.1m people and contributing Rp145.5tn in taxes last year. This represents nearly 9% of total tax revenues, more than is generated from the oil and gas sector.
Indonesia is the only member of the WHO in Southeast Asia that has not ratified the Framework Convention on Tobacco Control, which includes legal provisions to curb the influence of the tobacco lobby. A provision that would limit tobacco advertising has been removed from a broadcasting bill that is currently being debated in parliament.
Considering the size of the tobacco sector, it is both politically and fiscally difficult for the Indonesian government to adopt stricter anti-tobacco measures. With national elections due next year and the government facing the risk of a growing budget deficit, the country’s stance on tobacco control is unlikely to change soon.
*FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and south-east Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.
