Sintax Reform Law

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Don't expect sharp drop in smoking with new sin tax bill — economist SIEGFRID O. ALEGADO, GMA NewsDecember 12, 2012 7:52pm
The sin tax reform measure will definitely raise the prices of cigarettes and alcoholic beverages, but there won't be an immediate and marked decrease in the number of smokers kicking the habit just because a stick of Marlboro Lights – for instance – has become more expensive.

But government officials are confident that the measure, awaiting President Benigno S. Aquino III's signature, will eventually curb cigarette consumption. 

“The sin tax law will increase taxes for cigarettes and alcoholic drinks. It will have the effect of increasing the price of smoking and drinking,” Finance Assistant Secretary Ma. Teresa Habitan noted in a text message to GMA News Online on Wednesday. 

How exactly will this measure impact on Filipinos who crave for the nicotine rush? Economic theory explains. 

“People will not reveal exact changes in consumption [of cigarettes] until the sin tax bill has been fully implemented,”  University of Santo Tomas economist Alvin Ang said in a phone interview. 

Theoretically, any form of price increase stemming from new taxes or not takes time to be realized by consuming public, the economist noted.

Targeting the poor

Ang said such taxes target price-sensitive sectors, particularly the poor and youth. “In time, those who could not afford cigarettes will lower consumption or quit all-together,” he said.

Habitan noted the rationale behind the reformed sin tax measure is to curb smoking and drinking in these segments while providing additional funds for health programs. 

“These are not basic commodities – cigarettes and alcohol are pleasure goods, which have bad health effects if consumed excessively,” she said, noting consumers buy sin products because these are cheap. 

Filipinos spend around 0.8 percent of their total expenditure on tobacco, statistician Jose Ramon Albert wrote in his article “What is So Sinful About the Sin Tax?” which is posted on the National Statistical Coordination Board's website.

What is worth noting is that the poorest 30 percent of Filipinos spend more on supporting the habit, with 1.6 percent of their total expenses going to cigarettes, he added. 

In an earlier Senate hearing, Health Secretary Enrique Ona has said the Philippines is the top smoking country in South East Asia.

Filipino smokers on the average consume 1,073 sticks annually, compared to Indonesia (974), Vietnam (887), Malaysia (646), Thailand (634), Laos (544), Cambodia (447), Singapore (406), and Myanmar (209), Ona noted. 

Finance officials had blamed the situation on a complicated four-tier excise tax structure with rates based on prices of brands in 1996. 

The system allowed consumers to go for cheaper cigarettes. “Consumers look for cheaper alternatives if they could not afford certain goods,” Ang said. 

The tax rates were also unadjusted for inflation, making cigarettes cheaper each year, he added. 

In its version submitted to Congress, the Aquino administration batted for the collapse of the four-tier system into two with higher rates for the first two years of implementation and a unitary P30 tax in the third year.  The government also wanted sin taxes indexed to inflation in a way that the excise tax is partly influenced by the movement of commodity prices. 

But Congress a approved version with a two-tiered rate for both tobacco products and fermented liquor, and gradually increasing to settle at a single P30 rate by 2017. 

“The excise tax incidence for tobacco products jumps from a measly 29 percent in 2012 to a respectable 63 percent by 2017, close to the international standard recommended,” Finance Secretary Cesar Purisima said in a statement Tuesday.

The bill ratified by Congress late Tuesday also indexed a 4 percent annual increase in tax rates during the sixth and succeeding years, meaning the excise tax on cigarettes will...
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