Sin Taxes: Are We Achieving Its Promise?

Rammarius Markus B. Advincula l 2010-00881

Sin taxes: Are We Achieving its Promise?

An Economic Analysis of the Effectiveness of Sin Tax Law in Achieving Its Perceived Effects

On December 20, 2012 the Sin Tax Law Bill was signed by President Nonoy Aquino. House Bill 5727, or the Sin Tax Bill, aims to restructure the existing taxes imposed on alcohol and tobacco goods, as they say.

Sin Tax Motivation

Those who drafted the law cited the increasing number of "sin product" users. According to the Department of Health (DOH), the Philippines has an estimated 17.3 million tobacco consumers, the most number of smokers in Southeast Asia. Filipinos on average consume 1, 073 cigarette sticks annually, while the smokers in the region consume less than a thousand sticks yearly. Smoking is responsible for 71 percent of lung cancer deaths in the world. Consequently, lung cancer is the leading form of cancer in the Philippines. DOH statistics reveal that 10 Filipinos die every hour because of smoking.

Meanwhile, drinking alcohol, though effects are relatively less severe health-wise than smoking, has posed a number of costs on the individual and society: It has caused crimes as influenced by alcohol, fetal deformities, significant addition in healthcare expenditure and etc.

Sin Tax Law Provisions

There are two provisions that will be of focus in this study:

Maintain the specific form of excise taxation (e.g., per piece, per pack, per proof liter) to discourage consumption, have more revenues that are predictable and easier to administer, and devoid of incentives for manufacturers and importers with under-invoice products;

A shift from a multi-tiered tax structure to a single tax structure: (1) For cigarettes, a two-rate structure of P14 and P30 per pack for the 1st two years, and a uniform rate of P30 per pack of cigarettes on the third year. (2) For fermented liquor, immediate implementation of unified rate of P25/liter. (3) For distilled spirits, a two-year transition period to a unified rate of P150 per proof liter on the third year.

Sin Tax Objectives

With the motivation provided by the government. The government mentioned two main objectves that it wants to accomplish through this bill.

1) To increase government revenues from the tax increase in thiese sin products.

2) To reduce the number of users of such products that will improve the welfare of society.

Objectives of the Study

This study would mainly want to validate the notion that this law can achieve its objectives wherein it further tries to explore whether the two mentioned can jive at the same time as I find the two mutually exclusive form each other.The study would also like to explain the sin tax law in economic context as a form of tax, an instrument in gaining revenue and a law to increase social welfare.  Lastly, this study aims to explain the probable short run and long run effects of the law and try to investigate more on the question ,  is this law really effective for our country?