The Effects of Taxes in Cigarette

CHAPTER I

INTRODUCTION

To tax is to set up a burden or financial charge upon a taxpayer by a state for its functional existence. These taxes are very important because it serves as the lifeblood of the country.

President Benigno Aquino, III's administration is firm in its decision not to raise or impose new taxes; but to ensure that tax collection is done efficiently. The administration reiterated that imposing new taxes or increasing it is not the solution to the country's budget problems because they believe that the tax rulings in the Philippines are enough for the country's economic growth.

There are many taxes which are imposed in the Philippines and one of these is excise tax or sin tax. Sin tax from the word itself is a tax levied on activities and products which are considered sinful in the society such as tobacco, liquor, and gambling. It is imposed in those activities because it is believed that it can make the product less affordable and therefore less accessible. However, even though this kind of tax is imposed, its goal to lessen its consumption is often not achieved because even minors and poor people can still easily afford it. For this reason, this study will evaluate the effects of increasing excise tax.

Background of the study

Tobacco is the single greatest cause of preventable death globally. Tobacco use leads most commonly to diseases affecting the heart and lungs, with smoking being a major risk factor for heart attacks, strokes and many other diseases. The World Health Organization (WHO) estimates that tobacco caused 5.4 million deaths in 2004 and 100 million deaths over the course of the 20th century. Tobacco also contains nicotine, which is a highly addictive psychoactive chemical. When tobacco is smoked, nicotine causes physical and psychological dependency.

Tobacco products continued with a strong marketability in the Philippines because they are able to find ways on how they can lessen product unit price. They offer small packages, and even small-scale distribution channels all over the country known as the "takatak boys." One can even buy a pack of Marlboro Red for just $.80 in the Philippines as compared to $8.00 in U.S.

Republic Act 9334 or known as the sin tax law of the Philippines is enacted on December 2004. It is aimed to increase taxes of alcohol and cigarette products to discourage users. The cigarette manufacturers absorbed some of the price increase to lessen the drop in demand of the cigarettes. Last amendment of the excise tax was amended in 2009, but still, the manufacturers absorbed this price increase to retain the product demand.