DEBATE: No! to Sin Tax
As fully obvious as it is, the consumption of alcohol and cigarettes is a prevalent problem in the Republic of the Philippines, especially among those in the poor sectors and of course, the youth. Approximately, there are four million Filipino youths who are slaves to tobacco addiction; taking up a huge chunk of the 21 million-strong general smoking population. In order to counteract this problem, the House of Representatives thought it best to resort to raising exorbitant excise taxes to both cigarettes and alcohol. This is to “fix” the inefficiency of the status quo, RA9334. Thus, came the birth of House Bill 5727. The bill’s main goals are to raise revenue (15% of which would go to the misplaced tobacco farmers to help shift them to other crops and the rest to Universal Health Care) and of course, to curb general consumption of these deadly “sin products”. This seems to be the quick fix, but it is not.
The bill’s exorbitant tax hikes would make tobacco and alcohol products more costly. However, instead of quitting smoking and drinking, the average consumers will simply look for cheaper alternatives. A study done by Richard Williams and Katelyn Christ of George Mason University (Virginia, USA) reveals that the discouragement of unhealthy behavior from the Sin Tax is a myth. According to their study, consumers, when faced with higher priced tobacco, have been proved to not react immediately by quitting smoking – they simply look for cheaper alternatives. With the current version of HB5727, where tax hikes could be as high as 709% to 1003%, there will be no cheaper alternatives. Thus, the average Filipino consumer will dart to the black market.
In the United States – where a cigarette pack costs $9 (approximately P380) – the black market accounts for 40% of cigarette consumption. In Hungary, excessive excise tax hikes led to a rapid increase in illicit trade, comprising 26% of cigarette consumption in 2005. In Malaysia, according to a report by Goldman Sachs in 2009, a 172% increase in excise tax resulted to a shocking 9 billion sticks of smuggled cigarettes being consumed each year. In Singapore, according to the records of Singapore’s Ministry of Finance and Department of Statistics, when the excise tax was increased by 135% between the years 2000 to 2005, revenue increased until the year 2003. However, by the year 2004, the total revenue from the industry rapidly plummeted by 43%. Likewise, the number of illegal cigarettes being seized by customs rocketed from 8 million to 106 million in 2006.
Exorbitant and unreasonable tax hikes only deter consumers from smoking high priced, regulated, and taxed tobacco products. Such tax hikes do not deter consumers from consuming cheap, unregulated, untaxed smuggled counterparts.
Secondly, HB 5727 will not increase revenue. As pointed out earlier, exorbitant tax hikes deter consumers from consuming high priced and taxed tobacco and alcohol and force them to resort to their cheap smuggled alternatives. Are smuggled goods taxed? Obviously not. The government does not and will never derive tax from smuggled goods. With not enough revenue to earmark, the government will not be able to fund its Universal Health Care Program as promised by HB 5727.
Further, Steven Cua of the Philippine Supermarkets Association warns that, with the exorbitant tax hikes, supermarkets may choose to no longer sell legitimate tobacco and alcohol because of low demand. The tax hikes would also affect the earnings of the 700,000 sari-sari stores in the country.
Worst of all, Senator Ralph Recto warns that HB 5727’s passage into law will push the 2.9 Filipinos who are employed or dependent on the tobacco and alcohol industry to the brink of drastic unemployment.
Supporters of the bill say that there is nothing to worry about: HB 5727 would earmark 15% of the targeted revenue to help affected farmers shift to alternative crops. Really? At present, our tobacco industry is thriving. Tobacco exports rose from 43 million kilograms in 2008 to 56 million kilograms in 2010, generating nearly $270 million in export.
According to the National Tobacco Administration, our tobacco industry ranks as one of the country’s most important drivers of economic growth. As of October 2011, local tobacco growers registered a bumper crop of 79 million kilos valued at 5.2 billion pesos. Production rose by 10.9% or twice the average 5% growth rate for all other crops. The Bureau of Agricultural Statistics shows that tobacco registers a much higher farm-gate price of P67 per kilo to P15 per kilo for palay, P12 per kilo for corn, and P13 per kilo for tomatoes. Today, the average income of tobacco growers ranges from P40,000 to P100,000 per hectare.
With these figures – dear friends I ask you now this – why pass an exorbitant tax measure that would force tobacco farmers to shift to other less lucrative crops? Why pass an exorbitant tax measure that would kill this thriving industry?