By Azer Parrocha
MANILA, (PNA) — Despite having new high sin tax rates, a group Tuesday said that further tax increases can be done in the medium-term, which will satisfy both revenue and especially health goals.
This was explained in a three-month survey of nearly two thousand respondents in Mega Manila and Metro Cebu in the last quarter of 2012 on smoking consumption conducted by the Action for Economic Reforms.
It revealed that while cigarette consumption will decrease, the drop in consumption will be less than what has been previously estimated by previous studies, which were presented in last year’s Congress hearings on the sin tax.
According to AER senior economist, Jo-ann Latuja, the new study fills in a key gap in the literature on smoking consumption in the Philippines.
“Compared to 2012, where most projections of the benefits of the sin tax reforms were based from general surveys that were not focused on cigarette consumption, we have instead gathered new data on the factors affecting cigarette demand among Filipinos— especially price,” Latuja said in a statement.
“We have found that the previous estimates on reduction of smoking consumption arising from the higher tax rates are most likely overstated,” she further explained.
“Our report demonstrates that a 10 percent increase in the prices of cigarettes would bring smokers in the city to decrease consumption by 2.84 percent,” she said, adding that the Dept. of Finance had earlier projected that the fall in tobacco intake would be 5.8 percent.
“The average figure for all Filipino smokers, including both urban and rural residents, should be closer to a four percent reduction,” Latuja said.
Per-stick or “tingi” purchase refinements
Latuja said that the difference in the price sensitivity figures came mainly from refinements in the framework of the AER study.
While DOF proxy for consumption was based on per-pack volume removals data, Latuja said that the new AER report used per-stick purchases, which was the common practice of Filipino smokers, especially among low-income consumers.
“These new findings also seem to explain why 2013 collections from sin tax revenues have been higher than expected, while cigarette demand seems not to have dampened to the same degree,” Latuja said.
Based on current trends, the DOF expects to generate P36.34 billion from the sin tax collections throughout 2013— 7.0 percent higher than the target of P33.96 billion set in 2012.
Conversely, in the second quarter of 2013, the sales of Philip Morris Fortune Tobacco Corporation declined by only 3.5 percent.
Nonetheless, an initial estimate from the AER report suggests that up to 2.09 million smokers of the current smoking population are expected to quit and 63,000 smoking-related deaths are likely to be prevented, as results of the reform of the sin tax scheme.
Furthermore, far more young and poor individuals will also be discouraged from taking up smoking in the first place.
“What our consumer responsiveness findings simply affirm is that there is still a lot of space to continue increasing cigarette taxes in the medium term, on top of what is already imposed by the law,” she said as this will lead more smokers to quit.