I. What are the main points of the article in review?

Through the years, smoking prevalence remained high among the Filipinos thereby
demonstrating the failure of the existing excise tax law to make tobacco less affordable. As
defined by law, Excise Tax is a tax on the production, sale or consumption of a commodity in a
country. It is being applied on goods manufactured or produced in the Philippines for domestic
sale or consumption or for any other disposition and on goods imported. A kind of Excise Tax is
Sin Tax, which is defined as a state-sponsored tax that is added to products or services that are
seen as vices, such as alcohol, tobacco and gambling. These types of taxes are levied by
governments to discourage individuals from partaking in such activities without making the use
of the products illegal. These taxes also provide a source of government revenue. Sin taxes are
typically added to liquor, cigarettes and other non-luxury items. The Government favors sin
taxes because they generate an enormous amount of revenue and are usually easily accepted
by the general public because they are indirect taxes that only affect those who use the
products. When individual states run deficits, the sin tax is typically one of the first taxes
recommended by lawmakers to help fill the budget gap. (http://www.gov.ph/sin-tax/, 2016).
However, in this article, it only tackles the impact of Sin Tax Law on the affordability of cigarettes
in the Philippines.

The prevailing concept in the said article is divided into the causes of the of prior Sin Tax
Law and effects of the implementation of Republic Act 10351. The old Excise Tax Law failed to
decrease the consumption of tobacco by Filipino smokers, which is the primary rationale of the
implementation of the said law. Such failure was attributed to the three limitations according to
Sta. Ana and Latuja (2011) namely: lack of indexation. The idea of which is the absence of a
yearly upward adjustment on the tax rate to account for inflation. Although the law provides for a
schedule of marginal increases in cigarette excise tax every two years since 2005. Another is
price classification freezes, which is the fixed classification of the brands according to their
prices. As mandated by the RA 9334, the price classification freeze kept the price classification
of old cigarette brands, which make up 90 percent of the market, fixed according to the brands
net retail prices as of October 1, 1996. Lastly, the multi-level tax structure. Specific tax rate for
each price classification. Under this system, higher priced cigarette brands are taxed more than
their low-priced counterparts. Since the most smokers are considered poor, the law was created
focusing towards this group to decrease the overall smoking supremacy is the most vital

mechanism. Also, another reason is that the Philippines continued to be one of the highest
consumer of tobacco that is inversely related to socio-economic status. As tobacco used is one
of the most important shared risk factors for the top non-communicable disease (NCDs) in the
country such as: cardio-vascular disease, diabetes, Chronic Obstructive Pulmonary diseases
and cancers. In relation to that, the Philippines ranked 5th in ASEAN with the highest DisabilityAdjusted Life Years attributed to smoking-related NCDs. In addition, the prices of cigarette in the
Philippines in the ASEAN region ranked as the lowest which connotes that the government
failed to prevent the smokers to easily purchase such products.

For every action, there is a corresponding reaction; the implementation of the Sin Tax
Law has its effects. In order to fill in what lacks the new Sin Tax Law prescribed annual increase
in cigarette prices from 2013 to 2018. After 2018, the excise tax rates will increase by 4% every
year. For the price classification freeze the given corresponding stipulation in the new Sin Tax
Law is the removal of the price classification freeze. The proper tax classification of alcohol and
tobacco products will be determined every two (2) years. Moreover, one of the weaknesses
provided by the article in the old excise tax law is the multi-level tax structure which upholds the
two-tiered tax structure. There will be two categories based on the brands' prices, but the law
has a provision for a gradual shift to a unitary tax system by the year 2017. "Affordability
considers the simultaneous effect of income and price on a persons buying decision" was
stated by Blecher and van Walbeek which is influenced not only by its level retail prices, but also
by its price relative to those of other goods and services, and the disposable income. Thus, the
formula used for estimation was Kan and Blecher and van Walbeek's which is defined as the
percentage of daily income used to buy a pack of cigarettes and simply the ratio of GDP per
capita and the retail price of 100 cigarette pack, respectively. In Kan's formula, the advantage of
such is that it can be used as the actual income of the population since there is a wide
divergence of income across the population. Furthermore, it showed that in 2012, for every 1
pack of Marlboro constituted 12% of the average daily salary of a person. After implementing
Sin Tax Law for a year, it advanced to 16%. In the agricultural sector, which has the highest
poverty incidence, one pack of Marlboro costs 24% in 2012, but when Sin Tax law was enacted,
the value increased to 33%. Another method used is Blecher and Van Walbeek wherein it uses
GDP per capita as income, which takes into account the overall purchasing power of the entire
economy which allows for multi-country analysis. Moreover, this method tells that cigarette were
becoming more affordable as shown by the yearly decrease in Relative Income Price. The time

when Sin Tax Law was implemented, 100 pack of cigarette already cost 4.6% of the estimated
GDP per capita compared to 3.6% in 2012, indicating a 28% decrease in affordability. As to the
local brands, there is a 25% decrease, with a prices rising from 2.1% in 2012, and 2.6% in 2013.

II. In what way does the article relate itself in the area of fiscal studies?

"Sin Tax Law as discussed in the article is implemented under Republic Act 10351 it
directed companies to increase the retail price of tobacco products. Its goal is to outspace
economic growth and to make cigarettes less affordable to the public. Sin Tax law falls within the
classification of an excise tax. Excise Tax is a tax on the production, sale or consumption of a
commodity in a country. Throughout experiences, countries show that the use of such sin tax
imposed on tobaccos really decreased the consumption especially among the poor. The
promulgation of excise tax such as Sin Tax is strongly related to fiscal studies at it depicts
increases in the revenue for the government which is used for government spending and on the
other hand, promotes discouragement with the use of harmful products to human health such as
the tobacco. As the sin tax imposed on cigarettes increases, the higher the increase of the
governments revenue would be and therefore, a better avenue for inflation and economic
growth especially in our developing country."
Sin taxes are intended to discourage participation in private behaviors that society
deems undesirable while raising money to help compensate society for the costs incurred from
such behaviors. However, the question remains: Are sin taxes guided by clear taxation
principles that reduce objectionable behaviors or are they simply a convenient means to help
boost state budgets? There are many other related issues surrounding sin taxes, including their
fairness, their efficiency in raising revenues, the costs associated with enforcing them, and how
states and localities allocate revenues generated from them. Sin taxes not only raise revenue
for government, but also can be intended as a deterrent to behaviors considered harmful. The
belief is that the higher the taxes, the more people will be discouraged from engaging in these
behaviors. For example, many people believe that cigarette taxes reduce smoking and thus
improve public health. While studies vary widely on this issue, many indicate that the cigarette
tax does indeed serve as a deterrent but more so for younger people than for older, longterm smokers. Economic Principles for Sin Taxes Two primary justifications for levying sin taxes:

Sin taxes decrease the consumption of sinful goods and services and they offset any societal
costs incurred by such consumption. However, sin taxes appear to have a limited impact on
reducing sinful consumption. For example, a 10% increase in the cigarette tax causes only a 3%
reduction in tobacco use. Moreover, as a means of offsetting societal costs due to sinful
consumption, sin taxes have some problematic features. First, sin taxes tend to be regressive
taxes - they tend to fall disproportionately on households at the lower end of the income
distribution, raising issues of fairness. In general, low-income households spend a greater
portion of their income on many products affected by sin taxes (such as alcohol and tobacco)
than their higher-income counterparts. Second, sin taxes are prone to attract heavy lobbying
activity by producers of sinful goods.
Sin taxes are intended to discourage participation in private behaviors that society
deems undesirable while raising money to help compensate society for the costs incurred from
such behaviors. Example, there are economic benefits associated with tobacco taxes. The
revenues to governments generally rise with tobacco tax increases, but these revenue gains are
not always sustained over time because of falling tobacco use. The regressive nature of the
tobacco tax is offset by the fact that low-income people are more likely than their higher income
counterparts to quit as a result of tobacco tax increases - and thus more likely to reap the health
benefits. Moreover, if some revenues from tobacco taxes are used to fund programs targeting
assistance to the poor this strategy helps counteract the regressivity of the taxes.
Sin taxes are often the subject of attention when states and localities find themselves in
tight fiscal conditions. However, as the presentations at this forum demonstrated, sin taxes often
offer limited revenue growth and, in some cases, are costly to enforce.

III. What are some of the points that the group find interesting or still subject for further debate?

(eto yung akin kat sa number three- japhet)

Things that need further deliberation in this article are the dilemma on the success
of the New Sin Tax Law after applying such. Is it effective enough to lessen the
population of smokers in the Philippines? Up to what extent will the sin tax increase?
What will happen to the tobacco companies if the Sin Tax Law will really create an
impact on the affordability of cigarette in the Philippines and to the population of
consumers? How about those in the middle and higher class, are they really
affected by the increase in price? Do we really need to focus on the lower class? Is
affordability really the only problem on sin tax law? Its also interesting to know
about the further actions that the government would do after implementing such
law because this will allow the citizens to know what kind of government we have.
Do we have a capitalist government that only care about the revenues of the
country he serves in, or a humanist government that think about the totality of his
citizens situation? Yes, having an annual increase in GDP is good in the track record
and image of a country, but I believe whats more important are the people living in
it, the people who are the real facets of a nation. If the Sin Tax law is implemented
for the further prevention of prevalent causes of smoking, the government must
continue the battle towards cleaner environment, and healthier life. The
government must strengthen the implementation of the comprehensive tobacco
control strategy enshrined. Focus on what is good for the country and thwart what
must be eliminated.