‘Revised tobacco taxes: Bane or Blessing?–Part 2’

Soaring cigarette prices may also open a particularly nasty can of worms.  The rules of economics remind us that prices for a certain item can be raised only up to a certain point, beyond which consumers will cease to purchase that item and turn to lower-priced alternatives. And for smokers, who simply have to have their “nicotine fix” one way or the other, the alternative to exorbitantly-priced local cigarettes will be the much cheaper “black-market” cigarettes. While it’s true that these black-market cigarettes aren’t available—as yet!—throughout the country, there’s nothing to stop the spread of these bootleg products across the country if the demand increases. And if that happens, can the spectre of smuggling operations to bring in more and more of these black-market cigarettes into the country be far behind?

I don’t mean to be a party-pooper here, I truly don’t. Smoking is a health hazard, whichever way you look at it. I also understand why the government wants to adjust excise tax rates, and I can definitely appreciate the fact that taxes need to be raised so that economic programs can be funded and our country can continue to look forward to sustained development. But I do believe that some thought has to be given to the spending habits of the Filipino consumer, particularly smokers. I sometimes think that a smoker is a bit like a person who’s a slave to fashion—ever observe how they’re so conscious of “name-brands,” and how they want to have all the hottest fashion accessories?  But not everyone can afford that new Hermes bag or the latest Panerai watch, so what to do? I think we all know the answer to that, and why there’s a proliferation of imitation designer bag, shoes, watches, etc., throughout the metropolis—something which I guarantee is very good for the underground economy but very bad for legitimate, tax-paying businesses.

If people can patronize these imitation designer items, it’s not a stretch to imagine that smokers, who absolutely have to support their habit, will resort to patronizing black-market cigarettes, especially when you consider that they’re looking at a price increase of at least 700 percent for the lowest-priced, legitimately-produced cigarettes. Smokers need their nicotine, and I’m willing to bet that when a stressed-out smoker reaches for a pack of cigarettes, he’s not going to think about whether taxes have been paid on the cigarette he’s about to light.  Smokers who consume just one or two “sticks” a day may not be unduly affected by escalating cigarette prices, but those who consume one to two packs a day—and there are many of them—will surely feel the pinch, and it is a very distinct possibility that they’ll resort to black-market cigarettes just to make sure that they can meet their daily consumption of tobacco.

The long and short of it is that any change in tax rates will have an inescapable impact not only on the economy, but on people’s lives and their quality of life, and this is something that public finance planners should take into consideration whenever an attempt is made to significantly raise taxes that will affect a particular sector of the economy. Taxes—at least in the 21st Century!—are intended to provide the government with the resources to sustain the economy and improve the overall quality of life of the people. They should not be imposed, therefore, at the risk of encouraging the underground economy and fostering unhealthy consumption habits that may pose threats to the health and well-being of the people.

“Sin taxes” got their moniker because they were supposed to ultimately benefit the nation by discouraging people from patronizing products and goods that could be detrimental to their health and welfare. In this case, however, whether the revised “sin tax” on tobacco products will benefit the country or cause greater problems for the economy is still up for debate. As I write these words, the Senate ways and means committee is preparing to hold its final public hearing on the proposed revisions to the “sin taxes”—to say that a lot is riding on their deliberations is putting it very mildly indeed. Because the answer to the question of whether the sin tax on tobacco products will be a bane or a blessing is an answer that will have far-reaching consequences for millions of Filipinos, smokers and non-smokers alike, and certainly for this asthmatic. I don’t know about you, but I’m rather glad I’m not sitting in that committee, and that I don’t have to make the decisions they’ll have to make.

It makes me wheeze just thinking about it.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is a senior partner of The Tax Offices of Romero, Aguilar & Associates and member of the MAP national issues committee and the MAP tax committee. Feedback at [email protected]. For previous articles, visit <map.org.ph>.)