Neal Cruz’s March 22 column on sin tax reforms and smuggling is laden with misconceptions and inaccuracies.
First, the claim that high prices will not discourage consumption disregards the fundamental law of demand (i.e., as prices increase, demand falls). The same is true with cigarettes and alcohol: that a tax hike significantly lowers consumption has been proven time and again by various studies. A World Health Organization study in fact emphasizes that raising prices is the “most effective way to curb (the) use” of cigarettes.
Second, although it is true that “smoking and drinking are addictions,” Cruz’s claim that price hikes won’t curb demand has no basis. Studies have found that the poor are more price sensitive—which means that a price increase is a greater deterrent to them and can force them to completely abandon smoking.
Third, even in countries (e.g., Thailand) with very high tax rates, sin tax revenues continue to be at significantly high levels. Although a price increase might invite smuggling, the real “temptations” to engage in smuggling are corruption, lack of government commitment and poor law enforcement.
In Canada, the tobacco tax hike was wrongly blamed for the rise in smuggling incidents, which were actually triggered by the tobacco industry’s “export” strategy to force tax reductions. After taxes were lowered, a dramatic rise in youth tobacco consumption ensued, leading to a tax rollback. Despite this increase in taxes, further smuggling was prevented due to effective government commitment. The lesson we can learn from the Canadian experience is this: Smuggling can be mitigated not by reducing sin taxes but by government’s efforts in implementing strong contraband-control measures.
In Singapore, which has one of the highest cigarette prices in the region (300 percent increase in prices from 1985-2005), consumption continues to plunge (2.15 kg in 1985 to 0.73 kg in 2005). Hence, evidence shows that sin products have inelastic demands—which simply implies that significant revenues can be had while effectively reducing smoking incidence.
Finally, the spin about the “tobacco farmer as a victim of sin taxes” has long been debunked. A study conducted by a UPLB professor, Dr. Rafael Espino, found that tobacco farmers can shift to other crops without much difficulty. Data from the Bureau of Agricultural Statistics have corroborated this finding, as indeed, many farmers over the years have shifted from tobacco to other crops. Furthermore, the sin tax bill will earmark 15 percent of the incremental revenue to be exclusively used for programs to promote economically viable alternatives for tobacco farmers and workers.
Indeed, we must learn from the lesson of others. But learning occurs best when we learn from scientific studies and data-backed research, not from unfounded claims and empty assertions.
—LAURENCE GO, researcher,
Action for Economic Reforms,
132 West Ave., Quezon City