DOF expects higher sin tax collections

Neal Cruz’s column on the effects of the Sin Tax Law on cigarette smuggling (“Cheap cigarettes from China flooding PH,” Opinion, 10/9/13) is marred with inaccuracies.

On Cruz’s claim that “the government is losing about P16.3 billion in taxes every year” because of the Sin Tax Law, based on current collection trends, the Department of Finance actually expects to collect P36.34 billion in additional revenues from excise taxes on tobacco and alcohol products in 2013—7 percent higher than the target of P33.96 billion set in 2012.

According to data from the Bureau of Internal Revenue, sin tax collections for the first half of 2013 were 46 percent higher than the collections in the same period the year before. These record levels of sin tax collections would hardly have been possible if there was, in Cruz’s words, a “raging popularity of cheap smuggled cigarettes.”

Second, Cruz’s assertion that “25 percent of Filipino smokers… have shifted to smuggled P1 brands” neglects the important role of brand loyalty in the habits of Filipino cigarette consumers. Indeed, in a survey conducted by Action for Economic Reforms (AER) in the last quarter of 2012, involving nearly 2,000 respondents, it was found that 80 percent of Filipino smokers were loyal to and avid consumers of only one or two cigarette brands already available in the market; only 18 percent of smokers, by comparison, were indifferent to cigarette branding, and thus more susceptible to purchasing smuggled cigarettes.

Third, Cruz’s attribution of cigarette smuggling to the Sin Tax Law is also misdirected. In reality, existing evidence indicates no clear relationship between increased excise taxes and illicit trade in tobacco. It is worth noting that most of the countries with the highest cigarette taxes in the region (Thailand, Singapore, Japan, New Zealand and Australia) are also those that have had the lowest incidence of smuggling.

What we can learn from these countries’ experience is that smuggling can be mitigated not by decreasing sin taxes but through government’s efforts in implementing strong contraband-control measures. Although a price increase can serve as a temptation, the real determinants of smuggling are corruption, government commitment and law enforcement.

Lastly, we remain puzzled by Cruz’s claim that the Sin Tax Law has failed to reduce tobacco consumption. What is the source of his data on daily cigarette consumption? Has he undertaken a survey on smokers? Had he done so, he would have likely encountered numerous young and poor Filipinos who have quit or reduced smoking because of the higher prices of cigarettes. We at AER are already in the process of interviewing such former smokers.

Clearly, a number of arguments in Cruz’s column are not supported by facts, and this has not been helped by his nondisclosure of the source of his smoking consumption data. Progress in public policy occurs when we learn from factually grounded research, not unfounded claims and unverifiable information.

—MADEILINE JOY ALORIA,

researcher,

Action for Economic Reforms