Sin tax forces smokers’ shift to cheaper brands

MANILA, Philippines - Cigarette consumption in the Philippines has shifted to the cheaper brands, an unexpected offshoot of the implementation of the sin tax law.

According to industry estimates, 25 percent of premium and sub-premium smokers have switched to one-peso brands since Republic Act 10351 or the sin tax law took effect last year.

Filipino-owned Mighty Corp. owns the popular P1 per stick cigarette brand of the same name. On the other hand, cigarettes sold by PMFTC and Japan Tobacco Inc. usually sell at five pesos per stick.

Industry sources said producers of one-peso brands may be resorting to under-declaration given the lower prices.

“If the assumption is correct, government incurs an additional loss of P600 million in excise taxes for every one billion sticks of under-declared cigarettes,” an industry source said.

Furthermore, tobacco industry players said the law may also be failing to discourage smoking, especially among adolescents who resort to cheaper cigarette brands.

Industry estimates show average daily consumption rose to 14.13 sticks per smoker in the second quarter of the year from 13.53 sticks per smoker in the first quarter.

“The increase is ironic because government has packaged the new sin tax law as a smoking reduction measure,” the industry source said.

For 2013, the government expects to raise an estimated P51.6 billion in excise taxes from cigarette products; P6.2 billion from VAT, and P6.7 billion from corporate income tax for a total of P64.5 billion from the tobacco industry alone.

Private think tank Action for Economic Reforms said despite the higher sin tax rates, the drop in cigarette consumption was less than expected.

“We have found that the previous estimates on reduction of smoking consumption arising from the higher tax rates are most likely overstated. 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. The Department of Finance, however, had earlier projected that the fall in tobacco intake would be 5.8 percent,” said Jo-ann Latuja, AER senior economist.