Economist debunks tobacco firms claim

Posted on September 19, 2012

ECONOMIST Solita "Winnie" Collas-Monsod of the University of the Philippines debunked yesterday the claim of tobacco firms that smuggling will rise if a "sin tax" reform measure is enacted.

This came as the Senate Ways and Means Committee holds deliberations on Senate bills (SB) 3249 and 2764 authored by Senator Miriam Defensor Santiago and SBs 2764 and 2763 by Sen. Panfilo M. Lacson. Also included is the House Bill 5727, which proposes two tiers for tobacco excise taxes and three for alcohol while removing the 1996 price classification freeze.

"There is no relationship between price and illicit trade," Ms. Monsod said in a forum orgnized by the advocacy alliance Action for Economic Reforms. She based this on 2012 data by the World Health Organization (WHO) and on another study this year by the Japan Tobacco International (JTI).

"Smuggling is an enforcement issue," she added, saying that it is the function of law enforcement to curb smuggling, not taxes.

Ms. Monsod also said that the sin tax is only just, despite the claim by tobacco companies that the tax is unfair for the poor. "It is precisely [why] we want the poor to stop [smoking because] they can’t afford medication," she said.

On the claim that farmers and retailers will lose livelihood, Ms. Monsod questioned the validity of the information sourced from the Philippine Tobacco Institute (PTI) and the JTI.

The economist also said that the government will not lose money even if the sin tax is increased, citing steady demand from addicted smokers. "People addicted will still buy cigarettes. Those who cannot afford will not buy [them]," she said. "All the studies, without question, show that because of the inelasticity of demand, when you raise the price, total revenue will go up because there are addicted consumers. It’s as simple as that."

"Revenues are going to increase. In no country in the world with even greater excise tax has there been revenue decrease," she added. Rejecting tobacco companies’ claim that the economy benefits from the tobacco industry, the economist said that the annual gross revenue from cigarette sales worth P103.8 billion does not offset the health care costs, foregone income due to sick leaves and premature deaths totalling P188.8 billion. -- Monica Cantilero