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Tobacco excise tax reduced consumption, think tank finds

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By Beatrice M. Laforga

HIGHER excise taxes on tobacco products helped reduce consumption, but the impact of increased prices on alcohol and petroleum products was minimal, state think tank said.

“Increasing the excise tax on tobacco during the period (2008-2018) was an effective measure to discourage Filipinos from smoking and raise revenue as evidenced by the decreasing demand in tobacco products,” The National Tax Research Center (NTRC) said in its July-August tax research journal, “Elasticity of Demand of Selected Excisable Products: CY 2008-2018.”

The NTRC said from 2008 to 2018, the volume of removals, or products released to market from tax-regulated storage, of cigarettes packed in 20s, averaged 4.22 billion, and generally saw a decreasing trend in most years.

However, removals rose 26% to 3.98 billion in 2018 when the Tax Reform for Acceleration and Inclusion (TRAIN) Act took effect, from 3.14 billion in 2017, it said.

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“The increases in the volume of removals of cigarettes during the period (2018) were due to frontloading of manufacturers in years before an increase in excise tax,” the NTRC said.

For alcohol products, the study showed that demand for fermented liquors was elastic, indicating that a 1% increase in the price of beer reduces demand by around 1.42% while demand for distilled spirits and wines were deemed inelastic.

“The increased excise tax on alcoholic products was seen to have a low effect on its consumption,” it said.

Likewise, the volume of removals of alcohol products saw mostly an increasing trend, indicating that change in the excise tax rates on the products were ineffective in discouraging consumption, NTRC cited.

The study also found higher excise tax on petroleum products did not affect consumption significantly since the products have limited substitutes and are considered necessities.

“Imposing excise tax on petroleum products to address environmental and health issues will be more effective if there are substitutes for fuels for transportation and manufacturing sector,” it said.

Meanwhile, NTRC found that consumers are willing to spend extra income on buying cars despite higher prices due to the increased excise tax “since they prefer to own a car than utilizing public transportation.”

It said the government can still raise the excise tax on automobiles for revenue-generation purposes since the price is inelastic.

Looking at the price elasticity of demand of the various products, a coefficient higher than one means the demand is elastic or that consumers are highly responsive to changes in price which could lead to change in demand.

In contrast, a coefficient less than one indicates inelasticity which means consumers are not that responsive to change in price.

Based on income, the study found that all products studied had positive income elasticity, indicating any increase in consumer’s income will lead to higher consumption of cigarettes, fermented liquors, distilled spirits, wine, gasoline, diesel, household liquified petroleum gas (LPG) and automobiles.

In 2018, excise tax collections on these products totalled P290.51 billion, up 38% from 2017.

Republic Act No. 10963 or the TRAIN Act took effect in 2018, increasing the excise tax on some goods and services while slashing personal income tax.

HIGHER TAX IN 2020
Starting Jan. 1, some consumer goods will be slapped with higher excise tax anew as the third tranche of the TRAIN takes effect.

The excise tax on cigarettes were increased to P37.50 per pack from P35 previously, and will be further raised to P40 per pack on Jan. 1, 2022.

However, this provision was amended when Republic Act No. 11346 was signed in July, increasing it further to P45 per pack starting this year, P50 in 2021,P55 in 2022 and P60 in 2023.

Heated tobacco products were also levied a P10 per pack tax while vapor products will be charged a P10 excise tax for every 10 ml starting Jan. 1, with a 5% increment starting Jan. 1, 2021.

According to the TRAIN Act, the excise tax on regular and unleaded premium gasoline also rose to P10 per liter from P9 previously. The same P10-per-liter rate also applies to lubricating oils and greases, asphalt, processed gas, waxes and petrolatum as well as naptha.

The kerosene excise tax also rose to P5 per liter from P4 previously while that of diesel fuel oil and bunker fuel increased by P1.50 to P6 per liter, from P4.50 previously.

The LPG excise tax was increased to P3 per kilogram from P2 previously.

Meanwhile, the tax on mineral products was raised to P150 per metric ton from P100 previously.

In the nine months to September, revenue generated from higher taxes imposed by TRAIN Act amounted to P91.3 billion, 18% higher than the projected P77.3 billion and 107% higher year-on-year, according to the Department of Finance.

Latest collections accounted for 80.8% of the P113.1-billion full-year target for 2019.

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