1.

0 Time Context

2012

2.0 Viewpoint

National Government of the Philippines

3.0 Central Problem

In what ways government would be able to increase its tax revenue, if the tax for sin products

will increase?

4.0 Statement of Objectives

4.1 Must objective

-To improve economic and Government efficiency.

-To increase the country’s tax revenue.

4.2 Want objectives

-To discourage the social class in using sin product to prevent health issues.

-To increase the fund for the health and social program of the country.

-To lessen the health expenses of the government allotted for the treatment of the diseases caused

by sin products.

-To consider the stand of the manufacturers of sin products on excise tax system of the

government.

5. Areas of Consideration

5.1 External Environment

5.1.1 Threats

1. The higher the tax increase, the more lucrative the illicit profits are made by criminals

and less legal profits are made by retailer and wholesaler.

2. Sin taxes are making sin products a lot more costly that consumer of these products

are driven to the black market instead of discouraging consumption or raising more

revenue.

3. The long run effect of the Sin Tax System might not consistently increase the total

revenue that the government could collect if the people from the lower class society

who make most of the demand for sin products were able to adjust to a new lifestyle

without consuming sin products

5.1.2 Opportunity

1. Increasing the total revenue that the government could generate will result to increase

in foreign investor investing in the country which leads in a raise in the country’s

employment rate and productivity putting the country in a better position to its goal of

attaining economic growth.

2 .To fund the universal health care program and to improve the country’s credit-

worthiness and ranking the investment grade.

5.2 Internal Environment

5.2.1 Strengths

1. The sin tax system could increase in the short run after it is implemented since the

demand for sin products is/are still inelastic.

2. The sin tax system could raise the prices that adolescents and the people from the

lower class society would pay for, making it beyond their reach to reduce their

consumption of the sin products make their health status better off. Therefore, it could

help minimize the number of health cases related to sin products and would decrease the

expenses of health care.

3. Since sin products cause health implications, it is also affect the workers’ productivity.

The increase in the tax of sin products could possibly reduce the number of people

consuming it. Thus, it could possibly decrease productivity losses.

5.2.2 Weaknesses

1. The health objective of the sin tax system might aggravate the sin products

manufacturers resulting to them coming up with innovative marketing strategies like

supplying cheap cigarettes that masses could still afford to keep their sales afloat.

2. Possible surplus in the sin products because of decrease in demand in the long run.

6.0 Alternative Courses of Action

 Increase the taxes of Sin Products

Gov't revenue will still increase even if tax of sin products increases and reduces its

consumption. This is in part because the proportionate reduction in demand does not match the

proportionate size of the tax increase, since addicted consumers respond relatively slowly to

price rises. Furthermore, some of the money saved by quitters will be spent on other goods which

are also taxed. Historically, raising sin taxes, no matter how large the increase, has never once

led to a decrease in sin tax revenues.

Also, some of the money saved by quitters will be spent on other goods which are also taxed.

Historically, raising sin taxes, no matter how large the increase, has never once led to a decrease

in sin tax revenues.

 Increasing the tax for inelastic products

If the tax for sin product increases it tends to decline the tax revenue for sin product in

long run, that's why increasing the tax for some inelastic commodities will be the solution to turn

back the tax revenue and have consistently increasing revenue.

 The gov't to encourage social class to lessen the consumption of sin products to decrease

the health expenses for diseases caused by sin products

Sin Tax Bill aims to restructure the existing taxes imposed on sin products to increase the

government's revenue. In the short run, the government can generate more revenue because the

people will not eventually feel the effect of the tax on their budget because they are hooked in

using these products but in the long run, making sin products expensive causes people to lessen

the amount of sin products that they buy and consume, as a result people will have lower chance

of being diagnosed of ill effects caused by over consumption of sin products. In connection to

this, we could say that the government will spend lesser for the treatment of these diseases. The

government could have enough funds for the health care programs, give better medical

assistance, and enhance the medical facilities.

A part of the generated revenue could also allocate to increase the allotted budget for

education, road constructions, development of recreational activities, and other special projects

for communities. The government can constantly get revenue because due to high price of sin

products, the consumer will be discouraged in using these products. The budget of the people

increases so they can have more money to spend on other goods and services. In that case, the

government can still increase its revenue because the government will now move in on vitamins

and other nutritional items that the public is interested.

7.0 Final Decision

The government will increase the tax of sin products, to lessen the consumption of the

social class on sin products that will eventually decrease the health expenses of the government

for sin products users.

8.0 Detailed Action Plan

Excise tax on sin products in the Philippines is based on net retail price (exclusive of

VAT and the excise tax itself) of each brand at which cheaper brands being taxed less than the

more expensive brands. For instance, the excise tax schedule for cigarettes consists of four tiers

referring to low-, medium-, high-, and premium-priced brands while those for fermented liquors

and distilled spirits produced from raw materials other than nipa, coconut, cassava, camote, buri

palm or sugar cane consist of three tiers each.

Tobacco and alcohol excise tax rates in the Philippines are among the lowest not just in

Asia but worldwide (Sunley 2009, Nakayama et. al. 2011). Thus, it is perhaps not a coincidence

that the Philippines is currently the highest consumer of tobacco in Southeast Asia, where there

are 17.3 Million cigarette consumers as estimated by the Department of Health.

Health advocates also argue that the social costs of cigarette smoking and alcohol

consumption in terms of their harmful effects on health are the same regardless of the net retail

price of any one brand of the excisable product.

A uniform rate structure is preferable to a multi-tier rate structure because it eliminates

the opportunity for consumers to switch from higher-priced, higher-taxed brands to cheaper,

lower-taxed (but just as harmful) brands.

For the purpose of raising the revenues and discouraging the consumption of the tobacco

products and alcoholic beverages, the excise tax on sin products is imposed. It is argued that

higher sin taxes will induce some smokers to quit, reduce consumption of continuing smokers,

and prevent others from starting. It is expected that higher taxes will yield higher revenues in the

near term while deterring smoking in the longer term because the demand for cigarettes is

relatively price inelastic.

In line with this, the government will raise the taxes to constitute thirds to four-fifths of

the total retail price of the cigarettes. They should also publish and disseminate research results

on the health effects of tobacco, adding prominent warning labels to cigarettes. Also, the national

government should adapt comprehensive bans on advertising and promotion and restricting

smoking in the workplace and public places and widen their access to nicotine replacement and

other cessation therapies.

Furthermore, tobacco farmers who might be displayed by this reform and will be forced

to shift to plant other crops or other livelihood endeavours will continue to share in the

incremental revenues. The new sin tax system will also provide a share of its revenues towards

farmer support program.

Revenues generated from the sin tax will be used to fund universal health insurance and

other health care initiatives, as well as provide alternatives livelihood support in tobacco-

producing area that will be affected economically by this policy. There will be allocated funds on

Millennium Development Goals and improvement of health facilities and medical assistance

programs.

Imposing the highest possible tax rate on cigarettes as a dominant strategy, regardless of

what the market response would be. If the market responds negatively, where people continue to

smoke despite tax increases, enough revenue is expected access and quality health services could

compensate for the continued health risk owing to smoking. On the other hand, if the market

responds positively at which significant number of people quit or reduce smoking the revenue

might be low but the direct health effects would be highly beneficial, especially among the poor

who are the main beneficiaries of universal health care.

The increase in the price makes a powerful disincentive for those without disposal

income to continue smoking and drinking alcohols. While the addictive nature will lead to

inelastic demand on the part of the long-time users; the steep increase in price will discourage

potential users from taking the habit.

.
REFERENCES

Nakayama, K., Caner, S. & Mullins, P. (2011). Philippines: Road map for a pro-growth equitable

tax system. (IMF Country Report No. 12/60). Retrieved November 10, 2012, from

www.imf.org/external/pubs/ft/ scr/2012/cr1260.pdf

Petkantchin, Valentin (2014) The pitfalls of so‐called “sin” taxation. Retrieved at

www.institutmolinari.org

Manasan, Rosario G. & Parel, Danileen Kristel C. (2013). DISCUSSION PAPER SERIES NO.

2013-19; Amending the Sin Tax Law.

Science City of Munoz, Nueva Ecija
Central Luzon State University
College of Business Administration and Accountancy

P155B PROJECTED FROM “SIN TAX”

CASE STUDY

Angayon, Lorraine S.

Bartolome, Paul Jeric V.

Casuco, Star Serafin C.

Garcia, Reinaly DV.

Galingan, Katrina Ann Marie G.

Manalo, Charicel Keith S.

Matas, Vanessa Maey C.

Osila, Christine Joy C.

Valencia, Jeneenah U.

BSAT 2-2