Analyzing current and future levels of cigarette affordability under the Philippine Sin Tax Law (RA 10351)
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Action for Economic Reforms, Fiscal Policy Team, Philippines
Publication date: 2018-03-01
Tob. Induc. Dis. 2018;16(Suppl 1):A140
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The five-year old Philippine Sin Tax Law (RA 10351) is recognized as a global model. With the upcoming Congressional review, which can be a venue to either weaken or proactively improve the law, it is crucial to analyze its current and future impact on cigarette affordability, or the strength of income in purchasing tobacco products. This paper therefore analyzes trends in nominal cigarette prices (average price jumped from P1.20 to P2.20/stick according to the Philippine Statistics Authority (PSA) data)) and income trends to determine the future trajectory of cigarette demand. The upward trend in both individual (3% annual increase) and macro-economic level income (7% annual increase) of Filipinos could eventually make smoking behavior affordable again.

Trends in (i) Gross Domestic Product per capita, (ii) household income from Family Income and Expenditure Survey, (iii) and national effective minimum wage calculated from the National Wages and Productivity Commission, are used to estimate measures of cigarette affordability. Price data were gathered from PSA and projected using Walbeek model.

After the passage of Sin Tax Law, cigarette Relative Income Price increased from 2.2% in 2012 to 2.9% in 2017Q1. However, with strong projections on GDP growth and the relatively low increase in price starting 2018 (4% increase in excise tax), RIP will lower to 2.8% in 2018. This is consistent with the estimates that the growth of cigarette prices would be slower than daily income by 2018, making smokers potentially adaptable again.

Moving forward, the paper proposes to sustain the declining trend in cigarette affordability through increasing tobacco excise taxes further. This is consistent with the call of various health experts including Department of Health call to reduce smokers by 1 million by 2022.Other countries seeking to emulate Sin Tax Law are also recommended to consider income growth in estimating appropriate tax levels.