ADRi Special Paper: “Assessment of the Sin Tax Reform Act of 2012”

Bienvenido Oplas, Jr., President of Minimal Government Thinkers (MGT) and Non-Resident Fellow of the Stratbase ADR Institute

In terms of meeting its objectives, the Sin Tax Law of 2012 has so far yielded mixed results. It managed to raise revenue that benefited the universal health care program and other government welfare initiatives. However, whether or not it has achieved its avowed healthrelated goals is less conclusive. For instance, selected excise tax rates under the earlier sin tax legislation are higher than the rates under the 2012 version, especially for distilled spirits and premium cigarette brands. This might explain the increase in volume removals for some products in the first two years of the implementation of the Sin Tax Law of 2012, particularly for distilled spirits.

In addition, the author’s own estimate of price elasticity of demand (PED), and confirmed by three others (DOF 2012; Quimbo et al. 2012; Sornpaisarn 2017), found the PED for sin products to be below 1 or inelastic. As a way of regulating consumer behavior then, raising excise taxes of so-called sin products does not quite achieve its intended effect.

Moreover, historically rampant smuggling and illicit trade negate the health objective of reducing the consumption of sin products. If the taxes keep rising for sin products, there are two unintended effects to public health and government revenues, where consumers bypass excessive taxes and regulation by buying inferior goods with lower taxes and lower prices and where increased black-market activity, more smuggling, and illicit trade of counterfeit alcohol and tobacco products erodes potential revenues for the government.

Instead of introducing another round of higher sin tax, legislators and executive agencies should focus on plugging loopholes, such as controlling the proliferation of smuggled and illicit products.

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