A QUESTION OF FAIRNESS
From the blog of Ms Ellen Tordesillas, I came upon her strongly urging support for a manifesto on House Bill 5727 posted in Facebook. According to her blog, she wrote: “The manifesto explains the financial advantage to the government and to the Filipino of higher taxes for alcohol and cigarettes. It says, ‘On the first year of implementation, the government is expected to raise additional revenues worth P60 billion, of which, P30 billion is from cigarettes, P11 from distilled spirits and P19 billion is from beer.’”
I checked the manifesto posted in Facebook, and indeed there is the claim of P30 billion that can be generated by HB 5727. If you consider the past collections from cigarettes, this claim is not gargantuan. The records I managed to get, which were in 2010, said that the total collections amounted to more than P31 billion. On the other hand, I tend to wonder how, with the unitary tax system proposed, and supported even by experts in the Finance Department, would have resulted in the claimed amount. On the surface, P30 billion (compared with the P31 billion collected in 2010) may not be impossible to achieve. However, if economic “laws” are to be followed, there is such a thing as “elasticity” that comes into play.
In another article, I read that the economic analysts consider the elasticity factor to be 0.8, debunking the other values as inapplicable to our situation. (By the way, elasticity is always negative in value. Thus computations will have to consider that elasticity tends to reduce expected values.) I tried using the “accepted” value of -0.8, and my results are all negative. In other words, we cannot expect any production of cigarettes. Naturally, my computations are unbelievable and impossible. There will always be some cigarettes to be produced; demand for legally and taxable cigarettes may be reduced, but we have to cope with the influx of smuggled brands that will satisfy those who cannot avoid smoking. It is unfortunate we have no statistics on smuggling, particularly cigarettes, so that we cannot truly estimate with conviction how much any situation will tend to encourage or discourage the illegal activities.
(The Prohibition in the United States during the early part of the last century totally outlawed liquor, but bootlegging and smuggling flourished. In Wikipedia, it says “The lack of a solid popular consensus for the ban resulted in the growth of vast criminal organizations, including the modern American Mafia, and various other criminal cliques. Widespread disrespect of the law also generated rampant corruption among politicians and within police forces.”
(In the same manner, we cannot expect to outlaw smoking. We cannot expect “solid popular consensus” for the ban even if we issue manifestos left and right. All the health threats have been thrown into the matter and we still have cigarette smoking proliferating in the streets. The police find it absurd and useless to arrest and imprison the sellers of sticks – not packs – of cigarettes that roam the streets. Possibly, the itinerant vendors may be picked up for jaywalking but not for selling sticks of Marlboros to jeepney drivers.)
In order to come up with some figures on expected cigarette production, I adopted the elasticity value of -0.5 mentioned by the American Lung Association, and came up with the following results for the First Year of applicability:
(I still included the results obtained using the elasticity value of -0.8). Under this condition, all Low and Medium-priced brands produced negative values; they are taken out of the market. Only the High-priced brands survive. After all, the difference between the present tax rate and the proposed amounts can be afforded by the rich. On the other hand, the increase in tax rates is an oppressive burden to the “poor”. Taxation under HB 5727 is inequitable; the poor are levied heavier tax rates than the rich. (If you compute the tax per stick imposed by the third year, the Low-priced brands absorb 1000 per cent, compared to the High-priced brands that are assessed ten times less.)
Where is the P30 billion to come from under this unitary tax of Rep Abaya?
Truly, there is a need to come up with a system that will erode the practice of smoking while at the same time give the government something to collect in order to cope with the deleterious effects of smoking. After all, we cannot eradicate the use of tobacco. If we cannot eliminate a vice, we might as well profit from it, just like lotto.
I understand that there is an alternative system proposed by a House subcommittee that improves on RA 9334, but is not as oppressive as HB 5727. On the other hand, HB 5727 is being pushed by a foreign cigarette maker, finding it conducive to its purposes without truly entailing high costs in production but expanding its market in the Philippines. If the bill intends to encourage foreign investment in the tobacco industry, it is contrary to the effort of government to discourage smoking altogether. I could even dare say (without proof) that that foreign investment is a Trojan horse that would be a vehicle for smuggling “high quality” brands at cheaper prices.
I am a non-smoker and ought not to bother and protect the interests of tobacco farmers and manufacturers and users. I know they can take care of themselves. However, I am concerned about fairness in the imposition of taxes. Make heavy the sin taxes, but equalize the tax loads of our “sinful” citizens. For instance, if the net price of a Low brand is P10; then tax it double or P20. If a net price of a High brand is P30, tax it P60. The tax burdens of both the poor and the rich are 200 per cent.
I am aware of other unfair tax laws, but cannot comment on them because of lack of data to support my contentions.
I checked the manifesto posted in Facebook, and indeed there is the claim of P30 billion that can be generated by HB 5727. If you consider the past collections from cigarettes, this claim is not gargantuan. The records I managed to get, which were in 2010, said that the total collections amounted to more than P31 billion. On the other hand, I tend to wonder how, with the unitary tax system proposed, and supported even by experts in the Finance Department, would have resulted in the claimed amount. On the surface, P30 billion (compared with the P31 billion collected in 2010) may not be impossible to achieve. However, if economic “laws” are to be followed, there is such a thing as “elasticity” that comes into play.
In another article, I read that the economic analysts consider the elasticity factor to be 0.8, debunking the other values as inapplicable to our situation. (By the way, elasticity is always negative in value. Thus computations will have to consider that elasticity tends to reduce expected values.) I tried using the “accepted” value of -0.8, and my results are all negative. In other words, we cannot expect any production of cigarettes. Naturally, my computations are unbelievable and impossible. There will always be some cigarettes to be produced; demand for legally and taxable cigarettes may be reduced, but we have to cope with the influx of smuggled brands that will satisfy those who cannot avoid smoking. It is unfortunate we have no statistics on smuggling, particularly cigarettes, so that we cannot truly estimate with conviction how much any situation will tend to encourage or discourage the illegal activities.
(The Prohibition in the United States during the early part of the last century totally outlawed liquor, but bootlegging and smuggling flourished. In Wikipedia, it says “The lack of a solid popular consensus for the ban resulted in the growth of vast criminal organizations, including the modern American Mafia, and various other criminal cliques. Widespread disrespect of the law also generated rampant corruption among politicians and within police forces.”
(In the same manner, we cannot expect to outlaw smoking. We cannot expect “solid popular consensus” for the ban even if we issue manifestos left and right. All the health threats have been thrown into the matter and we still have cigarette smoking proliferating in the streets. The police find it absurd and useless to arrest and imprison the sellers of sticks – not packs – of cigarettes that roam the streets. Possibly, the itinerant vendors may be picked up for jaywalking but not for selling sticks of Marlboros to jeepney drivers.)
In order to come up with some figures on expected cigarette production, I adopted the elasticity value of -0.5 mentioned by the American Lung Association, and came up with the following results for the First Year of applicability:
(I still included the results obtained using the elasticity value of -0.8). Under this condition, all Low and Medium-priced brands produced negative values; they are taken out of the market. Only the High-priced brands survive. After all, the difference between the present tax rate and the proposed amounts can be afforded by the rich. On the other hand, the increase in tax rates is an oppressive burden to the “poor”. Taxation under HB 5727 is inequitable; the poor are levied heavier tax rates than the rich. (If you compute the tax per stick imposed by the third year, the Low-priced brands absorb 1000 per cent, compared to the High-priced brands that are assessed ten times less.)
Where is the P30 billion to come from under this unitary tax of Rep Abaya?
Truly, there is a need to come up with a system that will erode the practice of smoking while at the same time give the government something to collect in order to cope with the deleterious effects of smoking. After all, we cannot eradicate the use of tobacco. If we cannot eliminate a vice, we might as well profit from it, just like lotto.
I understand that there is an alternative system proposed by a House subcommittee that improves on RA 9334, but is not as oppressive as HB 5727. On the other hand, HB 5727 is being pushed by a foreign cigarette maker, finding it conducive to its purposes without truly entailing high costs in production but expanding its market in the Philippines. If the bill intends to encourage foreign investment in the tobacco industry, it is contrary to the effort of government to discourage smoking altogether. I could even dare say (without proof) that that foreign investment is a Trojan horse that would be a vehicle for smuggling “high quality” brands at cheaper prices.
I am a non-smoker and ought not to bother and protect the interests of tobacco farmers and manufacturers and users. I know they can take care of themselves. However, I am concerned about fairness in the imposition of taxes. Make heavy the sin taxes, but equalize the tax loads of our “sinful” citizens. For instance, if the net price of a Low brand is P10; then tax it double or P20. If a net price of a High brand is P30, tax it P60. The tax burdens of both the poor and the rich are 200 per cent.
I am aware of other unfair tax laws, but cannot comment on them because of lack of data to support my contentions.
posted by myvja at
7:28 AM
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