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“Sin taxes” are a policy option that governments can adopt to dissuade people from consuming certain goods deemed harmful to individuals and society, for example, alcohol and tobacco. In a country of your choice, examine the economic and any other arguments for and against the adoption of “sin taxes” and the empirical evidence to support these arguments, and make recommendations as to whether you would support the extension of sin taxes to cover a wider range of goods. If so, which goods and why? 

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Introduction

The Philippines economy is considered as the 34th largest level in regard to the world economy according to the national GDP as per the estimate conducted by statistics of International Monetary Fund in the year 2017. It is being considered as the markets which is emerging at a fast rate and is also considered as the sixth richest country in the South East Asia in terms of the GDP. The economy of Philippines is basically an industrialized country which is shifting its target from agricultural sector to the production and the tertiary sector. There are various products which are exported from the country which primarily includes garments, petroleum products, electronic products, copper products, and fruits. The company is conducting operations with different countries such as United States, Japan, China, Hong Kong, South Korea, German and Thailand etc

Summary

Sin tax is basically a type of sale tax or the excise tax which is specifically being levied on specific goods which are being considered as harmful in relation to consumption by the society and members of the society. Sin taxes are actually levied in order to reduce the consumption of the good by increasing the taxes and also increasing the revenue of the consumption continues at the same rate. Sin taxes are being given on those goods and activities which are being considered as undesirable from the point of view of society. As per Gifford 1997, sin tax is being termed as the taxes meant to reduce the behaviour which may be very harmful to the society in context of the modern economic times. (Amy Madore, Julie Rosenberg, and Rebecca Weintraub, 2015)
Arguments in favour of the Sin taxes

Reduction in consumption of cigarettes:

The main benefit in the implementation of the Sin taxes is to create discouragement amongst the people and especially the young generation in order to reduce the cigarette consumption amongst them and divert their attention to other goods. As per the opinion of the Department of Health, the sin tax is also termed as the health bill as it will help in saving lives of many Philippines if the law and bills are properly implemented. The National Youth Commission data provides that the young people engaged in smoking are increasing day by day and approximately 40% of the person lying between 13-15 age groups is engaged in smoking in Philippines. Thus the application of the sin taxes will help in increasing the prices of the cigarettes which will also put a limit on the consumption of the cigarettes by the smokers of young age.

The Laylo Research Strategies had also undertaken the poll survey in relation to affect of the sin taxes on the smokers in Philippines and the results had revealed that the increase in taxes had led to decrease in the consumption of the cigarettes thus it had also led to decrease in the number of the people that may have got severe diseases due to smoking and number of deaths.
The views of the public also provides that the implementation of the six taxes bill which are pending will lead to increase in the prices of the cigarettes and hence around 31% of the people will reduce their consumption slowly and 17% of the people will immediately stop the consumption of the cigarettes.

As per the view of Dr. Antiano Dans, the implementation of the sin taxes will help in reducing the smoking rate from 31% to 26% which signifies that approximately 2 million people will stop smoking.
The initiative by the Southeast Asia in regard to the Tobacco shows that sin taxes will help in saving approximately lives of 140000 people to 1.3 million people in Philippines. (CNN, 2018)
The sin taxes on tobacco are being considered as the main driver for the purpose of inflation and it had reached to level of 4.1% in the starting four months of the year 2018.

Improvement in health standards

The implementation of the sin taxes is very useful for the economy as the study by the World Health Organization shows that the government is getting revenue of around 23 Billion by way of the taxes on the sale of the tobacco but it is too less in comparison to the value of the losses in economic terms which is caused due to various health related costs in regard to different diseases such as cancer, disease of liver, disease of heart and Pulmonary diseases. The 50% increase in the price of cigarettes will help in reducing the number of deaths by 1.8 million and the 100% increase in prices will decrease the number of deaths by 3.5 million. Hence the reports reveal that the spending by the government is high on the health related issues caused by the consumption of the tobacco as compared to the tax revenue that is generated by the tobacco for the government. Thus government needs to spend more amounts in order to cure the life threatening diseases such as cancer, disease of liver, disease of heart and Pulmonary diseases which are being caused by way of alcohol and tobacco consumption.

There had been a considerable increase in the health budget. It had increased by a level of 57.3% in the year 2014, 63.5% in the year 2015 and 130.4% in the year 2016 in comparison to the 2013 budget. (Department of Health, 2016)
Insurance coverage had been provided to 2.8 million senior citizens

Reduction in consumption of alcohol

It will help in reducing the alcohol consumption. It will also help in reducing the health related costs by around 200 billion due to smoking and consumption of alcohol.

Increase in revenue

The high increase in the sin taxes will provide high level of the revenue to the government. Suppose there is no implementation of the sin tax bill then it means that the increase in tax is just 0%. Hence the government will be able to gather revenue of 25.4B php. But with the implementation of the Recto bill, there will be 65% increase in the level of the revenue and thus will provide revenue of 37.8B php. With the implementation of the Santiago Bill, there will be 265% increase in the level of the revenue and thus will provide revenue of 68.7B php which is very much higher in comparison to the goal of the government amounting to just 60B php. Hence the stopping of smoking by people will lead to avoiding death which can be caused by different diseases such as cancer, disease of liver, disease of heart and Pulmonary diseases. (Lemuel Preciados, Jayson E Carcajente, 20xx)

Reduction in smuggling of goods

The implementation of the sin taxes will help in reducing the level of the smuggling of the cigarettes at the international level. As per Pia Cayetano, Philippines are having the retail price of cigarettes at the second cheapest level in Asia. The prices of tobacco are the cheapest in Philippines due to comparatively very low amount of taxes. But other countries have levied high amount of taxes on the sale of the cigarettes in order to promote their policy of public health. The coordinator of the Free Initiative by the WHO tobacco, Dr. Yurekli had provided that the low level of the taxes in the nation of Philippines will lead to increase in the demand of the cigarettes by the foreign countries which in turn will lead to increase in the imports of cigarettes in the illegal form from the nation of Philippines. As per his views, earlier china was being considered as the main hub for smuggling of the cigarettes but now a day's high numbers of cigarettes are smuggled from Philippines also. As presently there are low levels of taxes on the production and sale of tobacco thus the companies are over-producing. Thus the consumption of the tobacco is around 3.5 Billion packs but the companies are producing 5.4 Billion packs which is a very suspicious affair and shows that the excess is being sold in an illegal manner. (The Manila Times, 2014)

Increase in GDP

The increase in price of cigarettes by 50% will help in increasing the revenue of the government by $600 million. The increase in price of cigarettes from 25% to 100% will help in boosting the GDP from 0.11% to 0.53%.

The proportion of excise tax revenue from tobacco and alcohol to the total GDP had increased from 0.5% to around 1.1% of GDP in the year 2015.

Hence the increase in the sin taxes in an effective manner will lead to increase in the prices of the cigarettes and they will not be as cheaper as they were before the implementation of the sin taxes. Hence it will also reduce the level of the smuggling done at the international level as the companies producing cigarettes will have to high taxes and thus it will reduce the scope for the over-production which are smuggled at the end in different foreign countries.

The increase in the sin taxes will also help in discouragement of the involvement of the society in the activities which are harmful from the point of view of morale of the society such as gambling and other immoral activities. The extension of the sin taxes will also help the government in providing high revenue which can be used to fund different programs such as health related programs and infrastructure. It will also help the government to make payment of the national debt incurred by the economy. The sin taxes may also provide proper allocation of the budget of the country as it will help in allocating money and budgets in relation to the programs that will help in reducing the consumption of the tobacco and alcohol which will lead to a positive side of the economy. Hence it may lead to the development of the workforce which is highly productive and thus will help in increasing the value of the economy and its citizens. (Republic of the Philippines, (Department of Health), 2018)

Disadvantages of the sin taxes

Most of the people are in favour of the implementation of the sin taxes due to the benefits which cannot be denied. But still there is a division amongst the people in regard to the implementation of the bill in relation to the sin taxes. The people opposing the sin taxes bill are just looking after the adverse impacts and the drawbacks that are being caused by the sin taxes on the economy.

Adverse effect on farmers

The high numbers of the farmers producing tobacco will be adversely affected by the implementation of the sin taxes bill. A representative of the union named Victor clarified that the many of the farmers producing tobacco are gathering amounts for the study of their children through their job in the industry of the tobacco. A special report prepared in the year 2012 for the sin taxes by a journalist named Lazaro provided that the tobacco production is also doing a good task in place of all the evil tasks. (Matthew C. Farrelly, James M. Nonnemaker,, Kimberly A. Watson, 2012)

The government is not providing comprehensive program in relation to the subsidy, support services and other types of the assistance to the farmers in tobacco industry. The farmers in the tobacco industry will not get any benefit by way of the increase in the price of the cigarettes at the retail level due to the implementation of the sin taxes. The special report for the year 2012 in relation to sin taxes provide that the increase in the sin taxes will lead to a negative impact on the industry of the tobacco and may also lead to high level of the unemployment in big industries such as Fortune Tobacco and many others.

Adverse effect on production

The proposal and passing of different sin taxes bill and especially the Abaya Bill may lead to inequity in the price of the goods. If all the brands of the particular good are being taxed in a similar manner then it may lead to high losses to the companies operating at the small scale and at the end may lead to stopping of production due to the worst situations. The implementation of the Abaya Bill had provided that the taxation at the equal rate may lead to competition amongst the companies at the large scale and the companies producing tobacco at the local level but there will be high burden on the companies at the local level as the large scale companies are more financially sound to pay off the taxes that are being levied on them by the government. The high level of taxes will lead to reduction in the level of the production and profits and hence the decrease in the level of the profit will lead to decline in the financial position of the company and at the end will lead to a situation of the bankruptcy. The large amount of taxes may create high burden on the industry and may lead to killing of the industries of cigarettes. The imposition of the taxes will lead to reduction in the level of the revenues due to very less companies available for the production of the cigarettes thus at the end may lead to low taxes to the government.

Decline in revenue

The application of very high taxes will lead to less revenue to the government as people will be finding alternative ideas and ways for smoking. The consumption of the cigarettes did not decline but on the other hand it will increase but by other ways. In the initial days of application of the sin taxes the revenue by way of tax to the government will increase but the after some time there will a high fall in the tax revenue to the government due to smuggling. The taxation of the cigarettes and other products on which sin taxes are applied will not lead to stopping the use of the products as it is an addiction and it cannot be removed merely by increasing the retail prices of the goods. Thus in order to reduce the consumption of the cigarettes, it needs to be completely banned and just the increase in the taxes is not the ultimate solution.(Justin S. White, Hana Ross, 2015)

Increase in scope for smuggling

When the prices of a particular product increases at a high rate then cheap products are being sold by way of smuggling. Hence the increasing price will not lead to discouragement to the consumption but will lead to encouragement of smuggling activities as the products sold by way of smuggling are cheap in comparison to other products.

As per the view of the leader of house in the delegation of Philippines, the government needs to take up a second view towards the proposition and the implementation of the bills related to sin taxes as it may also lead to risk in the Free Trade Agreement signing with the European Union. The European Union is continuously giving objection towards the implementation of the bills related to sin taxes. As per the trading commissioner of the European Union, the proposed sin taxes bill will not be able to satisfy the compliance requirement of the World trade Organization as the high taxation of the products under the sin taxes bill are being considered as unfair taxation in the view of the public interests. The general manager of the British American Tobacco, a Philippines based company had provided that the implementation of the sin taxes at the current level had led decline in the entry of new producers in the industry which had worked against the policy of World Health Organization to ensure free entry and exit in the industry. Hence it may also lead to decline in the level of competition in the industry and some of the producers may exit the industry which may create monopolistic and monopoly situations.(Sabado, Enero, 2013)

The implementation of the sin tax bill may defeat its main objective of increase in the tax revenue as it may adversely affect the major companies producing the tobacco. And it is just the assumption of the authorities that the increase in taxes will lead to reduction in the level of smoking as they are just relying on surveys which may not provide reliable results.

Recommendation

The sin taxes should be extended to wide variety of goods. The implementation of the sin taxes is having both advantages and disadvantages. The negative impacts of the sin tax bill is to be dealt accordingly as the positive impacts of the sin tax bill are very strong.
Thus if the sin taxes imposed on cigarettes an alcohols increases then it will help in increasing the level of revenue of the government and the increased revenue will be used in creating more productive projects and other improvements which will help in increasing the public welfare such as the hospitals, proper roads and schools. Hence the government will be able to fulfil and satisfy the social needs of different citizens of the economy by providing education, building up new and upgraded schools. The sin taxes transfer the burden of taxation on those people who are spending high amount on consumption of cigarettes and alcohol.

Thus the sin tax law will help in providing different health benefits to the society and also giving protection to them. The high level of smoking and drinking leads to deterioration of the health of the person and may lead to death. The smoking and drinking habit also adversely affects the outside world. Sin taxes will help in promoting and giving peaceful and health life to the members of Philippines economy. The implementation of the sin tax law may also adversely affect the suppliers of the above products and also the farmers. Thus the sin tax law may lead to loss of income and livelihood to some people. But in this case, the other alternatives other than selling liquor and cigarettes need to be searched. Hence those suppliers can start selling those products which are basic to needs of the humans and may also provide high profits. The farmers of tobacco can also take up other products to earn livelihood as it will benefit both themselves and their society. (Tina G. Santos, 2014)

Thus the sin taxes should be extended to different variety of goods including alcohol, cigars and tobacco. The application of the sin taxes will help in improving the health standard of the economy by providing adequate health issues and also improving the economic position of the Philippines.

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