To raise revenue for tight government budgets, legislators sometimes attempt to raise revenue by imposing unusually high excise taxes on cigarettes, liquor, gambling, and so on. This type of charge, often called a “sin tax,” appeals to voters who view it as a way of discouraging consumption of certain objectionable products. It reduces the income of the buyer.Lowers profits for the seller, and leads to reduced investment, wages, and jobs.It is not likely to seriously discourage consumption habits when those habits are intensely desired.It may eventually decrease government revenue, especially as people move their business to the informal sector.It encourages people to turn to harder substances to feed their habits at the same price.It creates underground markets, which tend toward corruption and violence, and fosters disrespect for the law.It sets up a moral hazard for policy makers, who vacillate between wanting to discourage undesirable behavior and wanting to encourage it for revenue purposes.
A sin tax is a kind of sumptuary tax: a tax specifically levied on certain generally socially proscribed goods and services, for example alcohol andtobacco, candies, soft drinks, fast foods, coffee, and gambling. Sumptuary taxes are ostensibly used for reducing transactions involving something that society considers undesirable, and is thus a kind ofsumptuary law. Sin tax is used for taxes on activities that are considered socially undesirable. Common targets of sumptuary taxes are alcohol and tobacco, gambling, and vehicles emitting excessive pollutants. Sumptuary tax on sugar and soft drinks has also been suggested.Some jurisdictions have also levied taxes on illegal drugs such as cocaine and marijuana. The revenue generated by sin taxes is sometimes used for special projects, but might also be used in the ordinary budget. American cities and countries have used them to pay for stadiums, while in Sweden the tax for gambling is used for helping people with gambling problems. Acceptance of sumptuary taxes may be greater than income tax or sales tax.
Sin taxes have historically triggered rampant smuggling and black markets, especially when they create large price differences in neighboring jurisdictions. Critics of sin tax argue that it is a regressive tax in nature and discriminates against the lower classes, since taxation of a product such as alcohol or cigarettes does not account for ability to pay, therefore poor people pay a greater amount of their income as tax.Sin taxes are not normally value added in nature meaning that expensive, high-quality products more likely to be purchased by the wealthy will have the tax comprise a much smaller proportion of its final purchase price, thus ensuring that the lower classes pay a much greater proportion of their lower income in tax. Sin taxes fail to affect consumers’ behaviors in the way that tax proponents suggest, for instance increasing smokers’ propensity to smoke high-tar, high-nicotine cigarettes when the per-pack price is raised and increasing the rate of people mixing their own drinks rather than buying pre-mix alcoholic spirits.
Critics also argue that the behavior affected by sin taxes are strictly personal and of no social consequence, and therefore should not be moderated by government. Not all research supports the idea that alcohol and tobacco consumers financially burden societies through health expenditures. One study used a mathematical model to compare estimated health costs of obese persons, tobacco smokers, and “healthy-living people”. Until age 56, obese persons had the highest estimated annual health expenditure. Tobacco smokers older than this had the highest estimated health costs of all groups, but since life expectancy is shorter for smokers and the obese, the “lifetime health expenditure was highest among healthy-living people.” The model for this study used input parameters based on data from the Netherlands.
Republic Act No. 9334, or the Sin Tax Law, came into force in January 2005. The law mandates an increase in the excise tax rate on all brands of cigarettes and alcohol products every two years. It specifies varying rates of increases until 2011. Alcohol products are taxed based on the raw materials used to make the product, the net retail price per bottle of the product, and proof (volume of alcohol in alcohol-water mixture) of the beverage. Cigarettes are taxed based on the brand’s retail price. Effective January 2011, low-priced cigarettes are taxed P2.72 per pack; medium-priced, P7.56 per pack; high-priced, P12 per pack; and premium, P28.30 per pack. In January 2011, the government said it expected additional revenues of P7.6 billion from the last mandated increases in the excise taxes on alcohol and tobacco. The restructuring of the sin taxes was one of 13 measures that President Aquino presented to congressional leaders as his administration’s priority pieces of legislation last year.
In August, Malacañang announced that it aimed to generate P60 billion from a proposed bill restructuring the excise tax on alcohol and tobacco products. Mr. Aquino said the revenues from the modified excise tax would be earmarked for universal healthcare. He added that its ultimate goal was to reduce the consumption of alcohol and tobacco. The goods that sin taxes are imposed on vary by state, so local laws should be consulted. Typically, when sin taxes are imposed, they are imposed on items that are discouraged for health, moral, and other reasons, for example, cigarettes, gambling, soda pop, beer, wine, hard liquor, topless bars, snacks, and other items. Some argue tobacco and alcohol consumption or the behaviors associated with consumption or both are immoral, or “sinful”, hence the label “sin tax”.
By raising the cost for certain products (here called immoral), they aim to force change upon people’s behavior.Tobacco and alcohol consumption has been linked to a variety of medical problems. In the United States alone, over 440,000 people die annually from smoking tobacco. By making the cost of unhealthy behavior prohibitive, they hope to produce a healthier society.Following the medical argument, some argue that consumers of tobacco and alcohol cause a greater financial burden on society by forcing others to pay for medical treatment of conditions stemming from such consumption, especially in most first-world countries with government-funded healthcare, and should be taxed extra to pay for the costs of their treatment.
Republic Act No. 9334, Inquirer Archives