PAMANTASAN NG LUNGSOD NG MAYNILACollege of Accountancy and Economics

The Sin Tax Law: Its Effect to the Consumption of Cigarettes in Intramuros, Manila

Submitted by:Banal, Lyka T.Bolante, Vanessa A.BSBE 3-3

Submitted to:Prof. Cherrie May Nuez

In partial fulfilment of the requirements in Econometrics

Chapter 1IntroductionThis study aimed to know more about The Sin Tax Law; the people and the reasons behind its enactment and how does it affect the consumption of cigarettes and alcoholic beverages.Too much of something would turn out to be bad. According to the Department of Health (DOH), almost 17.3 million Filipinos are tobacco consumers. About 1,073 cigarette sticks are consumed by Filipinos annually. This high consumption rate is seen as a result of low cigarette prices in the country. Smoking is seen as one of the primary factors responsible for 71 percent of lung cancer deaths in the world. Here in the Philippines 10 Filipinos die every hour because of smoking. Excessive alcohol drinking, on the other hand, may lead to: Vehicular accidents, fetal deformities, violence/crime, productivity losses, suicide, fires and accidental falls. These are only few reasons why the Sin Tax bill existed and eventually enacted as a Law.The Sin Tax Law (R.A. No. 10351 An Act Restructuring the Excise Tax on Alcohol and Tobacco Products) is a law that aims to remove the price/brand classification freeze to discourage consumption of sin products, and for easy tax administration. It also aims to have additional revenues and the 80 percent of the expected revenue will be allocated for universal health assistance and health enhancement facilities program while 15% of the revenue collected from the excise tax on tobacco products shall be allocated and divided among the provinces producing burley and native tobacco that will exclusively utilized for programs to promote economically feasible alternatives for tobacco farmers and workers. In addition to that, this new law is expected to reduce smoking and drinking of alcohol among Filipinos, especially the youth that would lead to better health outcomes, the reform envisions a healthy Filipino societyThis research will help the readers most especially the students and chain smokers to better understand the Sin Tax Law and appreciate its positive impact in the health of individuals. This study also focuses on how it affects the Chain Smokers characteristics or personality. And their approach in everyday living and their view on what they have learned from it.

Chapter IIReview of Related LiteratureThis chapter presents a brief review of the literature and studies which gave the researchers insights on the analysis, interpretation, and recommendation to be done on the findings and how to proceed with the research work.According to Dr. Enrique T. Ona, the Secretary of the Department of Health from 2010 to 2014, the top four killers of Filipino people are diseases related to smoking: ischemic heart disease, strokes, emphysema and cancer of the lungs, trachea and the gastrointestinal tract. As said by the World Health Organization in 2009, tobacco is responsible for 12% of male and 6% of female deaths worldwide. The Acting Chief of NCI Tobacco Control Research Brach Chief, Michele Bloch, MD, PhD said that overall around the globe, there are 41% of men that smoke and only 9% for women; also it is estimated that the total number of tobacco-related deaths will rise from 6 million today to 8 million in 2030 (Fromer, 2011). Every day, a person dies from lung cancer in the Philippines.A data from the American Cancer Society and World Lung Foundation says, Despite the existence of laws that limit smoking, male Filipino smokers are among the top smokers in the world occupying the ninth spot following India and China among others" (Manongdo, 1). In accordance to this, many government officials started passing reforms of different kinds that are to change the current sin tax bill implemented. The logic of the Sin Tax Law is that by making those unhealthy activities or products more expensive such as excessive alcohol consumption and particularly for tobacco consumption, less people will do it; or at least not do it as often. As a result, people will have lower chances of dying from those top killers and other health complications brought on from these products. In relation to that, according to the civil society coalition that supported the passage of the Sin Tax Law, concrete gains in 2013 towards achieving the sin tax laws health objectives, particularly for tobacco consumption. A statement signed by leaders and representatives of 24 health, medical and youth organizations said that since the passage of RA 10351, also known as the sin tax law, there is evidence that tobacco consumption substantially went down in 2013. Moreover, they said the national trend has also been reflected in local tobacco-demand studies. According to the Youth Adult and Fertility and Sexuality Study (YAFS), the rise in cigarette prices brought about by higher sin taxes was one of the primary reasons why a slight reduction in youth smoking prevalence has occurred. A parallel study by Action for Economic Reforms (AER) in Angono, Rizal province likewise demonstrated that smokers reduced average weekly consumption by 10 sticks. Among the 418 smokers surveyed, 33 percent lessened tobacco use and eight percent stopped smoking altogether.Most recently, based on the 2013 Youth Adult and Fertility and Sexuality Study (YAFS) by the University of the Philippines Population Institute and Demographic Research & Development Foundation, smoking prevalence among young Filipinos aged 15 to 24 years old dropped from 21.9 percent in 2002 to 19.7 percent in 2013.According to the YAFS researchers, the rise in cigarette prices brought about by higher sin taxes was one of the primary reasons why a slight reduction in youth smoking prevalence has occurred.Another study by June 2014, concluded that the respondents increased their liquor and cigarette consumption after the implementation of the sin tax law. This is a gain of the BIR and not necessarily of the Department of Health. It is recommended that more studies may be conducted in order to dig deeper into the issue, future researches may delve deeper into the reasons of the respondents for their behavior modification.Ironically, these gains for public health would have been even greater had tobacco industry players like Philip Morris Fortune Tobacco Corp. (PMFTC) and their political allies not lobbied intensively against a unitary sin tax scheme for cigarettes. The civil society coalition as public health advocates supported the government position to move at the soonest possible time for a unitary tax rate of PHP30 on all cigarettes, to prevent downshifting consumption among Filipino smokers.In the light of these indicators, though many people, if asked, are pro-sin tax bill, due to its undeniable benefits, lawmakers, still, remain divided over the sin tax bill. Debaters tend to overlook the possible drawback, the sin tax bill, may offer to the countrys economy. The civil society coalition confidently upholds their assessment that the sin tax law is proving itself to be an effective smoking reduction measure. With higher cigarette prices, long-addicted Filipino tobacco users are lessening their consumption, while would-be smokers, especially from the young and the poor, are increasingly discouraged from taking up smoking in the first place. There are a lot to mention when we look in-depth to the possible benefits, the country may be subjected to, that will be a great help to the society. To sum it up, this study together with the civil society coalition now looks forward to the adoption of this unitary tax rate for tobacco products. If the evidence shows that smoking consumption has decreased last 2013, this unitary system will reap bigger gains for health, saving millions of smokers lives in the process.

Chapter IIIMethodologyThis chapter provides the details of the method and the procedure that were used in this study. This includes the description of the research method used, the respondents of the study, the procedure in gathering data, the instruments, the statistical treatment used in analyzing the data gathered and the terms that were used in this study.The descriptive method was used in this study. According to Calderon (1993) descriptive method is fact-finding with adequate interpretation. This kind of research is something more and beyond just data gathering. This descriptive research study was to determine the effect of price increase of cigarettes brought about by the sin tax law to the number of cigarettes consumed by smokers in Intramuros, Manila. Thirty (30) respondentsall of which are smokers were chosen as respondents in this study. They were administered of a questionnaire after they had been selected through convenience sampling techniques. All questions used in the survey pertain to the consumption pattern of liquor drinkers and smokers. The questionnaire included a series of statements and the respondents were asked to indicate their degree of agreement with each statement. These statements include: How many sticks do they consume without the enactment of Sin Tax Law and how it changed when the law is already enacted. The next question in our survey is if they are aware of the negative effects of smoking most specifically when it comes to their health. The quantitative data that we will use for our computations are based on the answer of the respondents in the first question. We gave our respondents set of prices ranging from 3 pesos to 30 pesos per stick and they will choose how much are they willing to pay given the price increase of the sin tax law. There were 15 choices in total. These ranges of prices will be used as our independent variable and the willingness to pay of the consumer will be our dependent variable. We used Simple Linear Regression to determine the change in demand of consumers brought about the price of cigarettes per stick. The r2 will show how much the prices of cigarettes per stick are related to the willingness and ability to avail the services offered by different stores in Intramuros, Manila. The data collected were processed and statistically analyzed through the use of Gretl 1.9.5. To set limitations and avoid going beyond the intended scope of this study, the following assumptions were made:1.) Data were solely gathered from respondents in the vicinity of Intramuros, Manila. These include students, tricycle drivers, vendors and residents of the barangay.2.) We assumed that the income or allowances of cigarettes consumer in Intramuros, Manila remained constant. The study disregarded additional income that consumers may acquire due to different circumstances.

The researchers define the following terminology for better understanding of the study:DOH- Department of Health (DOH) is the principal health agency in the Philippines. It is responsible for ensuring access to basic public health services to all Filipinos through the provision of quality health care and regulation of providers of health goods and services.Sin Tax - A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. These types of taxes are levied by governments to discourage individuals from partaking in such activities without making the use of the products illegal.Consumption rate- Quantity of a good or service consumed in a given period and expressed in a suitable unit of measurement.Classification freeze- Is a privilege, meaning the classification and tax rate of these listed brands are not subject to change despite increases in retail prices during the past fifteen years. Consumption- The process in which the substance of a thing is completely destroyed, used up, or incorporated or transformed into something else. Consumption of goods and services is the amount of them used in a particular time period.Economics feasibility- This is an analysis of a project's costs and revenues in an effort to determine whether or not it is logical and possible to complete.Chain smoking- It is a practice of consuming multiple cigarettes in succession, sometimes using the ember of a finished cigarette to light the next. Typically "chain smoker" is used to describe a person who smokes relatively constantly, not necessarily chaining each cigarette.Young Adult Fertility and Sexuality (YAFS) Study- This is a series of national surveys on the Filipino youth, conducted since 1982 by the University of the Philippines Population Institute (UPPI) and the Demographic Research and Development Foundation. Gathering data from Filipino youth aged 15 to 24, YAFS is one of the primary sources of information on sexual and non-sexual risk behaviors and its determinants in the Philippines, at the national and regional levels.Action for Economic Reforms (AER) It is a Philippine non-government organization engaged in research and advocacy. It was founded in 1996 by a group of progressive scholars and activists as an "independent, reform-oriented and activist policy group.Philip Morris Fortune Tobacco Corp. (PMFTC) - Formerly Fortune Tobacco Corporation is a private Philippine tobacco company that produces cigarettes, and with sister companies Tanduay Distillers and Asia Brewery, produces beer, liquor and bottled water. Civil Society Coalition (CSC) It was created in July 2001, is a network of organizations and individuals dedicated to facilitating greater citizen and civil society participation in global trade and standard setting bodies and in particular, to facilitate greater participation from stakeholders representing consumer interests (including those that are concerned with public health or the protection of personal liberties).Bureau of Internal Revenue (Filipino: Kawanihan ng Rentas Internas, or BIR) It is an attached agency of Department of Finance. BIR collects more than one-half of the total revenues of the government.World Health Organization (WHO; /hu/) It is a specialized agency of the United Nations (UN) that is concerned with international public health. It was established on 7 April 1948, headquartered in Geneva, Switzerland. WHO is a member of the United Nations Development Group.

CHAPTER IVDATA RESULTS This chapter presents the analysis and interpretation of data relating to the Effect of the Sin Tax Law to the Consumption of Cigarettes in Intramuros, Manila.Model 1: OLS, using observations 1-13

Dependent variable: Y

CoefficientStd. Errort-ratiop-value

const31.80191.1721327.13171.99e-011***

X-1.116630.0613846-18.19071.47e-09***

Mean dependent var13.07692S.D. dependent var10.78936

Sum squared resid44.94325S.E. of regression2.021324

R-squared0.967827Adjusted R-squared0.964902

F(1, 11)330.9013P-value(F)1.47e-09

Log-likelihood-26.50913Akaike criterion57.01827

Schwarz criterion58.14817Hannan-Quinn56.78602

The t- ratio is the coefficient divided by its standard error. T distribution describes how the mean of a sample with a certain number of observations is expected to behave. In the Model above the t-ratio of the cons is 27.1317 which is statistically significant this comfortably conclude that the price of cigarette was the fundamental cause of the decreasing consumption for it. Standard error is the estimate of standard deviation of the coefficient, the amount it varies across cases. It can be thought of as a measure of the precision with which the regression coefficient is measured. If a coefficient is large compared to its standard error, then it is probably different from 0. In the above model coefficient variable of cost is greater than its standard error which only explains that it is perhaps diverse from zero while on the other hand the coefficient of X is negative that is lower than zero so possibly it may equal to zero. The p-value for each term tests the null hypothesis that the coefficient is equal to zero, which means no effect at all. The null hypothesis can be rejected if the p-value is low. In the output above the predictor variables of const and X both significant and are likely to be meaningful addition to the model because both of their p-values are 0.00001 so the null hypothesis stating that the coefficient is equal to zero can be rejected . Coefficient p-value is used to determine which terms to keep in the regression model.The size of the regression coefficient for each variable provides the size of the effect that variable is enclosing on the dependent variable, the sign of the coefficient (positive or negative) present the direction of the effect. In the SRF equation above which is the the eqaution shows that coefficient for price is -1.117. The coefficient designate that for every 1unit increase in price is associated with a -1.1117 shift to decrease by an average of Y should be expected holding other predictors in the model constant.The R-squared of the regression is the fraction of variation in the dependent variable that is predicted by the independent variables. It is also the square of the correlation between the dependent and independent variable. The R-squared is fairly straight-forward; it is the percentage of the repose variable variation. In the model above the R2 is very high which is .97 or 97% that signifies a strong positive relationship between the price and consumption of Cigarettes. The Adjusted R-squared gives an idea of how many data points fall within the line of theregression equation. It also tells the percentage of variation explained by only the independent variables that actually affect the dependent variable. In the Model above the R2 =0.967827 or 97% while the Adjusted R2 = 0.964902 or 96%, these values are very close, anticipating minimal reduction based on this indicator.

Since we reject the null hypothesis =0, it indicates explanatory variable, price, is statistically significant. So the hypotheses are verified price has a negative and significant effect to the consumption of the sin product. Which means in consumption of cigarette per stick is explained by the price by 97% (R2=0.967827)INTERPRETATION OF SURVEY To accomplish the necessary data for this paper, the researchers conducted a survey with questions related to the study. The respondents of this survey are residents and non-residents of Intramuros, Manila that are smokers. Here are their responses:

FIGURE 4.1In the first question the researchers asked the respondents if they are aware about the existence of Sin Tax Law30 out of 30 respondents answered yes, they are aware of the existence of the Sin Tax Law.

FIGURE 4.2In the second question on How did the consumption of the respondents changed due to the enactment of the Sin Tax Law, 70% of the 30 respondents answered that their consumption per stick of cigarette decreases, 23% remain constant and 7% said that their consumption of cigarettes increase.

Put a ( ) on the box if you are willing to buy a cigarette with the given prices

CIGARETTE CONSUMPTION(Dependent Variables)PRICE(Independent Variable)

303

304

266

219

1712

1415

1017

819

622

325

227

229

130

FIGURE 4.3Figure 4.3 shows the tallied answers of the respondent on how willing are they to buy with the given prices. The tallied answer shows that as the Price increases the consumption for the cigarette decreases.

FIGURE 4.4Health awareness is one of the most important goals of the Sin Tax Law. Figure 4.4 illustrates that 30 out of the 30 respondents answered that they are aware of the negative effect of smoking.CHAPTER VCONCLUSION After some observation, analyzing of data and survey using questionnaire the researcher proved that the increase of price over time due to the Sin Tax Law decreases the consumption per stick of cigarettes. Their consumption routines decline. And their utility per stick of cigarette decrease due to that continuous price increase. The researcher also verify that the health awareness of the residents and non-residents smokers of Intramuros, Manila enhance which prove that the Officials of the Department of Health were geared towards productive participation in both local and national endeavours such as the reduction of tobacco and alcohol consumption that leads to better health outcomes and almost attaining the Healthy Filipino Society. Respondents in Intramuros, Manila are greatly aware of the Sin Tax Law and almost have the same point of view the only thing that varies was the effect of the Sin Tax Law to their consumption per stick of cigarette for some increases, others decreases and few remain constant. Everyone is contributory for effective and efficient implementation of the Sin Tax Law which aims to discourage the consumption of sin products and collect more revenue for health care.

Chapter VIRecommendation

Given the results of study, it is revealed that the sin tax law decreased the demand for cigarettes. However, this doesnt stop people from purchasing the addictive product. We have to be aware that the main reason of Sin tax law is not to empower the eminent power of taxation of the country but to really enforce a better and mutual health and living for everyone considering that even people who dont smoke are also greatly affected by second-hand smoking. Here are our recommendations to the government to contribute for effective and efficient implementation of the Sin Tax Law which aims to discourage the consumption of sin products and collect more revenue for health care:

1.) Making cigarettes more expensive is not enough to get Filipinos to stop smoking. All cigarette packaging sold in Philippines are required to display a government warning label. The warnings include: Government Warning: Cigarette smoking is dangerous to your health. Government Warning: Cigarettes are addictive. Government Warning: Tobacco smoke can harm your children. Government Warning: Smoking kills.These words are no longer enough to discourage Filipinos from smoking. Instead, the government or the Department of Health should fund on graphic health warnings beacause these are the most effective way to discourage Filipinos from smoking.2.) Secondhand smoke (SHS) is also known as environmental tobacco smoke (ETS). The Department of Health and other related departments should provide public smoking areas to avoid second-hand smoke to affect non-smokers. When non-smokers are exposed to SHS its called involuntary smoking or passive smoking. Non-smokers who breathe in SHS take in nicotine and toxic chemicals by the same route smokers do. 3.) The government should provide subsidized rehabilitation services for chain smokers who needs to change their lifestyle.4.) Breathing even a little secondhand smoke can be dangerous. The government should also provide sanctions for people who will be caught smoking in public.5.) The Department of Health should strengthen their efforts in advertising the negative health effects of smoking to people through mass media and other means.If these recommendations are taken into consideration by the government, there is a certainty for a promising improvement in the health condition here in the country-- which is one of the key factors for a fruitful society and successful economy.

Bibliographyhttp://www.academia.edu/7357059/Sin_Tax_Law_Its_Effect_to_Consumption_Pattern_of_Liquor_Drinkers_and_Smokers_In_Calinog_Iloilo_Philippineshttp://www.gov.ph/sin-tax/http://www.doh.gov.ph/content/SinTaxUtilizationReportasofOctober22014.pdfhttp://www.doh.gov.ph/about.htmlhttp://www.tobaccocontrol.ph/sin-tax-reduced-smokinghttp://www.rappler.com/newsbreak/13310-lower-sin-tax,-less-health-care-for-poorGujarati Basic Econometrics 4th Ed.pdf

ANNEX

Questionnaires:

1. Are you aware ABOUT THE Sin Tax Law?

YES NO

2. How did your consumption changed when the law is already enacted? INCREASEDECREASE

Put a ( ) on the box if you are willing to buy a cigarette with the given prices

PRICE OF CIGARETTESWILLINGNESS TO PAY

3

4

6

9

12

15

17

19

22

25

27

29

30

3. Are you aware of the negative effects of smoking especially when it comes to your health?

YES NO

Table 1.1 EFFECT OF PRICE ON CIGARETTE CONSUMPTIONCIGARETTE CONSUMPTION(Dependent Variables)PRICE(Independent Variable)

303

304

266

219

1712

1415

1017

819

622

325

227

229

130

The data presented in TABLE 1.1 relates the given 15 different prices of cigarette that increases over a period of time and the consumption per stick of the buyers of the said sin product. The data are based on a survey of 30 random smokers (Residents, Workers, students etc.) in Intramuros, Manila that were asked on how much are they still willing to buy cigarettes given the different indicated prices.

TABLE 1.2

The data in Table 1.2 X and Y variable are gathered from the survey conducted last February 18, 2015 in Intramuros, manila the other data were obtained and calculated using the Microsoft Excel.

High price of cigarettes would mean that the consumption for it would be lessened. In the graph shown above, it indicates that a continuous increase in the price of cigarettes over time would greatly diminish its consumption. With the quantitative analysis for this relationship enables to predict the increase in price of the said sin product will tend the smokers to reduce their spending.