Excising a killer

The term “excise” has come to mean to expunge or expurgate. Under taxation, it actually means a levy on an activity government seeks to control. This is achieved by making the activity more expensive by appending prohibitive taxes thus penalizing usage. The colloquial term “sin tax” is often interchangeably applied on excises slapped on goods deemed undesirable such as tobacco.

Under the technical definition, the levy on consumption is incorporated in a product’s price. Similarly, the technical definition of a “sin” tax is a state-imposed levy to discourage consumption without outlawing the product.

The similarities are profound. The etymology of “excise” is from the Latin accensare which means “to tax.” The expurgating aspect is, however, now part of current usage. The convolution is welcome and ironically helps us understand the objective of controlling undesirable activities.

While technically the tax should be paid by the producer or seller, in an excise system, the burden transfers to the consumer as producers and sellers recover the tax by raising prices. This is why the tax is a control mechanism and not simply a revenue-generating device.

Control is important where the activity sought to be controlled is deemed detrimental yet tolerated.
Note the economic costs of death and disability by smoking. According to Dr. Antonio Dans of the University of the Philippines College of Medicine, “To treat lung cancer alone, the leading cancer type in the Philippines, health-care costs are already at P1.97 billion.”

He adds “the loss of productivity—the days those afflicted must take a sick leave—costs P0.04 billion while the loss of revenue caused by premature death is a staggering P4.94 billion.” All told, these total P6.95 billion for lung cancer alone.

For the good doctor, “with the costs of chronic lung disease, coronary disease and strokes factored in, the total spent on these non-communicable diseases caused or worsened by smoking amounts to a whopping P188.80 billion per year.” That’s over 1.96 percent of our 2011 gross domestic product.
A presentation by Dr. Hana Ross of the University of Illinois at Chicago shows that the World Bank estimates a $100-billion net loss from tobacco use in developing countries.

That’s a hefty price to pay for the sybaritic pleasures of simulated farting through the mouth.

Critics and some government idiots claim cigarettes are price inelastic. Price elasticity is a function of purchasing power. Dr. Ross’s presentation shows demand in low-income economies can fall by 8 percent against a 10-percent increase in prices. The poverty demographics of tobacco use ensures prohibitive taxes will work if applied single-tiered and exorbitant enough to be painful, while government does its part to jail smugglers of criminally dumped alternatives.

Besides, whether as an excise or a levy on sins, both provide substantial government revenues. Such was the impetus in August 2004. Confronted with a fiscal crisis, Gloria Arroyo resorted to fiscal measures ranging from adjusting sin taxes by December, to the Attrition Act in January 2005, and then, the expanded value-added tax (E-VAT) law passed in May 2005.

The Attrition Act is a punitive mechanism to compel collections. Given the record so far, it doesn’t seem to have worked. This brings us to the 2004 excise-tax adjustments and the E-Vat.
Note the dates and the sequencing. Politics had so infected the 2004 measure that it necessitated a harsher E-VAT despite widespread public opposition.

What came out in 2004 was a watered-down statute caused by the removal of classifications. Brands prior to 1996 were protected, its taxes frozen while newer brands were slapped higher taxes. After a meeting among congressional leaders, Arroyo and lobbyists, the resulting excise tax structure virtually killed competition, institutionalized a duopoly, and effectively subsidized, if not encouraged, smoking cheaper cigarettes.

So much for curbing an undesirable activity.

Unfortunately, the political infection is endemic. A 2004 paper by K. Alechnowicz and Prof. Simon Chapman of the University of Sydney in Australia says the Philippines “has the strongest tobacco lobby in the region.”

Its findings are worth rekindling. Its abstract states “The Philippines has long suffered a reputation for political corruption where collusion between state and business was based on the exchange of political donations for favorable economic policies. The tobacco industry was able to limit the effectiveness of proposed anti-tobacco legislation.”

Its conclusion says “The politically laissez-faire Philippines presented tobacco companies with an environment ripe for exploitation. Against international standards of progress, the Philippines is among the world’s slowest nations to take tobacco control seriously.”

Exponentially indexing excise taxes to an inflation multiple corrects 2004’s aberration. Hopefully politicians see through the smoke they blow and legislate to snuff this obnoxious killer out. If not for the promise of increased revenues, then for the prospect of a higher quality of life and diminished socioeconomic costs.

Dean dela Paz

  • UPnnGrd

    And speaking of a killer…..

    Who were the authors ? Who pushed the initiative that resulted in STATUTE OF LIMITATIONS ON MURDER for Pilipinas?

    I think this — statute of limitations on murder — is what PersiNoynoy has used at least once to explain his lack of enthusiasm in finding answer to “WHO WERE MASTERMIND to Ninoy Aquino murder”.

    Just food for thought — even 1957 murders get solved, like has happened in Illinois. Maria Rudolph is the name of the murdered girl. Killer — convicted.
    http://news.yahoo.com/man-convicted-1957-murder-7-old-girl-222542972.html

  • UPnnGrd

    Pilipinas tobacco lobby being notably strong! Has the lobby been weakened when PresiNoynoy entered Malakanyang? Lucio Tan and the other Big-Names,,, hopefully none are KKK’s and that Malakanyang owes no particular utang-na-loob pakikisama to any of them.