The Impact of Sin Tax Law on the Affordability of Cigarette in the Philippines

On January 1, 2013, under the Republic Act 10351 of 2012 or the Sin Tax Law, tobacco companies were directed to increase the retail price of tobacco products. Through this landmark legislation, which amends the outdated Philippine law on excise tax, tobacco products will have become less affordable, eventually bringing down the consumption levels.

Theoretically, the optimal sin tax should outpace the economic growth to make cigarette less affordable. As economy grows, the income and purchasing power of the population also increase, thereby eroding the price of cigarette if not optimally adjusted. This paper analyzes the affordability of cigarette before and after the implementation of the Sin Tax Law. Using the formulas of Blecher and van Walbeek (2009) and Kan (2006), the Relative Income Prices (RIP) of cigarette for the year 2000 to 2013 were estimated.

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