CHAPTER 1

BACKGROUND OF THE STUDY

Introduction

Sin tax is a tax levied on a certain goods and services that are seen vices,

such as liqour, tobacco and other non-luxury items. Sin tax is used for taxing

activities that are considered undesirable. These types of taxes are levied by the

government to discourage individuals from partaking in such activities without

making the use of the products illegal. Like other taxes, sin tax also provides a

source of government revenue. However, these taxes have been criticized

for burdening the poor and being part of a nanny state. The Sin Tax bill was

developed by Senator Ralph Recto. (http://www.antiessays.com/free-essays/Sin-

Tax-Bill-419605.html)

Since the Senate wants to pass or reform the Sin Tax Bill for some reasons

like discouraging youth or people from smoking and alcohol drinking, for health

purposes and the like, it has been an issue.

According to Snowdan (2012), taxes on tobacco and alcoholic beverages are

doubly regressive because they are disproportionally consumed by people on lower

incomes, or the poor. According also to some research, a heavy smoker or an

alcoholic is unlikely to lessen consumption because of an increase in price; making

sin taxes an unreliable way of reducing consumption or improving public health.

Thinking on taxing vices, sin taxes will really be an effective way to discourage

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peoplefrom drinking alcoholic beverages. Thus, an increase in tobacco prices has a

little or a small effect on using these vices because it is inelastic. The objective of

this paper is to know if sin tax levied on tobacco and liquors really discourages the

mass, especially the poor, from smoking.

According to the Department of Health (DOH), the Philippines has an

estimated 17.3 million tobacco consumers, the most number of smokers in

Southeast Asia. Filipinos on average consume 1, 073 cigarette sticks annually, while

the smokers in the region consume less than a thousand sticks yearly. This high

consumption rate is seen as a result, among others, of the very low cigarette prices

in our country.Smoking is responsible for 71 percent of lung cancer deaths in the

world. Consequently, lung cancer is the leading form of cancer in the Philippines.

DOH statistics reveal that 10 Filipinos die every hour because of smoking.According

to the DOH, a 10 percent increase in tobacco taxes will reduce the number of

smokers by two million by 2016. A significant decline in the number of smokers will

likewise reduce the number of smoking-related deaths. The effect of the sintax law

has been more evident in alcoholic-beverage consumption as volumes dropped in

the industry since 2013, the first year higher taxes were first implemented.(Sin Tax,

2012)

Conceptual Framework

The study took the concept of Laux (2000) on attempted to draw out the

policy implications of the rational addiction literature. His argument is that addiction

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creates a form of internality. Many people adopt their addictive behaviours before

the age at which society regards them as sovereign and responsible for their own

decisions.This provides a rationale for public policy intervention to prevent consumpt

ion. Gruber and Koszegi (2002) state that there is no evidence, psychological or

other, that supports time consistent preferences over inconsistent ones and also

documenting forward looking behavior by consumers and showing

that smokers are not fully myopic, but not the second premise, time consistency.

These authors show some evidence sustaining time inconsistency in smoking

behavior, for instance laboratory experiments, calibration of real world behavior

against models with and without time inconsistency, and an economic test by Gruber

and Mullainathan (2001).

The study about the excise taxes and regulations restricting smoking in public

places affect cigarette consumption using Generalized Linear Model (GLM). They

used data from National Health Interview Survey using the Generalized Linear

Model. Their result shows that, adult cigarette demand suggests that the price

elasticity of demand is low. Also study found that regulations restricting smoking in

public places have a significant negative effect on cigarette demand. Additionally

theteenage smoking results suggest that is not responsive to price changes as

previous studies found.(Manning, 2012)

The consumption pattern of Liqour and cigarettes is declined by imposingthe

SinTax law and regulation restricted by the government. This law has aim to

lessenthe number of peoples mortality and demoralized them specially the youth to

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use those product. Furthermore,the price elasticity of demand in liquor and cigarette

industry in market also decline but in return it serves as the source of revenue in

government.

The research paradigm in Figure 1 below would greatly help the readers to

better understand and appreciate the implication of sintax to the materiality of

consumption pattern of liquor and cigarettes in Batangas City, Philippines. The

paradigm shows the input, process and output of the study being conducted.

Factors affecting Data The effect of Sin taxlaw

the consumption collection to the consumption
pattern of Survey pattern of Liquor
respondents Assessment, drinkers and smokers
Regularity of the Interpretation in Batangas City,
consumers and analysis Philippines.
consumption of data
before and after
sin tax law.

The Conceptual Framework on the Effect of SinTax on the Consumption

Pattern of Liquor and Cigarettes in Batangas City, Philippines

Statement of the Problem

The purpose of this study was to determine the effects of Sin Tax Law in the

consumption pattern of liquor drinkers and smokers in Batangas City, Philippines.

It aimed to answer the following questions:

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 1. How do the following factors affect the consumption pattern of the

respondents:

1.1 gender;

1.2 age; and

1.3 civilstatus

1.4 Family income?

2. How frequent do the respondents consume liquor and cigarettes

2.1 before sin tax law; and

2.2 after sin tax law?

3. How does Sin Tax Lawaffect the consumption pattern of liquor drinkers and

smokers?

Hypothesis

There is no significant difference in the effects of sin tax law into the

consumption pattern of liquor drinkers and smokers in Batangas City.

Assumptions of the Study

The researchers, in the conduct of the study, assumed that:

1. The researchers could finish the thesis on time.

2. The information gathered by the researchers would be valid, reliable, and

relevant to the study.

3. The consumers of cigarette and liquor products who were participants in the

study would be cooperative and honest in answering the questionnaire.

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 4. The study would help the researchers and researchers in gaining more

knowledge about the topic.

5. The participants of the study would provide the researchers with useful and

needed information on time.

Scope, Delimitation and Limitation of the Study

The study focused on the effects of sin tax law on the consumption pattern of

liquor drinkers and smokers in Batangas City, Philippines, the factors affecting the

consumption pattern of liquor drinkers and smokers, the regularity of the

consumption before and after the imploration of sin tax law, and the effects of the sin

tax law to the consumption pattern of liquor drinkers and smokers.

The study was delimited to the liquor drinkers and smokers for they are only

the consumers that aremainly affected in the implementation of Sin Tax Law. The

participants included only the liquor drinkers and smokers in BatangasCity due to

time constraints.

The findings and conclusion of the study were based on the facts and data

gathered by the researchers from the respondents answers on the questionnaire

that was used. All data or information used in the study were based on the recall and

perception of the respondents

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Significance of the Study

This research study is significant in acquiring knowledge and information

regarding the effect of sin tax law on the consumption pattern of liquor drinkers and

smokers in Batangas City.

This study would provide awareness about what is sin tax for, its implication

to consumers and public health issues relating to alcohol and tobacco consumption

and its effects.

The study would provide awareness about what is sintax that is commonly

used by the business enterprises who sell liquor cigarettes. Its implication in the

materiality of economy and lastly, in the public health issues relating to the sin tax

law.

Specifically, the findings of this study would benefit the following:

Future tax practitioners, this could provide them with reference that could help

them in the possible consequences of their practice in dealing with others in the

future.

Policy makers, to know how the law is being practiced and to what extent the

schemes are able to increase the tax charges that are supposed to go to the

revenue of the government. Furthermore, understanding the consumption pattern

ofthe consumers will help the policy makers to draft and design more effective policy

in the future.

The government, to have a better analysis on how sin tax generates revenue.

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 Students, as the results of this study would increase their awareness about

the sin tax law and would provide them with a wide range of information and

understanding of the said law.

Lastly, for future researchers, the study may serve as a tool in attaining

reliable knowledge concerning the subject of the study that would provide them

information, who may opt to conduct similar study.

Definition of Terms

For the clear understanding of the study, the following terms are hereby

defined:

Cigarette. This refers to a small cylindrical roll of finely cut tobacco leaves rolled in

thin paper cured for smoking. (dictionary.com, 2017)

Consumption Pattern. This refers to the combination of qualities, quantities, acts and

tendencies characterizing a community or human groups use of resources for

survival, comfort and enjoyment. (ODE/RHW, 2017)

Excise Tax.This refers to an indirect tax charged on sale of a particular good, passes

the tax onto the consumer by including the tax into the products price.

(investopedia,2017)

Law. This refers to a rule of conduct or action prescribed or formally recognized as

binding enforced by a controlling authority. (Merriam Webster Dictionary, 2017

Edition)

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Liquor.This refers to a liquid from which a substance has been crystallized or

extracted. (Oxford Dictionary, 2017 Edition)

Sin Tax Law.This refers to the restructuring of existing taxes imposed on alcohol and

tobacco goods. (gov.ph, 2017)

Tax.This refers to an involuntary fee levied on individuals that is enforced by a

government entity, whether local, regional or national in order to finance government

activities. (investopedia, 2017)

Campuses: Hilltop | MH delPilar | Pallocan East | Pallocan West | Lipa

Telephone Numbers: +63 43 723 1446 | 980 0041
Website: www.ub.edu.ph