PAMANTASAN NG LUNGSOD NG MAYNILA

College 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 1
Introduction
This 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 society
This 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 II
Review of Related Literature
This 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 prosin 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 III
Methodology
This 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 r 2 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 nongovernment 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 IV

DATA 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
Coefficient

Std. Error

t-ratio

p-value

const

31.8019

1.17213

27.1317

1.99e-011

-1.11663

0.0613846

-18.1907

1.47e-09

**
*
**
*

Mean dependent var

13.07692

S.D. dependent var

10.78936

Sum squared resid

44.94325

S.E. of regression

2.021324

R-squared

0.967827

Adjusted R-squared

0.964902

F(1, 11)

330.9013

P-value(F)

1.47e-09

Log-likelihood

26.50913

Akaike criterion

57.01827

Schwarz criterion

58.14817

Hannan-Quinn

56.78602

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
CigaretteConsumption=31.802+(1.117 )( X ) 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 R 2 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 the regression 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:
1. Are you aware of the existence of the Sin Tax Law?

YES

NO
100%

FIGURE 4.1
In 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.

23%

increase

7%

decrease

constant
70%

FIGURE 4.2
In 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

FIGURE 4.3

CIGARETTE
CONSUMPTION
(Dependent Variables)
30
30
26
21
17
14
10
8
6
3
2
2
1

PRICE
(Independent Variable)
3
4
6
9
12
15
17
19
22
25
27
29
30

Figure 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.

yes

no
100%

FIGURE 4.4
Health 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 V
CONCLUSION

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 VI

Recommendation
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 secondhand smoke to affect non-smokers. When non-smokers are exposed
to SHS its called involuntary smoking or passive smoking. Nonsmokers who breathe in SHS take in nicotine and toxic chemicals by
3.)

the same route smokers do.

The government should provide subsidized rehabilitation services

4.)

for chain smokers who needs to change their lifestyle.

Breathing even a little secondhand smoke can be dangerous. The
government should also provide sanctions for people who will be

5.)

caught smoking in public.

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.

Bibliography
http://www.academia.edu/7357059/Sin_Tax_Law_Its_Effect_
to_Consumption_Pattern_of_Liquor_Drinkers_and_Smokers_
In_Calinog_Iloilo_Philippines
http://www.gov.ph/sin-tax/
http://www.doh.gov.ph/content/SinTaxUtilizationReportaso
fOctober22014.pdf
http://www.doh.gov.ph/about.html
http://www.tobaccocontrol.ph/sin-tax-reduced-smoking
http://www.rappler.com/newsbreak/13310-lower-sin-tax,less-health-care-for-poor
Gujarati 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?
INCREASE
DECREASE
Put a (

) on the box if you are willing to buy a cigarette with

the given prices
PRICE OF CIGARETTES
3
4
6
9
12
15
17
19
22
25
27
29
30

WILLINGNESS TO PAY

3. Are you aware of the negative effects of smoking especially when

it comes to your health?
YES
NO

CIGARETTE CONSUMPTION
(Dependent Variables)

PRICE
(Independent Variable)

30

30

26

21

17

12

14

15

10

17

19

22

25

27

29

30

Table 1.1 EFFECT OF PRICE ON CIGARETTE CONSUMPTION

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.
SRF= 0 + 1 ( X )
CigaretteConsumption=31.802+(1.117 )( X )

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.