Myrna S. Austria and Jesson A. Pagaduan
Year: 2019 January, Volume 28 No. 2
Employing a two-part estimation model using the Family Income Expenditure Survey before (2009) and after (2015) the tax reform, our study assessed the impact of the Philippine Sin Tax Reform Act (2012) on cigarette consumption and the responsiveness of cigarette consumption to price changes. The results are consistent with existing studies that cigarette consumption is price inelastic. The demand, however, has become less inelastic in the Philippines over the period 2009 to 2015, indicating a more responsive cigarette demand to price increases. Of the total effect of cigarette price increase on demand, the decrease in consumption by smokers (smoking intensity) accounts for much of the decline in cigarette
consumption, rather than the decrease in the number of cigarette users (smoking prevalence). The increase in excise tax due to the tax reform has been effective on lowering cigarette consumption in the country and in making cigarette demand more responsive to price increases. Specifically, the tax reform has reduced the number of cigarettes purchased by smokers more than the number of cigarette users.