CHAPTER 2

REVIEW OF RELATED LITERATURE AND STUDIES

This chapter presents the review of related literature and studies, which gives

the researchers other important resources necessary in the development of the

present study.

Related Literature

Original Sin tax Law

Review the sin tax reform law first before entertaining moves to amend it, the

Philippine unit of global tobacco giant British American Tobacco (BAT) suggested

Monday following powerful lobbying in Congress to defer the implementation of a

unitary cigarette excise tax rate next year.

BAT supports the Department of Finances call for the congressional oversight

committee to do a full review of Republic Act (RA) No. 10351 or the Sin Tax Law of

2012 before the law is amended, the company said in a statement.

Sen. Juan Edgardo Sonny Angara, who chairs the congressional oversight

committee on comprehensive tax reform, earlier said the scheduled review of RA

10351 was already ongoing.

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Last week, Finance Secretary Carlos G. Dominguez III also urged Congress to allow

the sin tax reform law to be fully implemented until it matures next year.

Under RA 10351, tobacco products will be slapped a unitary rate of P30 a pack

starting Jan. 1, 2017, following a two-tier system this year wherein cigarettes priced

P11.50 a pack were being taxed P25 while those priced higher were slapped P29 a

pack. We were the sole tobacco company to support the Sin Tax Law of 2012,

which not only leveled the playing field yet allowed the Philippine government to

pursue its revenue and public health goals. At the time of deliberations, we were

consistently supportive of either a single-tier or two-tier system. Both have a

successful pedigree around the world. Our position has not shifted. If the Philippine

government judges a two-tier system is appropriate to extend we have no issue with

this, BAT Philippines general manager James Michael Lafferty said.

However, we should invest the time as was done on the original sin tax bill to fully

vet any amendments. The newly proposed bill has two main flaws, the level of net

retail price and no mechanism for the net retail price to increase in the future.

Therefore, we should avoid rushing a new law into effect without a full study of both

intended and unintended consequences, Lafferty added, referring to House Bill (HB)

No. 4144, which critics said was railroaded in the lower house such that it was

expected to be passed on third and final reading before Congress goes on break this

week.

HB 4144 was proposing that the two-tier system be maintained by slapping an

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excise tax rate of P32 a pack on cigarettes priced P11.50 and below, as well as P36

for those priced higher. It also proposed an annual 5-percent increase in the excise

tax beginning 2018.

Industry sources are expecting the bill authored by ABS Partylist Rep. Eugene

Michael B. de Vera and reportedly pushed by homegrown low-priced cigarette

manufacturer Mighty Corp. to be approved at the lower house plenary by

Wednesday, and then transmitted to the Senate during the break.

HB 4144 was filed only on Oct. 19 and had undergone only two hearings at the

committee level, the first one last Nov. 28. Ben O. De vera (inquirer.net, 2016)

The Department of Finance yesterday urged Congress to allow the full

implementation of the Sin Tax Reform Act after an unexpected proposal to reverse

the landmark law breezed through committee readings. We consider the Sin Tax

Law or Republic Act 10351 to be a very good law. Our position is to fully implement

the law and let it run its course, Finance Secretary Carlos Dominguez said in a

statement. Dominguez issued the statement after the House ways and means

committee approved House Bill 4144 on second reading. The first committee hearing

on the bill was held on Nov. 28. It was approved without amendment during the

second hearing on Dec. 5 and submitted to the Committee on Rules on the same

day. House Bill 4144 intends to keep the current two-tier tax system on cigarette

products, which under RA 10351 is set to be unitary beginning Jan. 1, 2017. The

lower tax is proposed to be set at P32 per pack for cigarettes that have a net retail

price of P11.50 while cigarette packs priced above P11.50 will be taxed P36. In

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contrast, the Sin Tax Reform law mandates a single tax rate of P30 for all cigarette

products, regardless of brand, by next year. The current proposal even runs counter

to the Department of Finances plan to raise excise tax on tobacco and alcohol anew

by 2018 under its comprehensive tax reform program. Non-government

organizations, which supported the 2012 measure, opposed the bill, saying it would

reverse gains in cutting smoking prevalence and raising more revenues for health

purposes. We are deeply disappointed with the railroading of the passage of House

Bill 4144, think tank Action for Economic Reforms said in a statement. The

blitzkrieg passage of this flawed bill shows that Congress will not pass legislation

leading to solid reforms. It shows that Congress accommodates vested interests, it

added. The Sin Tax Law itself took months of deliberations before getting passed in

Congress. It has been hailed as the single most important health policy legislation of

the past decade in the Philippines. The government estimates around eight million

Filipinos stopped smoking since the passage of the law. This was after more than a

quarter of cigarette supply was removed from the market as costs had gone up. Still,

state revenues from tobacco products alone more than tripled from 2012 to 2015.

The World Bank is pushing for the implementation of a unitary tax rate on all tobacco

products, regardless of price and brands, to curb tobacco consumption and provide

additional revenues for the government. In its report titled Sin Tax Reform in the

Philippines, the World Bank said a single excise tax regime on all tobacco products

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would help curb tax evasion and corruption as it addresses administrative

difficulties of classifying cigarettes by declared value and focuses more on observed

volumes. For tobacco, setting minimum and unitary specific tax rates was attractive

to decision makers. Multiple tiers, with lower taxes on cheaper brands, create an

incentive for producers to downshift their products to lower-taxed tiers, the World

Bank said. Under a multi-tier tax system, consumers especially from the lower

bracket would merely shift to lower priced-brands, thereby negating the regulatory

goals of the Sin Tax Reform law Because cigarettes are equally harmful regardless

of price the unitary rate is an important feature for health purposes, especially given

the large number of smokers in lower-income quintiles and smoking cheaper

brands, the World Bank said. The Action for Economic Reforms, for its part,

assailed the railroading of the passage of House Bill 4144 at the House of

Representatives. Various groups comprising the Primary Care Coalition, Action on

Smoking and Health (ASH), Framework Convention on Tobacco Control Alliance

Philippines (FCAP), New Vois Association of the Philippines, Health Justice

Philippines and Womanhealth Philippines have likewise strongly opposed the

proposed measure authored by ABS Partylist Rep. Eugene Michael De Vera. We

are alarmed that Congress leaders are bent on getting this passed, said ASH

executive director Maricar Limpin. AER president Cristina Morales-Alikpala warned

that a two-tier tax system would make it easy for tobacco manufacturers to produce

cheap brands to avoid higher taxes. A higher unitary tax rate will protect and save

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more lives, and significantly reduce downshifting to cheaper brands. HB 4144 will be

bad for both health and revenues, Alikpala said. Mighty Corp., a Chinese-Filipino

owned cigarette company that sells low-priced brands, has been pushing for the

measure. Its spokesperson, former National Economic Development Authority

director general Romulo Neri argued during the hearing that the two-tier rates would

address an inequitable situation as cigarettes for the rich would be taxed higher.

Like the DOF, industry giant Philip Morris-Fortune Tobacco has posed its objection

to House Bill 4144. We do not support further changes in the law at this time, and

reverting to a multi-tier system that is widely discredited, PMFTC said in a letter to

the House committee on Ways and Means. Bulacan-based Mighty Corp. has grown

phenomenally by taking advantage of the present two-tier scheme. With Zinnia

Dela Pena, Iris Gonzales, Sheila Crisostomo, Jess Diaz (philstar, 2016)

Amendment of Sin Tax Law

The amendment of the existing excise tax law on tobacco and alcoholic

products is the only revenue measure that the Aquino administration has certified as

urgent to date (Macaraig 2012). In principle, the excise tax on sin products is

imposed for the purpose of (i) raising revenues and (ii) discouraging the consumption

of the tobacco products and alcoholic beverages. It is argued that higher excise

taxes on tobacco will induce some smokers to quit, reduce consumption of

continuing smokers, and prevent others from starting (Sunley 2009). Because the

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demand for cigarettes is relatively price inelastic, the expectation is that higher taxes

will yield higher revenues in the near term while deterring smoking in the longer term.

The sin tax law bill had been pending in congress since 1997, many had thought it

would be impossible for the said law to have it passed due to conflict of interest. Sin

tax law reform took 15 years before it finally hurdled Congressional deliberations and

intense lobbying by tobacco and liquor companies. It has been hailed as the single

most important health policy legislation of the past decade in the Philippines.

(Gonzales, 2016)

The creation of Republic Act (RA) 10351or the Sin Tax reform Law imposes

higher taxes on tobacco and alcohol products which were signed by former president

Mr. Benigno Aquino III last December 20, 2012. The implementation of the law

resulted to less affordability of alcohol and tobacco products. According to the

Department of Health there are 17.3 million consumers of tobacco in the Philippines,

it is the largest number of consumers across Asia. 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, it created an additional cause to the implementation of Sin

Tax law. The said law generates additional revenue which covers the universal

health program, tobacco farmers livelihood and discourages the consumers from

drinking alcohol and smoking. (Govph, 2012)

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The road to the reformed sin tax structure was not that easy, there are a lot of

disagreements and debates that made the ideal bill weak. Senators Ralph Recto and

Ferdinand Bong-bong Marcos argued that the bill would cause a displacement of

tobacco farmers and it will worsen the smuggling in the Philippines. Senator Drilon

being the committee chair submitted a substitute bill sought to raise P40 billion. At

the bicameral conference committee, where the House and Senate reconciled their

versions, debates centered on the burden-sharing between tobacco and alcohol in

generating the additional revenues and whether the government can make good on

its promise to spend the funds as planned. The reconciled version was approved by

both chambers. (Rappler, 2012)

Under the final version of the Senates sin tax bill, the government is expected

to generate additional revenue amounting to PhP 40 billion during the first year

PhP 24 billion of which will be borne by the tobacco sector while PhP 16 billion will

be borne by the alcoholic beverage sector. The target burden sharing of 60-40 for

tobacco and alcohol shall be maintained from 2013 to 2017. During the second to

fifth year of implementation, the government is expected to collect additional

revenues of PhP 45.7 billion, PhP 52.3 billion, PhP 57.7 billion and PhP 64.4 billion,

respectively. The Senate agreed to earmark PhP 23 billion of the additional tax

revenues to the Philippine Health Insurance Corp. for its universal healthcare

coverage program, PhP 750 million for antismoking campaigns, PhP 100 million for

the physical and operational upgrading of 16 regional hospitals and 22 medical

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centers, PhP 10 million also for the upgrading of 618 district hospitals operated by

LGUs, and PhP 750 million to finance farmer support programs. The additional funds

for farmer support, according to Drilon, will double the safety net provided for under

the current law. Of the tax revenues, PhP 2 billion will be used for tax administration,

which shall be increased 3% every year. This fund will be used to combat smuggling

that could arise as a result of the implementation of the bill. House Bill 5727 (HB

5727), sponsored by Congressman Emilio Abaya, perhaps represents the version

that is most favoured by the Department of Finance. HB 5727 proposes to collapse

the present four-tier excise tax on cigarettes into two tiers during the first two years

of implementation before completing the shift to a unitary tax rate of PhP 30 per pack

of cigarettes on the third year of implementation. Alcohol products, on the other

hand, will be taxed based on alcohol content instead of raw materials. Over a period

of three years, the excise tax on distilled spirits will be phased towards a uniform tax

rate of PhP 150 per proof liter) while the excise tax on fermented liquor will

immediately be unified at PhP 25 per liter. Following the implementation of a unitary

tax rate, the tax will automatically be indexed to inflation. Automatic adjustments of

the tax rates will be based on tobacco and alcohol indices established by the

National Statistics Office (NSO). Furthermore, HB 5727 will also lift the price

classification freeze on old brands. Thus, all excisable products will be classified

according to their net retail price based on the latest price survey to be conducted by

the Bureau of Internal Revenue (BIR). After much debate, the House of

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Representatives passed the revised version of HB 5727 in June 5, 2012. The revised

version of HB 5727 proposes to impose a two-tier system for cigarettes (Table 4),

fermented liquors and wines, and a three-tier system for distilled spirits in lieu of the

unitary excise tax rates in the original version (Table 5). Also, the excise tax rates will

not be automatically indexed to inflation. Rather, taxes are proposed to be increased

at a fixed rate of 8% every two years starting from 2015 to 2025. Incremental

government revenue from the revised version of HB 5727 is projected to be PhP 31

billion in the first year of implementation, slightly more than half of projected

incremental revenue under the original version of the bill. Incremental revenues in

the succeeding years are projected at P39 billion, P42.7 billion and P41.5 billion.

Subsequently, Senator Franklin Drilon assumed the chairmanship of the Senate

Committee on Ways and Means and put forward substitute sin tax bill (revised

Senate Bill 3299) which targets to collect 40 to 45B excise tax in the initial year. With

a vote of 15-2, the senate approved on the third and final reading the Drilon version

Senate Bill 3299 with some amendments from Senators Juan Ponce Enrile, Ralph

Recto and Ferdinand Marcos Jr. last November 20, 2012. The final version of SB

3299 proposes a three-tier system for cigarettes until 2014 (Table 8). The number of

tiers will be reduced to two in 2015 to 2016. From 2017 onwards, a uniform rate of

PhP 26 per pack of cigarettes will be applied to all brands, a rate that is lower than

the proposed tax rate of PhP 32 under Drilons substitute bill. SB 3299 also proposes

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to adjust this rate by 4% annually starting 2018. Furthermore, it requires cigarette

manufacturers and sellers to purchase at least 15% of their raw materials locally.

(pids.gov.ph, 2013)

Under the final version of the Senates sin tax bill, the government is expected

to generate additional revenue amounting to PhP 40 billion during the first year

PhP 24 billion of which will be borne by the tobacco sector while PhP 16 billion will

be borne by the alcoholic beverage sector. The target burden sharing of 60-40 for

tobacco and alcohol shall be maintained from 2013 to 2017. During the second to

fifth year of implementation, the government is expected to collect additional

revenues of PhP 45.7 billion, PhP 52.3 billion, PhP 57.7 billion and PhP 64.4 billion,

respectively. The Senate agreed to earmark PhP 23 billion of the additional tax

revenues to the Philippine Health Insurance Corp. for its universal healthcare

coverage program, PhP 750 million for antismoking campaigns, PhP 100 million for

the physical and operational upgrading of 16 regional hospitals and 22 medical

centers, PhP 10 million also for the upgrading of 618 district hospitals operated by

LGUs, and PhP 750 million to finance farmer support programs. The additional funds

for farmer support, according to Drilon, will double the safety net provided for under

the current law. Of the tax revenues, PhP 2 billion will be used for tax administration,

which shall be increased 3% every year. This fund will be used to combat smuggling

that could arise as a result of the implementation of the bill. The bicameral version

appears to have successfully put together the desirable provisions of the House and

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Senate versions of the sin tax bill. The bicameral version has greatly simplified the

tax structure by adopting a unitary excise tax rate for cigarettes, fermented liquor and

distilled spirits. Such a shift away from the existing multi-tiered tax structure will tend

to result in greater ease in tax administration by minimizing the opportunities for mis-

classification or misdeclaration of goods and transactions. Furthermore, such a move

will tend to minimize the downshifting to cheaper brands thus tending to reduce

consumption of tobacco products and alcoholic beverages better. Although the

bicameral version of the sin tax bill does not allow for the automatic indexation of the

excise tax rates to inflation, it does allow for a 4% increase in the excise tax rates

yearly from 2018 onwards. This change is will not only yield additional revenues in

the near term but will also prevent the erosion of excise tax revenues in real terms

over the long term. Moreover, as indicated earlier, a yearly adjustment in the excise

tax rate is preferable over an adjustment that occurs every other year as proposed

under the House version because the latter tends to give manufacturers the

opportunity to avoid taxes by reporting higher than normal volume of removals in the

year prior to the mandated increase in specific rates. 11 Also, by doing away with the

freeze on price classification of excisable products, the bicameral version of the sin

tax bill eliminates the preferential tax treatment given to existing brands over new

entrants and imports. Such a move tends to level the playing field among the various

industry players and enables the country to comply with WTO requirements. On the

other hand, the provision with regards to local content of tobacco products in the

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Senate version is muted somewhat in the bicameral version which states that Of the

total volume of cigarettes sold in the country, any manufacturer and/or seller of

tobacco products must source at least 15% of its tobacco leaf raw materials supply

locally, subject to adjustment based on international treaty commitments." While the

bicameral version removed the very detailed earmarking provisions found in the

Senate version of the sin tax bill, earmarking of the incremental revenues resulting

from the proposed amendment to the excise tax law continues to be one of its major

features. The arguments against earmarking in the public finance literature are well

known. To wit, earmarking is said to lead to inefficient budgeting, essentially

because it creates rigidities in the expenditure allocation process and prevents

authorities from smoothly reallocating funds when spending priorities change. Also,

when earmarked funds are off-budget, some loss in budgetary accountability may

result because off-budget often means out of sight and out of mind (Bird and Jun

2005). However, earmarking may be justified if there is a close link between the

payment of earmarked taxes and the benefits accruing to the taxpayer from the

favored expenditures as this is consistent with the benefit principle of taxation. But

the IMF (2011) points out that it is difficult to isolate health expenditure on smoking

related diseases and finance them by tobacco duties or taxes (Nakayama et. al.

2011).

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Cigarette Industry

By providing manufacturers of excisable product the opportunity to mis-declare

higher-priced (and therefore, higher-taxed) brands as lower-priced (and therefore,

lower-taxed) brands so as to evade paying the correct taxes, the multi-tier rate

structure of the excise tax system may have also contributed to the deterioration of

the excise tax effort in 1997 to 2011. For instance, Manasan (2010) noted that a shift

towards the production of brands subjected to a lower tax rate and a decline in the

volume of production of tobacco products, as measured by the total volume of

cigarette removals from the plants reported by cigarette manufacturers to the BIR in

2005 to 2009 are not consistent with the positive growth in personal consumption of

tobacco products in real terms as per the National Income Accounts during the same

period. Also, the data on volume of removals indicate that cigarette producers

reported higher than normal volume of removals in 2004, 2006 and 2008, apparently

in anticipation of the mandated increase in specific tax rates in 2005, 2007 and 2009.

The current system also distinguishes between the old and new brands. Brands that

existed before 1996 are taxed based on their 1996 price while newer brands,

including imports, are taxed based on their current prices which tend to be higher.

The differential tax treatment of old and new brands results in an uneven playing

field for the producers of excisable products with new brands or variants and

imported brands being taxed more than locally manufactured older brands. Related

to this, the taxation of distilled spirits has been ruled by the WTO to have broken the

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rules of free trade. The WTO holds that the current excise tax structure of the

country 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 1995 1997 1999 2001 2003 2005

2007 2009 2011 Figure 1. Excise tax revenues as % of GDP Alcohol Tobacco 4

discriminates against imported spirits in violation of the General Agreement on

Tariffs and Trade (GATT). The cigarette industry is very big as cigarette brands

existing in the Philippines consists of 236 brands. Among those brands which are

very well known are: Fortune, Winston, Marlboro, Lucky Strike, Philip Morris,

Mildseven, Mighty, Hope, Black cat, Champion, and Dunhill. Undoubtedly, collection

of excise taxes from this source contributes a lot to the governments revenue.

Through the imposition of excise taxes, there will be an increase in the government

revenues that could then be used to augment funding for the countrys Universal

Health Care Program, this includes medical assistance for those in need and the

enhancement of poorly-equipped government health facilities. (Castillo, 2016)

Cigarettes in the Philippines are taxed based on their net retail price (NRP),

excluding the excise tax and VAT. Cigars are subject to a 20% ad valorem tax on its

NRP plus a specific tax rate of Php5.20 per cigar under Sec. 145 of the NIRC, as

amended by R.A. No.10351. In addition to the excise tax imposed, the sale and

importation of tobacco products are subject to a 12% VAT. The basis for domestic

sale is the Gross Selling Price, while for imported, it is based on the total value used

by the Bureau of Customs in determining the tariff and customs duties, plus excise

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taxes, if any, and other charges which shall be paid prior to release of the goods

from customs custody. However, if the customs duties are determined based on the

quantity volume of the goods, the VAT shall be based on the landed cost plus excise

tax, if any. (BIR, 2012)

SB 3299 proposes to increase the excise tax rate on cigarettes from the

present PhP 2.72 to PhP 6 per pack in 2013 to 2014 for brands that are currently

classified as low-priced, from PhP 7.56 to PhP 10 for brands that are currently

classified as medium-priced brands, from PhP 12 to PhP 14 for brands that are

currently classified as high-priced brands and to reduce the excise tax from PhP 28.3

to PhP 14 for brands that are currently classified as premium-priced brands. From

2015 onwards, SB 3299 proposes to tax cigarettes based on net retail prices that are

determined on the year immediately before the date of effectivity of the new rates

(Table 6). Under this scheme, cut-off prices defining the tax brackets are adjusted by

8% every two years between 2015 and 7 2021. However, the bill does not allow for

any adjustment in the excise tax rates on cigarettes after 2021. (pids.gov.ph, 2013)

Alcohol Industry

Alcohol is widely consumed in the Philippines, distilled spirits, or liquor,

include all alcoholic beverages that are first fermented and then distilled. They

include whiskey, rum, vodka, and gin. Manufacturing of such is one of the most

profitable industry in the Philippines. Four of its manufacturing companies i.e. San

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Miguel Corporation, Tanduay Distillers, Ginebra San Miguel and Asia Brewery has

been consistently among the top and Asia Brewery has been consistently among the

top 75 among the top 1000 corporations in the country. Despite recorded economic

downturn and gloomy outlook for the Despite recorded economic downturn and

gloomy outlook for the Philippine economy, sales and consumption of alcoholic

drinks are found to remain high and are projected to expand positively. This is due

largely to the increasing disposable incomes among the young and the emerging

influence of Western pub drinking. (Labajo, 2010)

Liquors are either under ad valorem tax classification and imposed a P20 tax

for 2015 and P20 for 2013, with a 4-percent increase annually starting 2016.

Products classified under specific tax are imposed a 20-percent tax of its net retail

price in 2015 and 15 percent in 2013. For fermented liquor, products that are priced

at P50.60 and below are given a tax of P23.50 for 2017, P21 currently, P19 in 2015,

P17 in 2014 and P15 for the year 2013, with an increase of 4 percent every year

starting 2018. Products priced above P50.60 are imposed a tax rate of P23.50 in

2017, P23 in 2016, P22 for 2015, P21 for 2014 and P20 for 2013. The significant tax

increase, effectively discourage excessive liquor drinking and smoking and

generated ample revenues on government public services. On its first year of

implementation, the new sin-tax law generated additional revenues of P33.96 billion,

P10.56 billion of which came from excise tax on alcohol products.

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 The tax rates for alcohol products are somewhat similar to the revised version

of HB 5727. SB 3299 proposes to tax fermented liquor in the same manner as HB

5727. However, relative to the revised version of HB 5727, SB 3299 proposes to

increase the number of tax tiers on distilled spirits from the 3 to 4 with the cut-off

price for the top tax bracket being higher for the latter compared to the former.

Instead of providing for the automatic indexation of the tax rates to inflation, SB 3299

proposes to adjust the tax rate by 8% every other year between 2015 and 2019 and

by 4% every other year from 2020 onwards. Thus, the expected tax take from SB

3299 is lower than that from the revised HB 5727.

Related Studies

The study of Murphy (2006), which is about the effect of large price increases

on cigarette consumption using Ordinary Least Square and instrumental variables.

They used data from 50 states consumption plus the District of Columbia for the

years 1990-2003. The result of his study indicates that over 15 years there is a

decrease in consumption that has resulted from the sharp rise in price. This

decreased in consumption that explain by other factors such as smoking ban,

contributed a small amount of decreased in consumption. As the concluded the

larger increase in prices experience larger reductions in consumption. On the other

hand, the study of Tauras and Chaloupka (1999), investigate the impact of price,

clean indoor air laws, and other socioeconomic factors have on smoking cessation

by males and females separately using Semi-parametric Cox duration models to

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estimate the result. They used the data from 15,000 senior students at the University

of Michigan. As their result shows the price is positively related to the probability of 8

smoking cessation for both young adult males and females. Their results clearly

indicate that large increases in cigarette excise taxes would lead a significant

number of young adults to quit smoking. Moreover, the estimates imply that stronger

restrictions on smoking in private worksites will increase the probability of cessation

among young adult females.

Ruhm (1995) and Freeman (1999), which confirmed that alcohol consumption

moves increasingly. On the other hand, Thomas (2001) concluded that the stress

from anxiety over being unemployed in a period of recession raises the levels of

alcohol consumption. In relation to that, the study of Siglow (1999), concluded that

alcoholic drinks, continues to have many devastating effects on today's society.

Some of the devastating consequences of alcoholism include accidental injury or

death resulting from drunk drivers, loss of employment, unstable, dysfunctional

families, and health problems. Not only does alcohol harm the alcoholic, but it also

has a negative impact on the family, causing extreme emotional pain and suffering.

But with the continuous therapy and unending support from family and friends can

treat the alcohol addiction.

Donovan (1997), study pointed out 16-29 years old liquor drinkers to be young

people who are greatly affected by the factor of curiosity in consuming liquors. In

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addition there is parental permissiveness that predicts alcohol trial and ongoing use

and also predicts excessive consumption of liquor. However, high boredom and easy

access to alcohol have a very high predictive capacity toward consumers. Donavans

view was that what distinguishes the prediction of abstention versus moderate

drinking versus excess drinking was not the factors themselves, but rather the

number and intensity of factors operating for any given individual or group of

individuals. That is, misuse appears to depend on either more of factors co-occurring

or occurring at a greater intensity.

Synthesis

This paper focuses on the effects of Sin Tax law in the consumption pattern of

liquor drinkers and smokers in Batangas City. In this chapter, the researchers

provides a brief background regarding the creation of Sin Tax law, taxation of

cigarettes and alcoholic beverages, the nature and the revenues generated in order

by the cigarettes and alcohol in order for the readers to know the reason why the sin

tax reform law are implemented.

The studies included in this chapter are the study of Murphy which is about

the effect of large price increases on cigarette consumption using Ordinary Least

Square and instrumental variables. The study concluded that the use of cigarettes is

decreased. The study is also conducted and strengthened by Tauras and Chaloupka

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who have concluded the same as Murphy. On the other hand, the study about

alcohol consumption by Ruhm and Freeman concluded that the alcohol consumption

moves increasingly, Thomas supported and added that stress from anxiety over

being unemployed in a period of recession raises the levels of alcohol consumption.

The study of Siglow added some devastating effects of being an alcoholic. In

addition, Donavan pointed out ages 17-29 liquor drinkers as young people and he

added some factors that affect the consumption of alcohol. The researchers believe

that this study is relevant to the research conducted because this shows the factors

and effects of cigarette and alcohol consumption in alcohol drinkers and smokers.

The measures provided therein may be used by the researchers in concluding

the effects of sin tax reform law to the consumption pattern of consumers.

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

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