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9.05.2007

TOBACCO TAXES: THE NEED FOR AN EXTENSIVE BENEFIT COST ANALYSIS

In the Philippines, a senator recently questioned the wisdom behind the existing tax rates being imposed on cigarettes. According to the legislator, the taxes being collected by the government (PhP26 Billion) is far less than the amount being spent (PhP 47 Billion) on tobacco related ailments.

Looking at the matter a bit further, what benefits and costs can actually be connected with cigarettes? The benefit side includes: Taxes, income being made by advertisers (cigarette advertisements are not outlawed in that country), business for various suppliers and service providers (like trucking companies), livelihood for the companies' employees and tobacco farmers, etc.

Despite the seemingly numerous benefits brought by the presence of the tobacco industry, as enumerated above, the costs are far greater. The serious tobacco related ailments can be transferred to offsprings and at this point, there is still no definite cure to it.

The senator is therefore correct when he advocated the imposition of heavier taxes on cigarettes. It doesn't matter if it is the manufacturer or the smoker who will be more heavily penalized for as long as cigarettes be made to pay for all the government and societal costs associated with it. Besides, there can be no greater deterrent to smoking withdrawal than high prices.

However, the government should be careful in determining the level of taxes to be imposed on cigarettes. Imposing too high a tax on tobacco might encourage widespread smuggling and that will effectively undermine the government's program. The major question that will arise will therefore be, how much should the government impose on tobacco products?

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