Whenever governments want to collect more revenues, their reflex action is to raise taxes on cigarettes and alcohol, the so-called “sin taxes,” because both are harmful to human health. The Philippines is no exception. Two bills have been filed in both houses of Congress that will raise local cigarette taxes by 83 percent. Local cigarette manufacturers say, however, that the street price may go much higher. After cigarettes, alcohol will be next. The government expects an increase of revenue from cigarettes. But it doesn’t always end up that way, as other countries that also raised sin taxes have discovered. On the contrary, their revenue collections actually went down in spite of the higher taxes. Why? Because of smuggling.
When the prices of local products go up too high, smugglers come in with their cheaper products. Do you still remember the time when smuggled blue-seal cigarettes flooded the Philippine market some years ago and smugglers became filthy rich?
