Cigarette Vendors Fear New Sin Tax Could Be a Drag on Business

Manila | 03/12/2013 10:43am
Purple Romero | Informal City Dialogues

In a city where cigarettes are often bought on the street, a sin tax could hit informal vendors particularly hard. Photo credit: Purple Romero

Dangling from the left hand of Mylene Cortez is one of her most dependable sources of income: A cigarette, the price of which has doubled to ten cents USD from five since the Philippines’ sin-tax law took effect two months ago.

Cortez, who has been selling cigarettes as a sidewalk vendor for a year, said she initially feared the sin tax. The bill – which, in classic Filipino bureaucratic fashion, and also because of heavy political lobbying against it, languished in the system for 15 years before it was passed into law in December – would raise the excise taxes on “sin products” such as cigarettes and liquor, hiking the prices of these items, many of which are sold informally.

For cigarettes packed by hand (which includes the majority of the cigarettes sold in the country), the government would impose tax rates starting at 29 cents USD for packs with a net retail price of 28 cents and below, and 61 cents USD for those that cost more than that. The tax rate will increase each year until 2017, when it will lock in at a uniform tax rate of 74 cents USD per pack.

In a way, the sin tax helps make up for some of the revenue lost by the government because of a system in which these products are largely sold by non-tax-paying vendors. Typically, informal cigarette vendors go to the supermarket to purchase reams, or cartons, of ten packs of cigarettes each, before breaking them down and selling the contents in smaller volumes at a profit. So while such vendors pay a tax at the point of purchase, they avoid the traditional taxes associated with running a commercial business.

Cigarette vendors buy reams of cigarette packs, then sell them in smaller volumes at a profit. Photo credit: Purple Romero

Under the new law, the government will collect $927 million USD in 2013 in sin taxes, and $1.57 billion USD, more or less, in 2017. Sixty percent of this revenue will come from excise taxes on tobacco products, which is why, for years, lawmakers from the Ilocos region in the northern part of the country held up the bill. Around 50,000 tobacco farmers in that area warn that the new legislation could lead to massive job dislocation, perhaps forcing them to move to Metro Manila or other cities to sell the product they currently grow.

Indeed, when tobacco farmers held protests against the bill last year, they were joined by sidewalk vendors who depend on selling cigarettes for their daily incomes. Some of them, however, report that their fears of mass smoking cessation appear to be unfounded. Mylene Cortez thought her customers would dwindle after the law was passed, but says they still come every night to her spot in front of one of the most expensive hospitals in the country, Makati Medical Center, to get their fix. Most of her customers work at a call center nearby.

She says she earns P500, or $12 USD, in three-to-five hours of selling cigarettes, a hundred pesos more than a ream of cigarettes she buys at the market. It’s not much of a profit, but Cortez said she’s fine with it because she gets to recoup her capital in less than 10 hours, and because she doesn’t pay any taxes for the use of her spot on the sidewalk.

But Teresita Carillo, one of the three women who share Cortez’s selling spot, says the sin tax has cut into her business because customers, while not quitting entirely, are smoking less. Carillo comes rushing over at just past 6 p.m. hauling a plastic bag full of packs of cigarettes, but it turns out she doesn’t need the replenishment – her daughter has been selling cigarettes since 8 a.m. and they’re not even close to finishing off their ream yet.

Carillo’s daughter says that instead of “tens,” or cigarette sticks that are sold in ten pieces per pack, her customers are now buying just one-to-three cigarettes each. One cigarette sells for 10 cents USD, double its former price. This makes it harder for them to earn at least $73 USD, the amount they spend on six reams of cigarettes, which would be enough for at least a week.

The higher prices are aimed at discouraging some 17.3 million Filipino smokers from lighting up. The Philippines ranks first in Southeast Asia in smoking rates, according to the Department of Health, which cites a 2007 report compiled by global research firm ERC Statistics Intl. plc.

Archie, a call center agent, initially started buying cigarettes one at a time because of the increased prices, but went back to buying tens after a couple of weeks. A smoker for over 10 years, he says he just can’t seem to quit smoking. “I know the dangers of smoking, of course, but it’s difficult to stop to stop.”

Patricia, who is 23 and has been smoking since she was 17, believes she won’t be afflicted with illnesses related to smoking because she only finishes three cigarettes per day. As for the higher prices, she shrugs them off – for a casual smoker like herself, the tax doesn’t add up to enough extra money to make a difference.

A proposed measure to emblazon packs of cigarettes with morbid, graphic health warnings has also been proposed, but is nowhere near being passed. So for now, the vendors have only the sin tax law to worry about. Carillo, Cortez and about fifty other sidewalk vendors around the corporate center known as Ayala are discussing whether they should increase the price of their cigarettes to 12 cents apiece. The good thing though about the sin tax law, says Cortez, is that people don’t complain anymore when they raise their prices.

Besides, she adds matter-of-factly, most smokers won’t quit until they’re strapped to a hospital bed. “That’s how we are,” she says, taking a long drag. “As long as we’re not sick yet, we won’t stop.”