Why+collecting+more+cigarette+taxes+makes+sense+-+Zelda

Why collecting more cigarette taxes makes sense

 * The Philippine Star: http://www.philstar.com/Article.aspx?articleId=665900&publicationSubCategoryId=66
 * March 14, 2011
 * Noting the statistics of rising deaths and medical costs related to tobacco use, the author of this article, Rey Gamboa, has often nudged the Department of Health to take a bigger role in the campaign to raise levies on tobacco, particularly excise taxes, to at least cover government's cost related to smoking health problems. Currently, the cigarette excise tax structure has four levels depending on the net retail price per pack. The existing law allows these cigarette brands to pay the lower excise tax based on their 1996 retail prices. The current excise tax scheme has been the main reason why the Philippines has one of the cheapest prices of cigarettes in the world, which ultimately contributes to the high growth rate in youth smoking and the high cost of public health care.
 * Vocabulary
 * excise tax: a federal or state tax on the manufacture and distribution of certain non-essential consumer goods (e.g. environmental taxes, communication taxes, fuel taxes).
 * negative externality of consumption: the private utility is diminished by the negative utility suffered by a third party.
 * inelastic demand: desire for a product or service that does not vary with increases or decreases in price; products that are daily necessities and for which there are few alternatives.
 * Consumers will maximise their private utility and consumer at the level where MSC=MPB and will ignore negative externality that they are creating, such as health care that family members might have to pay for when affected by smoking health problems. They will over-consume cigarettes by smoking Q at a price of P, when the socially efficient output is at Q* and so there is over-consumption of Q to Q*. One possible solution for this negative externality is for the government to impose indirect taxes on cigarettes in order to reduce consumption. Imposing an indirect tax will shift the MSC curve upwards to MSC+tax, reducing consumption to the socially efficient level of output Q* but the price to the consumers will be P2. Also, since cigarettes are relatively inelastic demand, government will gain significant revenue (yellow+green) and may be used to correct some of the negative externalities caused by smoking.
 * The additional revenues of P18 billion to P26 billion should be allocated to health promotion campaigns in order to reduce consumption of cigarettes as a whole. On the local level in the Philippines, health promotion may be undertaken by local health officials or boards. This is a sensible option because the government will receive additional revenues, which can be used to confront a costly malady of smoking that currently exists.