A news
break from The Sun (August 7, 2012) Tobacco Companies asked government to
imposed lower
tax on cigarette.
"The Confederation of Malaysian Tobacco Manufacturers (CMTM) CEO Shahrul
Azamin
Abdullah said excessive tax
increases would cause significant price shocks to consumers, who would then turn to cheap illegal cigarettes
as alternatives. "
The question is tax a good approach
on tobacco? An indirect tax would normally be imposed on the individual or company that causes those problems or externality. This is
consistent with the so-called "polluter pays" principle. I personally think that tax should be imposed on tobacco
as high as possible due to the
negative effects on cigarette. There are
more than 4000 chemicals in tobacco smoke, of which at
least 250 are known to be harmful and more than 50 are known to cause cancer. First of
all, there are over six millions of smoking related death last year, and ten
percent of which were in ASEAN countries, it takes more lives than
HIV/AIDS, tuberculosis and malaria combined. With such shocking
statistic, the government should drastically increase tobacco tax instead of
heeding the Confederation
of Malaysian Tobacco Manufacturers' (CMTM) suggestion. The price of a pack of cigarette
is so cheap compare to Singapore which cost only RM 7-10 compare to RM 26.
Percentage of people
smoking in Singapore is just 14% while
the smoking prevalence of adult males in Malaysia was 50.29%
in 2009. This clearly shows that price does work a little on tobacco consumption.
Demerit goods are goods which
society feels are undesirable and is seen as any product that has negative
externalities associated with it. They are overprovided by the market mechanism
may be due to unperceived
damage done to the person who is smoking. When government impose tax on demerit
goods, price of
cigarette increased caused the cigarette market fall in demand. However, the
impact will be very low as
cigarette is a addictive product. People will continue consuming even though
the prices are high. More
importantly, revenue gotten from tax on tobacco can also support government to
fund anti-cigarette programs
and hospitals to treat patient with smoking diseases. I think this is a great
idea to stop communities
from smoking and also provide them free treatment because if the tax rate is
too low, people will
continue buying cigarette and tax revenue is not much either, it is not
beneficial for both parties. When the
demand for cigarette starts to decrease, supply will fall eventually due to low
on consumption of
cigarette. However, the impact is very small because the elasticity of these
goods are perfectly inelastic. No
matter how high the price is, people will still buy it because it is addictive.
Because it is additive, producers
will take this opportunity to make consumers pay all the tax.
On the other hand, I think
government should consider life-time
jail term for those who are involved
in illegal trading, transporting of cigarette, drugs and etc, including the
producer/retailer. People of which
are caught smoking or in procession of cigarette should be heavily fined or
even jailed. This will reduce
the chances people smoking in the public that cause air pollution and
second-hand smoke that affect
the non-smokers. Therefore, the government must stop any attempt to deceive the
public the bad effects
of tobacco consumption. Moreover, taxation on cigarette would also decrease the
supply of tobacco
because of the higher cost of production. When, cost of production is higher,
selling price of cigarette
will go higher and people will buy lesser and eventually sellers will produce
lesser and buyers will buy
lesser due to consumer behavior. However, it depends on tax incidence. Tax incidence
is the analysis of the
effect of a particular tax on the distribution of economic welfare.
I think
one way of regulating the sales of cigarettes is licensing retailers and
blacklist or ban those who are
selling illegal cigarettes. Sometimes, some illegal cigarettes are made of dirt
and fake materials just
because they want to lower their cost of production. This will cause additional
health problems on smokers.
Besides that, graphics warning on the cigarette pack will also reduce the
consumption of cigarette
proven in Canada where warnings covering 50% of the packet been highly
effective in discouraging
smoking. Moreover, graphics warning also persuade smokers to protect health of
the non-smokers by not smoking near the
non-smokers. Example, avoiding smoking near children and smoking
outside the house instead of inside.
In my opinion, imposing tax on cigarette would be a great way to stop
the consumption of cigarette/tobacco
but there are difficulty when setting the level of excise tax. Tax level cannot
be set too low or
too high because market failure will occur. Secondly, government could not
accurately value the private
benefits and private costs or value of human health when imposing tax. Setting
the tax at the correct
level is virtually impossible without accurate information. Therefore in
reality, government hope to be
able to achieve the optimum level of output. Setting high tax rate will lead to
fall in demand for cigarette
although this may only be a small change due to demand for it is inelastic.
Another problem of some
taxes is that it will have a regressive effect on people who has low income.
Also, setting high tax will
encourage people to smuggle cheap and illegal cigarette to the country to avoid
paying the tax. However,
"higher excise tax on cigarette may be financially hurting low-income
smokers rather than making them more likely to quit." The
national average spent by low income smokers of which household
income under $25,000 was 14%.
On the other hand, if government set
the tax level too low, people tend to smoke more because it is so
cheap. For example, it used to be RM 10 per packet but now it is RM 7, people
can buy almost two packet
now instead of one. This will make the smoker smoke more because it costs them
less as the percentage
of their income.
In conclusion, government should
impose tax on tobacco and cigarette because these items are demerit
goods and cause negative externalities to the country. However, it also depends
on whether government
set the tax high or low. Setting high tax would definitely reduce smoking and
consumption of tobacco, this will force smokers quit and
the expenditure they used to spent on these goods will be reduced,
so I say this will be a better approach by the government.
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