Reference no: EM132204987

Lighting up might cost smokers more from now on as an increase in excise duty on all tobacco products kicked in yesterday.

Finance Minister Heng Swee Keat announced that firms will have to pay more in taxes to sell tobacco in Singapore, in a push to discourage people from smoking.

A 10 per cent increase in excise duty for all tobacco products is the latest in a slew of initiatives to keep Singapore smoke-free.

The tax hike is expected to "boost revenues", said Mr Low Hwee Chua, regional managing partner for tax at Deloitte Singapore and South-east Asia.

It will go some way in ensuring additional resources for the country, as "the Government went to great lengths to emphasise that, while the surplus looks good, there are no guarantees beyond 2020", Mr Low added.

Ms Evelyn Lim, executive director and head of tax at BDO tax advisory, supports the hike, calling it a "good measure to make Singapore more liveable".

"The hike, aimed at reducing consumption, is aligned with the national vision to build a smart, green and liveable city," she said, adding that the tax may help to further lower the proportion of smokers here, which hovers between 12 and 14 per cent of the population.

Earlier this month, emerging and imitation tobacco products, such as smokeless tobacco products, chewing tobacco and shisha, were completely outlawed.

The minimum age for smoking will also be raised to 19 on Jan 1 next year.

It will then be raised progressively every January until 2021, when smokers have to be 21 before they can light up.

Currently, the minimum age is 18.

With yesterday's change, each cigarette, which weighs about 2g, will cost firms about 8 cents more, according to the Singapore Customs.

In a circular released yesterday, a customs spokesman said the excise duties for cigarettes containing tobacco and cigarettes with tobacco substitutes have increased from 38.8 cents to 42.7 cents for every gram or part thereof in each stick of cigarette.

A kilogram of cigars, cheroots and cigarillos of tobacco substitutes will cost producers and manufacturers $427, an increase from $388.

The tax hike took effect at 5.40pm yesterday, added the spokesman.

Excise duty is duty levied on goods manufactured in or imported into Singapore, according to the Singapore Customs' website.

It can be imposed on top of customs duty, which is duty levied on goods imported into the country.

''With yesterday's change, each cigarette, which weighs about 2g, will cost firms about 8 cents more, according to the Singapore Customs.

Tobacco tax hike will see prices of cigarettes go up by about $1 but experts say smokers may still be undeterred.

Prices of popular cigarette brands are set to increase by at least $1, after Finance Minister Heng Swee Keat announced an increase in tobacco taxes.PHOTO: ST FILE

Felicia Choo

SINGAPORE - Cigarettes have become more expensive here following a 10 per cent increase in excise duty on all tobacco products, but experts are divided on whether this will reduce the number of smokers.

The increase in tobacco taxes was announced by Finance Minister Heng Swee Keat during his Budget speech on Monday (Feb 19), and took effect the same day.

Prices of popular cigarette brands are set to increase by at least $1 tomorrow, although some retailers have already raised them.

According to a circular sent to retailers on Tuesday by tobacco company Philip Morris Singapore, which was seen by The Straits Times, a packet of 20 Marlboro White cigarettes will cost $14.10, up from $13. The price of a packet of Sampoerna A Menthol cigarettes will jump from $12.30 to $13.80.

The Tobacco Network Traders also sent out a recommended price list to retailers, increasing the cost of rolling tobacco such as Butterfly Yellow by more than $1, to $12.

Duties for cigarettes and other manufactured tobacco were last increased in 2014, said the Ministry of Finance (MOF). That was also an increase of 10 per cent.

Tax on a typical packet of 20 cigarettes now works out to be around 60 per cent, before goods and services tax, MOF said in response to queries from ST.

This means that each cigarette, which weighs about 1g, costs firms about 4 cents more, according to Singapore Customs.

The World Health Organisation (WHO) recommends at least a 70 per cent excise tax share in the final consumer price to lower cigarette consumption.

The amount of revenue collected by Singapore Customs for tobacco customs and excise duties each year from 2014 to 2017 was slightly above $1 billion.

The proportion of smokers aged 18 to 69 here has consistently hovered around 13 per cent since 2013.

"High prices can stop young people from taking up smoking and encourage current smokers to quit or smoke less, especially those with limited disposable incomes," said Professor Tikki Pang, a visiting professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore.

However, he noted that raising tobacco taxes needs to be combined with other measures such as the continued expansion of smoke-free zones.

"At the same time, raising prices of cigarettes may lead to increased smuggling and black market availability, so surveillance may need to be stepped up," added Prof Pang, whose areas of research include global health governance.

Addictions psychotherapist Andrew da Roza is less optimistic.

"My view is that a 10 per cent increase in tobacco excise tax is likely to have only a modest effect on decreasing smoking prevalence in Singapore, and the effect is likely to be temporary," he said. He felt the increase was too small.

One factor is whether incomes increase more than taxes, keeping cigarettes affordable, said Mr da Roza, who works at Promises Healthcare, a mental health and addictions consulting company.

For example, as median household real incomes from work, per household member, increased by 20 per cent between 2014 and last year, cigarettes still remained affordable despite the 2014 tobacco tax increase, he said.

According to WHO, on average, a 10 per cent price increase on a pack of cigarettes would be expected to reduce demand for cigarettes by about 4 per cent in high-income countries and by about 5 per cent in low- and middle-income countries.

Questions:

In this essay, you are going to analyse the impact of tax hike in Singapore cigarette market. You may relate your answer to the determinants of demand and supply, elasticity, as well as government policies by focusing on the following questions, but not limited to them.

1. How does the tax hike influence the cigarette market in general, such as price, quantity and government revenue? (tips: you can refer to chapter on taxation to analyse this question)

2. Experts say smokers may still be undeterred. Do you agree with this statement? Justify your opinion. (tips: you can use price elasticity of demand to analyse the impact of tax)

3. From the questions 1 & 2, critically analyse if raising the tax for tobacco product, e.g., cigarette, is an effective way to increase the welfare of Singapore. (tips: you can analyse from aspects such as reducing relevance of smoking, increasing government revenue for public spending, etc.)

To give a good response to the above questions, you need to:

1. Conduct research on tax on tobacco in Singapore, price elasticity of demand in cigarette market, measures to curb cigarette consumption, etc.

2. Apply economics models to analyse the above questions.