Running head: TAX HIKE ON SINGAPORE’S CIGARETTE MARKET 1
Impact of Cigarette Tax Hike on Singapore’s Welfare
Tan Jun Ze Kelston
13570897
James Cook University
TAX HIKE ON SINGAPORE’S CIGARETTE MARKET 2
Contents
Impact of Cigarette Tax Hike on Singapore’s Welfare .................................................. 3
The Cigarette Market ...................................................................................................... 4
The demographics of smokers in Singapore ............................................................... 4
The Impact of Cigarette Tax in Singapore ...................................................................... 5
Who is levied .............................................................................................................. 5
Tax impact on Government Revenue .......................................................................... 7
Discussion ....................................................................................................................... 8
Effectiveness of increasing cigarette tax ..................................................................... 8
Conclusion and recommendation .................................................................................... 9
References ......................................................................................................................... 10
TAX HIKE ON SINGAPORE’S CIGARETTE MARKET 3
Impact of Cigarette Tax Hike on Singapore’s Welfare
Based on a report by the National Cancer Centre Singapore, smoking is the main cause of
lung cancer. Its is also the second most frequent cause of mortality among men and fourth among
women. An average of 1,300 people in Singapore are diagnosed with lung cancer every year.
(World No Tobacco Day Information Paper, 2015)
The Government aims to bring the smoking prevalence, in Singapore, to below 12 per
cent by 2020. (Choo, 2018) It has gone down from 18.3 per cent in 1992 to 12 per cent in 2017.
(World No Tobacco Day Information Paper, 2015) Its latest, to keep Singapore smoke-free,
initiative is a 10 per cent increase in excise duty for all tobacco products. Firms must pay more in
taxes to sell tobacco in Singapore. (Wei,2018) Evelyn Lim said that the hike is aligned with the
national vision to build a smart, green and livable city. Additionally, Low Hwee Chua said that
the tax hike is expected to boost revenue and ensure additional resources. This essay provides an
analysis on the impact of higher tax, on tobacco products, has on the cigarette market in general;
factor such as price, quantity and government revenue will be taken into consideration.
Ultimately, its effectiveness in increasing the overall welfare of Singapore.
TAX HIKE ON SINGAPORE’S CIGARETTE MARKET 4
The Cigarette Market
The demographics of smokers in Singapore
A routine surveillance conducted in 2013 showed that daily smoking prevalence was at
13.3 per cent of the population. In addition, results were further broken down to show current
smoking prevalence in adults and youth; 15 per cent of adult and 6 per cent of youth population
respectively. (Executive Summary on National Population Health Survey 2016/17, 2018)
Furthermore, according to a study that was conducted by Picco et al., between December 2009
and December 2010, smoking prevalence in Singapore was highest amongst male participants
aged 18 to 34 years of age. (2018)
Based on the WHO report on the global tobacco epidemic, Singapore’s socioeconomic
status of its population is grouped under high-income earners. This explains why report showed
that there was no trend change in affordability of cigarettes since 2008, (WHO report on the
global tobacco epidemic, 2017) even though there was an increase of excise tax by 10 per cent
on tobacco in 2014, which translated to 71 per cent tax on tobacco. (Amul & Pang, 2018)
This situation can be explained by price elasticities of demand between high-income and
low-income earners. Price elasticity of demand measures the responsiveness of demand after a
change in a product’s price. Percentage of income spent is an influencing factor of price
elasticity. Compared to smokers who are low-income earners, high-income earners spend a
smaller percentage of their income on cigarettes. Thus, a more inelastic demand and steeper
curve for high-income compared to low-income earners as seen in figure 1.
TAX HIKE ON SINGAPORE’S CIGARETTE MARKET 5
Figure 1. Demand curves of High-income (Dhi) and Low-income (Dli) smokers.
Assuming Qmax is the maximum market size for both groups, it shows the demand of both
groups at different price points.
The Impact of Cigarette Tax in Singapore
Who is levied
Singapore levies an excise tax on firms who imports cigarettes. Since the 10 per cent
increment in excise tax on firms, according to Singapore Customs (2018), excise duty for
cigarettes now is 42.7 cents for every gram or part thereof of each stick. Therefore, firms would
have to pay a total of $9.13 for 20 sticks of cigarette; inclusive of Government Service Tax at 7
per cent. Similarly, for consumers, the 10 per cent increment meant that they would have to pay
$14.30 for 20 sticks of cigarettes instead of the previous price of $13.00. (Wei, 2018)
In figure 2, it shows a shift to the left of the supply curve S1 to S2, which is the result of
the excise tax levied on firms. The elasticity of demand for firms is inelastic as there are no
substitutes for tobacco since, according to the WHO report on the global tobacco epidemic
(WHO report on the global tobacco epidemic, 2017), the sale of smokeless tobacco products; e-
cigarettes, are banned in Singapore. Similarly, it is illegal for smokers to bring in smokeless
TAX HIKE ON SINGAPORE’S CIGARETTE MARKET 6
tobacco products into Singapore as well. On top of that, the Ministry of Foreign Affairs (Goods
and Services Tax (GST), nd), states that, under Singapore laws, arriving travelers need to pay
taxes to bring cigarettes or other tobacco products. Thus, besides the cost of cigarettes being a
small percentage of income, the demand curve of consumers is inelastic as well.
Figure 2. Left shift of the supply curve caused by an increase in excise tax on firms. P2
shows the price buyers pay, P3 shows the price sellers receive. The tax burden is shared by the
buyers and sellers.
TAX HIKE ON SINGAPORE’S CIGARETTE MARKET 7
Tax impact on Government Revenue
In economy, an increase in tax would increase the deadweight loss. However, since both
demand and supply curve of cigarettes is inelastic, the increment in deadweight loss is minute
compared to an elastic demand and supply curve. Thus, an overall increment in Government
Revenue as shown in figure 3.
BEFORE AFTER
Price of D S Price of D S
Cigarettes u Cigarettes u
p p
DW
DW p p
l l
Tax y Tax y
Revenue Revenue
Q2 Q1 Quantity of Cigarettes Q2 Q1 Quantity of Cigarettes
Figure 3. Demand and supply curve before and after the implementation of tax excise of
10 per cent on tobacco product. DW refers to the deadweight loss due to tax excise.
TAX HIKE ON SINGAPORE’S CIGARETTE MARKET 8
Discussion
Effectiveness of increasing cigarette tax
According to the WHO framework convention on tobacco control (WHO Framework
Convention on Tobacco Control, 2003), Article 6 states, price and tax measures are an effective
way of reducing tobacco prevalence. However as mentioned in this article, the demographics of
smokers in Singapore are mostly high-income earners. Thus, the report of no trend changes in
price affordability of cigarette since 2008 due to the small percentage cost of cigarettes compared
to their income. (WHO report on the global tobacco epidemic, 2017) Which resulted in a
stagnation of smoking prevalence in the last couple of years. (Choo, 2018)
However, the increase in revenue from excise tax on tobacco products has indeed helped
Singapore in its overall welfare. Andrew da Roza, addiction psychotherapist, stated that the 2018
tax increment would have only a modest effect on decreasing smoking prevalence and the effect
is likely to be temporary. (Wei, 2018) This would result in an overall increase in tax revenue for
the Government. According to the Analysis of Revenue and Expenditure (2018), revenue
collections of customs and excise tax amounted to SGD 3,202,000 in FY2017 and a budgeted
amount of SGD 3,372,000 for FY2018. Besides the increase in tax revenue, evidence of better
welfare of the country can be found in the increase in development expenditure from FY2017
SGD 17,820,000 to a budget of SGD 22,351,000 for FY2018.
TAX HIKE ON SINGAPORE’S CIGARETTE MARKET 9
Conclusion and recommendation
Although increasing excise tax on tobacco products has only a modest effect on smoking
prevalence, Singapore has also incorporated other methods to lower the country’s smoking
prevalence. According to The Straits Times (2017), the country will raise the legal age for
smoking from 18 to 19 on January 1, 2019. They plan to further raise the age every January until
2021, when the legal smoking age would 21.
In conclusion, there is no one best method of reducing smoking prevalence but rather
different actions put in place to help. Furthermore, the extra revenue can also help by spending it
on health and awareness programs
TAX HIKE ON SINGAPORE’S CIGARETTE MARKET 10
References
Amul, G., & Pang, T. (2018). Progress in Tobacco Control in Singapore: Lessons andChallenges
in the Implementation of the Framework Conventionon Tobacco Control [Ebook] (pp.
105,108,109,112). Singapore. Retrieved from
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Ministry of Finance. (2018). Analysis of Revenue and Expenditure 2018 [Ebook] (pp. 16,17).
Singapore. Retrieved from
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CHOO, F. (2018). Smoking rate target of under 10% by 2020. Retrieved from
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Ministry of Health. (2018). Executive Summary on National Population Health Survey 2016/17
[Ebook] (p. 3). Singapore. Retrieved from
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Goods and Services Tax (GST). (2018). Retrieved from
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tax-gst
picco, l., subramaniam, m., Abdin, E., Vaingankar, J., & Chong, S. (2018). Smoking and Nicotine
Dependence in Singapore: Findings from a Cross-Sectional Epidemiological Study
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http://www.annals.edu.sg/pdf/41VolNo8Aug2012/V41N8p325.pdf
TAX HIKE ON SINGAPORE’S CIGARETTE MARKET 11
WEI, A. (2018). Singapore Budget 2018: Tax hike kicks in for all tobacco products. Retrieved
from https://www.straitstimes.com/singapore/tax-hike-kicks-in-for-all-tobacco-products
World Health Organisation. (2003). WHO Framework Convention on Tobacco Control [Ebook]
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1F5D81FCED11A68696359A18B52?sequence=1
World Health Organisation. (2017). WHO report on the global tobacco epidemic [Ebook] (pp.
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