The study measures the degree of responsiveness of consumer’s demand for cigarettes to changes in income and price.
Excise tax collection from cigarettes continuously grew from P17.41 billion in 2000 to P19.87 billion in 2002 but slightly dropped to P19.68 billion in 2003. Specifically, excise tax collection on low-priced cigarettes continuously increased at an annual average of 14.81%. On the other hand, collection from medium-priced cigarettes registered increases in 2000-2002 but displayed a decline of 1.12% in 2003. High-priced brands increased in 2001 but declined by 0.28% and 3.39% in 2002 and 2003, respectively. Nevertheless, collection from high-priced cigarettes constituted the bulk of collection (63%), compared to medium-priced cigarettes (26%) and low-priced cigarettes (11%).
The study notes that consumers’ preference is shifting from medium and high priced-brands to low-priced brands. The demand for low-priced cigarettes was on an upward trend, registering the highest increase in 2003 at 16.68%. On the other hand, the demand for medium-priced brands was reduced by 5.31% in 2003 while high--priced brands, by 0.28% and 3.39% in 2002 and 2003, respectively. The prices of all brands of cigarettes have increased within the period, with medium and high priced brands registering relatively higher price hikes at 4.27% and 3.26%, respectively, than low-priced brands with an average annual increase of 1.74%.
The study reveals a positive relationship between the price and quantity demanded for cigarettes during the period under review which means that as price increased, quantity demanded likewise increased. This is shown by the overall price elasticity of cigarettes which was estimated at 2.07 in 2000-2001; 3.02 in 2001-2002; and 3.01 in 2002-2003. The income elasticity of demand for cigarettes on the other hand, was estimated at 0.90, 1.14 and 1.77 for 2000-2001, 2001-2002 and 2002-2003, respectively. This suggests an almost proportional response of demand to changes in income in 2001-2002 and a high sensitivity of demand in 2002-2003. This means that as income increased, quantity demanded also increased. However, overall price and income elasticities should be interpreted with caution as the overall results have been highly influenced by the dominance of low-priced brands.
