Burma Slashes Tax On Alcohol And Tobacco An Economic Interpretation
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Eugene Soo 1065000 E C T D 11 / M o n d a y / 0 9 0 0 - 11 0 0 1
Economics 100 Assignment 1: Burma Slashes Tax on Alcohol and Tobacco - An Economic Analysis
Table of Contents
1.0 Article Summary! 2.0 Introduction! 3.0 Analysis!
3.1 The nature of tobacco consumption in Burma!
3.1.1 Price Elasticity of Tobacco in Burma! 3.1.2 Income Elasticity of Tobacco in Burma!
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3.2 Protection of the Tobacco Industry in Burma!
3.2.1 100% increase in tariff on tobacco and alcohol! 3.2.2 25% decrease in tax on locally-produced tobacco and alcohol!
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4.0 Conclusion! 5.0 References!
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Eugene Soo 1065000 E C T D 11 / M o n d a y / 0 9 0 0 - 11 0 0 i
1.0 Article Summary
The article “Burma Slashes Tax On Alcohol And Tobacco”, written by the Democratic Voice of Burma (DVB) on 28 July 2010, explores the significance of tobacco and the industry in Burma, and the recent debatable changes of excise duty on locally-produced and imported alcohol and tobacco. DVB pointed out various factors influencing the controversial changes in Burma’s tax policies. These factors include: I.Protection of Burma’s domestic tobacco industry against international tobacco industries II.Nature of tobacco consumption in Burma
2.0 Introduction
According to the World Health Organisation (WHO)(2010), tobacco usage is one of the leading public health threats in the world today, causing a death toll of more than 5 million annually, with more than 80% of smokers living in low and middle-income countries. It can therefore be argued that tobacco addiction and consumption has the potential to trap the poor in poverty and ill health (John 2005). It is therefore ostensibly astounding that the Burmese government did not increase, but reduce tax on locally-produced alcohol and tobacco by 25%, as this would possibly encourage people to smoke and drink. This report examines the reasons behind the implementation of these changes by the Burmese government, utilising economic concepts involving demand and supply, elasticity, taxes and trade tariffs. It is acknowledged that there are many contributing factors affecting the tobacco market but the analysis of this article is based on the ceteris paribus (C.P) assumption.
Eugene Soo 1065000 E C T D 11 / M o n d a y / 0 9 0 0 - 11 0 0 2
3.0 Analysis
3.1 The nature of tobacco consumption in Burma
3.1.1 Price Elasticity of Tobacco in Burma The article mentions that an estimated 50% of adults in Burma smoke, resulting in smoking bans to be highly unpopular, and WHO (2010) ranks Burma as the 48th country with the highest number of adult smokers. The demand for tobacco in Burma is thus likely to be price inelastic because of its massive user population and its addictive nature, making tobacco almost equivalent to a necessity good in the Burmese society. A similar study in India reported that 65% of rural households and 49% of urban households consume at least 1 addictive good per month, with tobacco users constituting the majority (John 2005). Chaloupka and Warner (2000) also observed that the price elasticity of demand for tobacco products in low-income and middle-income countries varies between -0.50 to -1.00.
Figure 1
When the demand for a good is price inelastic, consumers are less sensitive and responsive to changes in price. This means that a relatively large decrease in tobacco price due to a decrease in tax (P2 to P1) would lead to a
