‘Alcohol tax hike to weigh down government reserves’

MANILA, Philippines — The country’s top distilleries has warned lawmakers that imposing too much tax increases may dampen demand for alcoholic products, which may result in lower revenues and tax yield for the government.

In a position paper submitted to the Senate ways and means committee, Distilled Spirits Association of the Philippines (DSAP) president Olivia Limpe-Aw said while the industry group supports the proposed reform for distilled spirits, it is concerned that steep tax increases may result in the contraction in demand.

“Between 2017 and 2018, prices of alcoholic beverages and tobacco products have increased by 20 percent, while other major household expenditure had increased by seven percent. The effects of these are decreased consumption of alcoholic beverages that seem to be decreasing at a higher rate from 3.4 percent in 2017 to 5.1 percent in 2018,” Limpe-Aw said, citing the Nielsen Retail Index.

Limpe-Aw also cited the 2015 Family Income and Expenditure Survey, which showed that the “elasticity” of demand – or the responsiveness of demand after a change in a product’s price – for distilled spirits was measured at negative 1.2.

“This means that the demand is elastic and is an indication that further price increases will lead to proportionally greater decreases in demand,” Limpe-Aw said.

“Thus, higher increases in tax may lead to decreased revenues and tax yield will also decline,” she said.

Distilled spirits are levied a specific tax of P22.50 per proof liter and an ad valorem rate of 20 percent of net retail price.

The recently approved House Bill 1026 proposes to increase the specific tax rate to P30 per proof liter by 2020, and the ad valorem rate to 22 percent of the net retail price.

These rates are lower than the original DOF proposal, which seeks to hike the specific tax rate to P40 per proof liter and the ad valorem rate to 25 percent.

“A move to the tax structure in House Bill 1026 will see top brands suffer an average of 25.65 percent excise tax against market retail price. This, however, is something that the industry will have to and do best to live with. The DOF version, however, would bring the tax burden up to an average of 31.22 percent of retail price for the top brands in the country,” Limpe-Aw said.

Earlier, DSAP called on the government to ensure equitable treatment on all types of alcoholic beverages under the proposed tax reform.  

Limpe-Aw said DSAP members are concerned that the current alcohol tax proposal pending in Congress seeks to impose too much tax burden on distilled spirits and a lighter levy on wine products.  

In particular, Limpe-Aw said DOF’s plan to exempt wines from the ad valorem tax is unfair to other alcohol makers.

If adopted, she said the DOF proposal would unfairly penalize low-income consumers who cannot afford to buy expensive wines.