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‘Higher alcohol tax to reduce demand, revenues’

September 19, 2019

ALTHOUGH it welcomes the new tax structure for distilled spirits proposed under House Bill (HB) 1026, the Distilled Spirits Association of the Philippines (DSAP) warned the government that too many tax increases might lead to reduced state revenues.

In a position paper submitted to the Senate Ways and Means Committee, DSAP President Olivia Limpe-Aw said industry data and analysis showed that higher tax increases could lead to lower demand.

“Between 2017 and 2018, the price of alcoholic beverages and tobacco products have increased by 20 percent while no other major household expenditure had increased by 7 percent. The effects of these are decreased consumption of alcoholic beverages that seem to be decreasing at a higher rate from down 3.4 percent in 2017 to down 5.1 percent in 2018,” Limpe-Aw said.

She also said the “elasticity” of demand, or the responsiveness of demand after a change in a product’s price, in the 2015 Family Income and Expenditure Survey was measured at -1.2. This means demand was elastic and indicated that further price increases would lead to proportionally greater demand decreases.

“Thus, higher increases in tax may lead to decreased revenues and tax yield will also decline,” the DSAP chief added.

Data from the 2009, 2012 and 2015 surveys, in contrast, showed that the wine category had a price elasticity of demand of -.2, which, she said, means it was highly inelastic. This means that increasing prices — through tax or other measures — would lead to a marginal decrease in consumption and a positive tax yield.

Under current tax rates under Republic Act 10351, the distilled spirits industry is paying a specific tax of P22.50 per proof liter and an ad valorem rate of 20 percent of net retail price.

The Department of Finance (DoF) is proposing to increase the specific tax rate from P22.50 to P40 in 2020. There will also be an annual increases of P5 until Jan. 1, 2023.

The DoF is also looking to increase ad valorem rates from 20 percent to 25 percent of net retail price without any escalation from year to year.

HB 1026 also proposes to increase the specific tax rate to P30 this year from P22.50 last year, including yearly escalations of P5 until Jan. 1, 2023. It also seeks to increase ad valorem rates to from 20 percent to 22 percent of net retail price without any escalation from year to year.

Credit belongs to : www.manilatimes.net

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