The Philippines: Increasing excises on alcohol expected to reduce consumption by 20% - research

Increasing the excise tax on alcohol products is expected to reduce consumption by as much as 20% in four years with possibly life-saving consequences, “save lives,” BusinessWorld Online reported on October 29 citing a Philippine public health consultancy.

According to a simulation conducted by Alliance for Improving Health Outcomes (AIHO), the joint proposal of the nation’s finance and health departments to increase the excise tax on alcohol products will likely reduce consumption of spirits by 18.3%, beer by 20.5% and wine by 4.68% after a four years of implementation.

The study evaluated the Department of Health-Department of Finance’s (DoH-DoF) proposals in Senate Bill No. 383, which imposes higher specific taxes on alcohol products and a 10% annual indexation rate.

The DoH-DoF tax structure will “result in a greater reduction of consumption across all alcohol types” compared with House Bill No. 1026, which was passed on third and final reading in the House, due to “deterrent effects of higher prices brought about by higher taxes,” it said.

Both proposals are projected to “save lives” after four years of implementation but the DoF-DoH’s will save 57,020 lives, compared with 22,152 for the House version.

“In both simulations, the tax intervention will result in more lives saved for males, demonstrating that the intervention greatly benefits the male population due to the greater prevalence of alcohol consumption among males,” it added.

It said higher tax rates will yield higher revenue for the government “since the price elasticity of alcohol is less than one.”

Elasticity refers to how price fluctuations affect demand. If the percentage change in demand is the same as the percentage change in price, the commodity is said to demonstrate a price elasticity of demand (PED) of 1. Items with PEDs of less than 1 are said to be price inelastic.

“We recommend that the government push for higher alcohol tax rates in light of this new evidence. To further strengthen the current evidence base, we recommend that impact on alcohol-related morbidity and its implications on health expenditure be modelled alongside mortality effects,” AIHO added.

In a statement, the DoF estimated that alcohol products have an annual economic cost worth 1.7% of gross domestic product or a “third of the country’s annual health expenditure.”

“Beyond the personal health costs, the socioeconomic costs of alcohol need to be mitigated. The massive economic costs of alcohol abuse justify significantly higher rates. For behavior to change meaningfully, the tax rates have to be high enough,” Finance Undersecretary Karl Kendrick T. Chua said was quoted as saying.

Mr. Chua also said that increasing taxes on alcohol products is the “most cost-effective way to discourage excessive consumption” and that the DoF will continue supporting the higher rates as adopted in the Senate.

30 October, 2019