Socioeconomic cost more compelling reason to raise liquor taxes than revenue generation
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EDITORIAL: Socioeconomic cost more compelling reason to raise liquor taxes than revenue generation

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When you buy beer, gin, whiskey or wine in the coming months and find them more expensive, it’s because you’re probably a wife-beater when you are drunk, you drink and drive, you turn violent after a drinking bout, or you have diseases caused by alcoholic drinks like liver cirrhosis that burden public health care.

These are referred to as the socioeconomic costs of drinking alcoholic beverages and the main arguments of the proponents of bills seeking to increase the so-called “sin taxes” anew.

Senator Pia Cayetano, chair of the upper chamber’s ways and means committee, is certainly aware that using revenue generation as a reason for another round of tax hikes on alcoholic drinks will not be enough to muster support both from her fellow lawmakers and the public for her proposed measure.

Higher tax rates

Senate Bill (SB) No. 1074, introduced in the Senate plenary by Cayetano, is estimated to generate P45.7 billion in additional tax revenues on Year 1 of implementation alone. This is by imposing on distilled spirits an ad valorem tax of 20 percent on the net retail price per proof and a specific tax of P90 per proof liter on the first year of its implementation, which will be increased by P10 every year until the fourth year. The specific tax rate will increase by 10 percent every year thereafter.

For fermented liquor (beer) and alcopops, SB 1074 seeks a specific tax rate of P45 per liter on Year 1, increasing by P10 every year until Year 4. The specific tax rate will increase by 10 percent every year thereafter. Wine products will be slapped with a specific tax of P600 per liter for sparkling wines and P43 per liter for still and carbonated wines. These rates will increase by 10 percent every year thereafter.

Revenue-leakage argument

Why revenue generation would never fly, even if it’s to the tune of P45.7 billion that will be funneled to the Universal Health Care (UHC) budget? It’s because lobbyists for the makers and distributors of alcoholic drinks will only throw back the issue of revenue leakage to the government.

The Federation of Philippine Industries (FPI), for instance, is saying that revenue losses caused by unabated smuggling alone are estimated at P250 billion annually. This is already more than five times the estimated revenues to be generated by the proposed higher taxes on alcoholic beverages. So why raise taxes that would surely hurt the industry and its workers when all the government needs is a better scheme to stop smuggling? 

That’s a tough argument to beat, right? Yes, and Cayetano, the Department of Finance (DOF) and supporters of SB 1074 are aware of that.

This is why they are now putting more emphasis on the socioeconomic costs of drinking alcoholic beverages. The equation is simple: higher taxes would lead to more expensive alcoholic drinks, resulting in less consumption and subsequently less socioeconomic costs.

The ‘moral issue’

As pointed out by Finance Undersecretary Karl Kendrick Chua of the Strategy, Economics, and Results Group: “We are one with Senator Cayetano in her push for significantly higher rates in alcohol excise taxes. Her analysis is correct that 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.” 

In her sponsorship speech for SB 1074, Cayetano said: “The moral sense of any proposed ‘sin’ tax rate is that it should serve as a deterrent to drinking. It should not be so cheap as to allow minors to afford and have access to these drinks. It should not be so cheap to make it easier for drunk fathers to be wife-beaters, and for traumatized children to lead miserable lives.”

SB 1074 represents Package 2 Plus of the Duterte administration’s comprehensive tax reform program (CTRP). The House of Representatives has approved its counterpart version of this bill last Aug. 20, with an overwhelming 184 votes in favor.

The socioeconomic costs

Cayetano noted that Filipinos are now the top consumers of distilled spirits globally at 11 liters per capita, higher than the global and ASEAN averages of below 10 liters.

Dr. Orlando Ocampo of the Trauma Division of the Philippine General Hospital (PGH) said 55 percent of the injured patients” treated in the PGH emergency room “have alcohol on their breath. 25 percent of these injured patients are blood alcohol content positive”.

The Department of Health (DOH) estimates that there has been a total of 10,372 road crashes resulting from alcohol consumption.

Cayetano said alcoholism is associated with at least 39 main diseases, including liver cirrhosis, cancer, pancreatic disease, hypertensive disease, tuberculosis, diabetes, and even behavioral and psychotic disorders.

Data from the World Health Organization (WHO) also showed that in 2016; 4,431 per 100,000 population of Filipinos died from liver cirrhosis; 16,418 from hypertensive diseases; and 8,526 from tuberculosis–all of which were due to excessive use of alcohol, Cayetano said.

Also, Cayetano stressed that “when heavy drinking is involved, severe physical violence is more likely to take place. Studies found alcohol misuse to be a significant contributor to family violence.”

Preliminary estimates from the DOF indicate that alcohol may have an economic cost of as much as 1.7 percent of gross domestic product (estimated at $331 billion in 2018), equivalent to about a third of the country’s annual health expenditure. That 1.7 percent of GDP is around P281 billion, quite a public burden indeed.

Surely, raising the taxes on alcoholic drinks will hurt the local producers and distributors, and subsequently their employees if lower consumption would lead to retrenchment. But as what President Duterte has pointed out numerous times, we should be looking at the greater good, the benefits to the economy and public as a whole, and not just of a few groups.

When Congress resumes sessions on November 4, we push for the passage of SB 1074.

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