The Impact of Increase in Taxes of Alcoholic Beverages on Filipinos’ Alcohol

Consumption

A Socio-Economic Impact Assessment

Presented to

Mr. Rene Rafael B. Juntereal

In fulfillment of the requirements in

Applied Economics

Submitted by:

Dayao, Trisha

De Guzman, Prestine

Escote, Nizza

Gako, Maria Isabel

Juguilon, Joyce

Lim, Ryxzyl

September 2019
 Executive Summary

Concerns regarding the effects of alcohol consumption have been a problem for

years. The risks to the health of the Filipinos who drink also increases every year. In

2012, a Sin Tax Reform Law was implemented to help solve this problem by increasing

the taxes of certain alcoholic drinks. Results show that after the law was passed and

implemented the alcohol consumption of the Philippines dropped but then increased over

the next years. The conclusion is regardless of price, the population still consumes

alcoholic beverages. This year, a new Sin Tax Law has been approved. It is expected to

have a more significant impact on the alcohol consumption of the Philippines and will

benefit health outcomes. A decrease in the demand for alcoholic beverages is also

expected.
 Introduction

The Philippines is a consumer of alcoholic beverages. 66% of the population in the

Philippines are alcoholic beverage drinkers. Luzon has the highest level of consumption

with 58.9%, followed by 21.5% for Visayas, and 19.6 for Mindanao (Pedrasa, 2012).

Also in a survey conducted by Church-run Radio Veritas, regarding frequency of

consumption, Filipinos said they drink alcoholic beverages only during special

occasions. A few said they consume alcohol on a weekly basis, while others claimed that

drinking is part of their daily routines.

Alcohol consumption is associated with more than 10% of noncommunicable

disease burden worldwide, including liver disease and cancer. The idea that moderate

alcohol consumption “one glass of wine a day” is safe, has recently been publicly state

by the World Health Organization (WHO). Their report estimates that alcohol kills one

person every 10 seconds. There is no safe dose for alcohol consumption.

This demonstrates that increasing tax rates for alcoholic beverages to the proposed

structure would result in public health gains. Those people or drinkers who become ill

because of alcohol use are expected to be unable to earn and will affect productivity even

of family members taking care of them. Moreover, while all alcohol drinkers carry health

and economic risks, the risks are greater for those with lower socioeconomic status, as

they are less likely to afford healthcare when needed and earn while ill. Alcohol-related

diseases also contribute to rising healthcare costs. Hence, it is imperative that increasing

alcohol tax is understood as both a health and economic policy.

Consumers are sensitive to changes in the prices of drinks. They usually purchase

only those that are affordable and within their budget. According to the National Institute
on Alcohol Abuse and Alcoholism, increases in the monetary price of alcohol would be

expected to lower alcohol consumption and its adverse consequences. Other studies

determined that increases in the total cost of alcohol can reduce drinking. Driving its

outcomes among all age groups; lower the frequency of diseases, injuries, and deaths

related to alcohol use and abuse; and reduce alcohol related-violence and other crime.

Recently, the House of Representatives approved on the third and final reading a bill

on increasing excise taxes on beer, gin, wines, and other intoxicating drinks. Sin Tax

Reform ushered in a new era for financing development. The 2012 sin tax reform

simplified the excise tax structure of alcohol by increasing the tax rates.

Although it was clearly stated that the main agenda of the new sin tax law is to

decrease health problems caused by alcohol, having the new bill will help increase the

country's economy. Sin tax law is an efficient way to finance the necessary social

services that the current administration is providing like free tertiary education and better

universal health care (Gordon, 2019). Universal health care programs would benefit from

the proposed law. The bulk of additional revenues will be a big help to provide

PhilHealth insurance coverage to all Filipinos (Diaz, 2019).

Statement of the problem

This research about the impact of the increase of taxes of alcoholic beverages on

Filipinos’ alcohol consumption aims to ascertain the answers to the following questions:

1. What are the possible effects of an increased tax on alcoholic beverages on the

consumers?

2. What are the possible effects of an increased tax on alcoholic beverages on the

company?
Sin Tax 2012

The RA 10351 implemented by Revenue Regulation (RR) No. 17-2012 is simplifies

the excise tax structure of sin goods by raising the tax rates gradually shifting the excise

taxation of fermented liquors and the cigarettes to unitary tax system. When RA 10351

was implemented in 2013, excise tax collection risen to PhP105.1 billion, 85% or

PhP48.3 billion greater than the PhP56.8 billion collection of the past year. It also

surpassed its target of 2.5% or PhP19.3 billion for the year.

Revenue Performance Prior to and Under RA 10351 On Alcohol Products

 Alcohol Prevalance
Source: National Nutrition Survey

60

50

40

30

20

10

0
2008 2013 Alcohol (adults) 2015 2018

Consumption After Sin Tax 2012 Was Implemented

The effect of the increase in taxes to consumption is dramatic in tobacco use;

however, in alcohol consumption, this is not the case. The sin tax reform law that was

implemented six years ago has been found to slightly decreased the alcohol consumption

of the Filipinos after it was passed but then later increased from 2015-2018. Studies

showed that high prices did not much deter drinkers. However, lifetime people who have

never consumed alcohol increased from 30% to 38% after the sin tax reform law was

implemented. Now, the new bill regarding sin taxation is expected to have a higher

number in lowering the alcohol consumption of Filipino drinkers in the upcoming 2-3

years.
Senate Bill (New sin tax)

Sin taxes are excise taxes that the government applies to certain goods or services in

addition to standard sales taxes. A Sin Tax is a tax impose on goods or products that are

viewed as hurtful or pricey to the public. The merchandise and enterprises normally

include tobacco, liquor, sugar-added beverages, and gambling. The reason for enforcing

sin taxes are to lessen the consumption of the harmful products and to increase

government income. The consumption reduction is accomplished by making the products

more expensive to purchasers or consumers.

Senate Bill No. 1074 (New sin tax)

As chair of the senate committee, Senator Pia Cayetano on Wednesday supported for

whole endorsement Senate Bill no. 1074, which was contained in committee report No.

6. The committee report was signed by 17 senators. The bill proposes the imposition of

an ad valorem tax of 20% and a particular tax of P90 per proof liter on the main year

(2020), and extra P10 consistently until the fourth year (2023). For fermented liquor

(beer) and alcopops, the measure looks for a particular tax rate of P45 per liter on the

primary year, which would raise by P10 consistently until the fourth year (2023).

The bill, in the meantime, looks to establish of P45 per pack of 20 units by Jan. 1,

2020. The tax will increase by P5 consistently from that point until 2023. The tax will

further raise by 5% consistently beginning Jan. 1, 2024..

Proposed Alcohol Taxation

Distilled Spirit

Year Ad valorem tax Specific Tax (per proof

liter)

2020 (Year 1) 20% 90

2021 (Year 2) 20% 100
2022 (Year 3) 20% 110
2023 (Year 4) 20% 120

Fermented (Beer) and Alcopops

Year Specific Tax (per liter)

2020 (Year 1) 45

2021 (Year 2) 55

2022 (Year 3) 65

2023 (Year 4) 75

Wines

Type Specific Tax (per liter)

Sparkling Wine P600

Still and Carbonated Wines

P43

Alcohol Products

Distilled Spirits (e.g. gin, brandy, vodka, whiskey, rum, and tequila) increase the
specific excise tax rate to P10 per proof liter, followed by an additional P10 per proof

liter from 2020 to 2023. From 2024 onwards, it will be an additional 5%. For the ad

valorem rate, it is planned at 20% from 2019 onwards.

Fermented Liquor (e.g. beer), increase unitary excise tax to P10 per liter effective 2019.

The additional of P10 per liter shall be exact from 2020 to 2023 then a 10% increase

every year afterwards.

For Wines, increase the specific tax rate by 10% every year after that starting 2019.

Figure 1. Proposed Prices of Alcoholic Drinks Under Sin Tax Bill

Source: Philippine Star

The government revenues raised from the higher taxes can be used to fund other

public health initiatives like Universal Health Care. Under the Universal Health Care

(UHC) law, it will ensure the financial sustainability for health expenses programs with
the following targets:

1. It will sustain the 100% Philhealth coverage.

2. It will provide adequate outpatient check-ups and medicine.

Figure 2. The Expected

Shift in the Demand Curve of Alcohol Consumption in the
Upcoming Years

This indicates that as the prices of alcohol increases, then the demand for alcohol

will decrease.

Discouraging excessive alcohol consumption for better health and social outcomes

targets:

1. Achieve 10% decrease in harmful alcohol consumption.

2. Higher alcohol taxes will improve population health and expand or increase the funds.
Elasticity of Demand for Alcoholic Drinks

Different studies have attempted to estimate the price elasticity of demand for alcohol.

While these have produced a range of estimates, the majority agree that alcohol conforms to the

law of demand, but that it is relatively inelastic. In other words, raising alcohol prices reduces

alcohol consumption, but typically the fall in consumption is proportionately smaller than the

increase in prices (Institute of Alcohol Studies, 2017).

 Conclusion and Recommendations

Conclusion

The new Sin Tax Law will benefit the government and the people of the country as a

whole and is also expected to have a decrease in the number of people from getting

health diseases due to consumption of too much alcohol. The industry of alcoholic

beverages will then have an increase in prices resulting in lower supplies.

Recommendation

The new Sin Tax Law should be appropriately implemented and should be followed

accordingly. For the alcoholic beverage companies, they should find ways to still regain

the expected loss in the numbers of alcohol consumption.

 Mitigation Plan

The new Sin Tax Law is expected to be more efficient in lowering alcohol

consumption but this might only lead to binge drinking.Atty. Mercado-Grande of the

Department of Health (2019) stated that short-term high volume consumption or binge

drinking, on the other hand, may increase the adverse health effects including personal

violence, self-harm, risky sexual behavior and death due to road accidents.

1.) Awareness. The companies of alcoholic beverages should continue reminding the

people to drink moderately just like companies selling cigarettes, who put pictures on

their packaging.

2.) Proof of identification. The sellers should ask for I.D's to the customers to prevent

selling alcoholic beverages to teenagers.

3.) Stringent Plan. To fully mandate the consumption of alcoholic beverages, the

implementation of penalties and fines should be strictly followed.

4.) Follow-ups. Inspection of the alcohol industries and consumers should be acted upon

by the governmental authorities. This is to make sure that the community is following the

policy of Senate S.B No. 2636.

 Monitoring Plan

This section provides specific actions to support the mitigation plan presented above.

The monitoring plan is made to promote the success and sustainability of the mitigation

plan.

1.) Adolescents and young people aged 11–19 years are the population given a center

attention in terms of the study of alcohol because consumption at this stage of

development is associated with increased drinking and risk of coexisting harms in later

adulthood. Understanding alcohol consumption in young people is vital given the

immediate awareness where social and economic consequences associated with higher-

risk drinking. People who become addicted to alcohol are resistant to any intervention, so

there are treatment options including alcoholic anonymous and number of private rehabs

meeting up the objectives of most of the people. Many parts worldwide have this

fellowship giving a program that allows them not only helps people escape alcohol

addiction but also to change and build a better life.

2.) Buyers that are seen over consumption of alcohol will be penalized. To make policy

even more stringent, to lessen negative behaviors. After that this policy will be

announced to different types of virtual news such as social media, advertisements and

conduct programs or events to aware the community about the system.

3.) There will be a random inspection by the law enforcers to each store in the

community to oversee if they are the following the Policy of Senate S.B. No. 2636. To

ask vendors on how many bottles did the buyers consume.

4.) Significantly higher taxes will likely to encourage more smuggling and tax evasion,

hence administrative efforts should be enhanced to minimize leakages.

 Indirect Impact

The indirect impact is an assumption or inference about a said topic. The indirect

implications of increasing the taxes of alcoholic beverages on alcohol consumption are

discussed in this section.

Health

From ages 15 - 49 years old, it was published in an Analysis of Alcohol Use and the

Global Burden of Diseases Study in 2016 that alcohol was the leading risk factors for

deaths. This includes a high percentage of people who have tuberculosis. World Health

Organization congratulated the Philippines for enacting new Sin Tax Law. Higher

alcohol taxes will improve the healthy population. The cost-effective prevention and

control of no infectious diseases, such as those associated with alcohol consumption, can

be achieved through a policy that targets an entire community over individuals. Among

the most cost-effective interventions is the increase in taxation.

Government Revenues

In 2019 alone, the DOF and DOH's plan is projected to generate P32.3 billion,

higher than the estimated P7.9 billion from the proposal in the House of Representatives.

This revenue is expected to provide additional funding for the Philippine Health

Insurance Corporation (PhilHealth) and cover the remaining gap needed to implement

the universal health care bill, while discouraging excessive alcohol intake especially

among the poor and the youth.

Workers in the Alcohol Industry

The big companies of alcoholic beverages might lessen the number of their

employees or factory workers.

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