According to Limpe-Aw, structuring the House bill proposal to a higher one will make the industry suffer

Local consumption of alcoholic beverages appears to be decreasing at a higher rate from down 3.4 percent in 2017 to down 5.1 percent in 2018.

The Distilled Spirits Association of the Philippines (DSAP), while supportive of the proposal increasing the tax on alcoholic beverages, cautioned the government against undue impositions that could sap consumer demand.

The group bared industry data showing higher taxes led to a contraction in demand.

This was stressed by DSAP President Olivia Limpe-Aw who noted the limiting impact of taxation on consumption.

“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 seven 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.

“(The) 2015 Family Income and Expenditure Survey 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. Thus, higher increases in tax may lead to decreased revenues and tax yield will also decline,” she added.

She explained that for wines, the elasticity of demand, or its responsiveness after a change in a product’s price, proved highly inelastic, contrary to what distilled spirits showed.

The Department of Finance (DoF)plans to increase specific tax to P40 per proof liter from P22.50 per proof liter in 2020 on top of yearly escalations of P5 per proof per liter until 1 January 2023 when the increase will be 7 percent of the previous rate annually. It also looks to increase the ad valorem rate to 25 percent from 20 percent of net retail price without any escalation from year to year.

The approved House bill proposes an increase in specific tax rate per proof liter to P30, which will have annual increments of P5 until 1 January 2023.

According to Limpe-Aw, structuring the House bill proposal to a higher one will make the industry suffer.

“(This move) 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.

“While this structure is beneficial to the imported spirits industry because of high prices, it is a structure that will negatively impact the local (low-priced) distilled spirits segments,” she added.

Previously, Limpe-Aw urged the DoF to level the playing field, saying the proposal was unfair given the heavier tax burden on distilled spirits versus wines, some of which cost higher than the former.