THE Distilled Spirits Association of the Philippines (DSAP) accepts the proposed higher taxes on distilled spirits as proposed by Congress, but with a caveat.
In a statement, the DSAP expressed concern that taxing distilled spirits too much would cut revenues and tax yields for the government.
Given that products like wine are “highly inelastic”—which means increasing prices will lead to decreases in consumption—any increase in taxes to be inputed in its price will dampen the appetite for the product and cut government tax yields.
“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,” DSAP President Olivia Limpe-Aw said.
“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,” she added.
In its position paper submitted to the Senate Committee on Ways and Means, DSAP also said “a more progressive move” would be to impose an ad valorem tax of 15 percent—what Distilled Spirits started with in 2012
DSAP this will also even out the playing field not only across categories but also across price ranges. Sparkling wines, it said, can benefit from a relaxation on specific tax rates.
“The DSAP is requesting the committee to look into the practice of taxation on net retail price since this was shown to be a tedious process that penalizes manufacturers on retailer margins,” DSAP said.
Under the current tax rates provided by the Bureau of Internal Revenue (BIR) Revenue Regulation No. 17-2012, distilled spirits are slapped with 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 is proposing an increase in specific tax rate per proof liter to P40, from P22.50 per proof liter in 2020.
There will also be yearly escalations of P5 until January 1, 2023, where the increase will be 7 percent of previous rate annually.
It also looks to increase ad valorem rates to 25 percent from 20 percent of net retail price without any escalation from year to year.
Meanwhile, DSAP said approved House Bill 1026 proposes an increase in specific tax rate per proof liter to P30 for 2019 from P22.50 in 2018.
There will also be yearly escalations of P5 until January 1, 2023 where the increase will be 7 percent of previous rate annually.
It also looks to increase ad valorem rates to 22 percent from 20 percent of net retail price without any escalation from year to year.
“A move to the tax structure in House Bill 1026 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 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.