source: Republic of Botswana TAUTONA TIMES of 8/8/2010
The Electronic Press Circular of the Office of the President
“Democracy, Development, Dignity, Discipline and Delivery”
D. “Alcohol levy good, might be better” by Dr. Jeff Ramsay
In his column of 25/7/10 Spencer Mogapi pulls no punches in his condemnation of the alcohol levy, describing it, among other things, as an “economic crime”, “caprice”, “blunder” and even “insanity” as well as the product of “an ideology alien to the spirit of Botswana’s free market economy”.
Such hyperbole, in my view, ignores the fact that, prior to 2008, we stood out as one of the few countries that did not impose alcohol specific taxes as part of a wider strategy to reduce substance abuse. Outside of the liquor industry, with its powerful trans-national lobbies and largess, alcohol levies to curb consumption and mitigate harm have long enjoyed global support among experts in the field, including local activists, as well as the World Health Organisation (WHO). The WHO’s most recent Global Status report on alcohol policy, thus observes that:
“extensive studies conducted in many developed and some developing countries demonstrate that increases in taxes and prices are related to reductions in alcohol consumption and harm…Ideally taxes on alcoholic beverages should be placed high on the list of possible policy measures as they are effective, cost-effective, easy to implement, and can generate government revenue and reduce both consumption and harm.”
According to the same report, 95% of the WHO countries surveyed imposed either a general sales tax or VAT on alcohol, at an average rate of 17%. Most went further by imposing additional alcohol specific taxes, ranging up to 200% of retail price, with an average rate of 24% for beer and wine and 41% for spirits.
Noting that a significant number of African countries, then including Botswana, stood outside of the global consensus, in 2008 the WHO Regional Committee for Africa specifically recommended increasing taxes to influence prices and reduce alcohol affordability as part of an action plan to fight alcohol consumption on the continent.
The WHO position has been reinforced by numerous national studies over the years resulting in a general global trend towards not only increased but often more refined methods of taxation.
Given our own country’s relatively high levels of teenage drinking, domestic violence, rape, automobile fatalities, and alcohol related health challenges, including the continued spread of HIV, as well as low productivity levels, it would have been an act of denial if, back in 2008, we had continued to ignore the WHO and others at the local liquor industry’s behest.
This is not to say that the alcohol levy should be above debate. In this author’s opinion rather than attempting to turn the clock back with regressive suggestions that the levy be abolished, what should now be considered, in light of both international best practice and ongoing local experience, is whether it cannot be improved to better achieve its desired social outcome of reducing alcohol harm, more especially among the youth and the economically and socially marginalised.
Globally, there are four main methods for setting alcohol excise tax rates -
• ‘Specific rate’ levies on various categories of alcohol based on their levels of alcohol content or ‘ABV’ (alcohol by volume);
• ‘Volumetric’ levies on ABV, often with a ‘unitary rate’ for all forms of alcoholic beverage;
• ‘Ad valorem’ (by value) levies on the price of alcohol products; and
• ‘Combination rates’ incorporating any of the above methods.
By their nature ad valorem levies automatically keep pace with inflation. They are commonly imposed on either the wholesale or retail price of beverages, but this can be complicated to administer, as prices vary between beverage types, brands, and sales outlets. Here in Botswana we have sought to mitigate such complications by imposing a uniform 30% levy on either the out of factory price, for domestic producers or at point of entry for imports, resulting in local producer complaints.
Levies on ABV have the advantage of focusing taxation on the actual volume of alcohol consumed. This is justified in that alcohol content is the appropriate indicator for the risk of intoxication resulting in alcohol-related problems including social costs transferred to communities. Levies on ABV are thus generally favoured by anti-alcohol abuse campaigners.
Specific rate taxes on ABV can be administered in various ways. Most commonly tax scales are determined for different types and strengths of alcohol. In Australia different excise duties are thus levied on per litre ABV falling into in not less than a dozen drink categories.
A uniform volumetric tax is based on a standard levy for the actual ABV of a given beverage. If, for example, the excise rate were to be calculated in Botswana at a uniform P 100 per litre alcohol content, a 750 ml bottle of wine with 10% ABV would be taxed at a rate of P 7.50 irrespective of its brand. Likewise a 325 ml can of clear beer with 5% ABV would taxed at P 1.87, while a 750 ml bottle of spirits such as vodka or whiskey with 40% ABV would be taxed at P 30.
Such taxation positively discriminates against cheap pure alcohol. This is best illustrated with respect to beverages such as wine, where price varies greatly based on quality perceptions. A bottle of cheap wine with 10% ABV and base price of P 15 would have an after tax price of P 22.50, while a upmarket wine with a base price of P 100 would retail at P 107.50.
Ongoing debate in Australia, a major wine producing country, is illustrative of both the advantages and controversy surrounding uniform volumetric taxation. The Australian Medical Association and others are strongly in favour of introducing such a tax on wine as a way of combating the harm caused by cheap cask wines to vulnerable groups such as the youth, rural poor and aborigine communities. Over 50% of all wine consumed in Australia fits into this category. As a result high volume wine producers oppose to the tax, arguing that it will discriminate against low income consumers, while smaller scale producers of quality wines recognise that they could benefit from levies that better target alcohol content.
The common pattern across the globe is for spirits to be taxed at a higher rate than beer and wine. There are two rationales for this. First, production costs are generally higher for wine and beer than for distilled spirits, so the price per litre of pure alcohol in spirits is much lower. Secondly, it is the policy of many countries to encourage consumption of low-strength beverages, such as naturally fermented beer and wine, in place of distilled spirits. This has proved to be an effective strategy for reducing the overall level of alcohol consumed.
Countries can also choose to explicitly target certain types of alcohol that are found to be the subject of special abuse, such as ‘alcopops’ and artificially fortified beers. Alcopops are sweet premixed drinks, usually based on spirits, which are commonly promoted to entry level drinkers. As a result special taxes on such drinks have been introduced in many countries. When, in 2004, Germany imposed such a tax, the consumption of alcopops was reported to have been halved among teenagers.
In conclusion, alcohol taxes can and do provide a useful public health tool that raise the real cost of alcoholic beverages to drinkers in a way that reflects their potential for harm. In taking our substance abuse campaign forward in line with WHO recommendations and international best practice, the following key points may, however, be considered:
That alcohol tax rates could be based on the pure alcohol content, ABV, of the beverage, rather than simply the market price of the alcohol product;
That a higher tax on distilled spirits may be justified given that spirits have a lower production costs per litre of pure alcohol than genuine wine and beer;
That tax rates based on alcohol content, if using a specific rate system, should be finely graded to avoid anomalies that may make pure alcohol cheaper in one beverage type than another; and
That targeted taxes on a particular beverage types may be considered where this has a positive impact on vulnerable groups.