The case for increasing alcohol taxes in the Philippines

The Philippines has big dreams. We wish to become an upper middle-income country. And there was a time that we were poised to attain it. But the pandemic and the crisis it created, and the current post-pandemic challenges have slowed our progress toward this goal.

That also means the vision of AmBisyon Natin 2040, formulated in 2016, to transform the Philippines into a prosperous, predominantly middle-class society by 2040 may have to be set back.

Before the onset of the pandemic, the situation was bright. And we still have bright spots. The Philippines has one of the fastest-growing economies in Southeast Asia and is blessed by a robust working-age population with the prospect of a demographic dividend.

Reforms pursued by the past two administrations, particularly on fiscal, investment, and health policies, create conditions for rapid growth and development.

However, the substantial threats we now face can undermine the promising trajectory and bright prospects. We see, for example, the serious threat being launched by vested interests to reverse economic reforms. One area where this threat is most visible is the taxation of “sin products.” Some quarters even want to roll back the taxes.

On the contrary, such sin taxes have to continue increasing. The sin taxes are the best source to generate the financing for pandemic resiliency and expanding universal healthcare amid the escalating burden of non-communicable diseases as well as to contribute to the reduction of our elevated debt ratios and fiscal deficit.

Within this context of the fiscal problem, the role of alcohol taxation deserves a hearing. And within the context of rising cases of non-communicable diseases and the attendant increasing economic burden, the role of alcohol consumption in shaping public health and societal outcomes becomes a major concern.

Thus, alcohol taxation serves two main purposes: Increase revenues to help address our fiscal constraint. Equally important, discourage consumption to reduce non-communicable diseases and the resulting economic burden.

Globally, alcohol use claims the lives of three million individuals annually, accounting for 5.3% of all deaths, with a disproportionate impact on the young. In people aged 20 to 39 years, approximately 13.5% of total deaths are attributable to alcohol. Beyond the health consequences, the harmful use of alcohol brings significant social and economic losses to individuals and society at large.

In the Philippines, the statistics likewise reflect a troubling trend. As of 2021, a quarter of Filipino adults reported alcohol use in the past month, with an alarming 54.7% of current alcohol users engaging in heavy episodic drinking or binge drinking. The World Health Organization (WHO) estimates the intensity of consumption at around 19.8 liters of pure alcohol per person per year among alcohol users*. A global burden of disease study from 2019 estimates that nearly 40,000 deaths in the country are attributable to alcohol use as a risk factor, including deaths from causes such as cancer, cardiovascular diseases, liver cirrhosis, road traffic crashes, violence, and suicide.

A particularly distressing trend is the rise in binge drinking among the youth. Among adolescent drinkers, those aged between 10 to 19 years, the prevalence of binge drinking has risen from 45.9% in 2019 to 51.4% in 2021. The introduction and marketing of “alcopops,” or sweetened pre-mixed alcoholic beverages, is initiating alcohol use among a new generation, predisposing them to a plethora of risks associated with early alcohol exposure.

This growing problem calls for a strategic and holistic response, including measures that will prevent the initiation and continuation of alcohol use. Fortunately, we already have the experience of a proven method: health taxes. This has been clearly demonstrated by the gains from tobacco taxes, which has effectively curtailed the harms of smoking and resulted in a significant decline in prevalence. We must now scale up the same lessons for alcohol.

Representative Joey Salceda has filed House Bill No. 1810, which increases the tax rate on alcopops. We urge Mr. Salceda, being the Chair of the Committee on Ways and Means to swiftly advance this measure, which has been languishing at his Committee.

Moreover, Congress and the Executive must seriously consider an across-the-board increase in the excise tax rates on alcohol. We have done some preliminary modeling, and according to our simulations, a moderate increase in the taxes on alcopops, distilled spirits, and fermented liquors can altogether raise at least P5.5 billion in incremental revenues.

Increasing the taxes on alcohol products makes sense, given that alcohol tends to be price inelastic. Raising prices will lead to a decline in consumption, accompanied by a larger percentage increase in the amount of tax revenues collected by the government. Because alcohol has not been taxed as aggressively as tobacco, there is much greater room for health and fiscal gains.

Furthermore, if the administration would be so inclined to champion higher alcohol taxes, this would signal the government’s progressive agenda for health and an acknowledgement of the need to address the socioeconomic costs of alcohol on society.

Perhaps, securing a victory on alcohol taxes can serve as a first step, and a signal, that the administration is capable of pursuing other serious reforms. And all that in turn will revive the flagging growth and regain the momentum to attain upper-middle-income status and Ambisyon Natin 2040.

* For context, this is roughly equivalent to three 330 milliliter bottles of beer per day or two and a half 350 milliliter 80-proof bottles of gin bilog per week.

AJ Montesa is the head of the fiscal policy program of Action for Economic Reforms.