New UN Report Makes the Case for Alcohol Taxes

Action for health taxes from policy development to implementation: making the case for alcohol taxes

Report

Launch of report series on health taxes

This series of reports provides a practical guide to developing, strengthening, and implementing health taxes, with a focus on managing the broader stakeholder environment (also referred to as ‘the political economy’). The reports outline a practical step-by-step framework to help policymakers and other interested stakeholders build the cases for effective tobacco, alcohol, and sugar-sweetened beverage taxes to prevent and control noncommunicable diseases (NCDs), drawing on existing guidance. 

The reports have been designed to be used across a range of national contexts, addressing common issues in designing, negotiating, and implementing health taxes, while also offering case studies for further insights. 

The publications are aimed at policymakers across government, for example health, finance, and trade, as well as non-State actors. 

The first paper of the series, entitled Action for health taxes – from policy development to implementation, consists of two parts: the rationale for health taxes and a framework for policy development and implementation that features best practices, practical activities, insights, and strategies to guide stakeholders at each stage. 

The papers that follow focus on making the cases for tobacco, alcohol, and sugar-sweetened beverage taxes, providing the rationale for these taxes, with a framework for action, focusing on how to ensure an effective political and policy environment to successfully introduce, build and sustain these taxes. 

Background

Alcohol use is a leading cause of preventable death and disability worldwide. It is one of the world’s largest risk factors for death and disability, and the leading risk in middle income countries. In 2019, alcohol resulted in 2.6 million deaths (4.7% of all deaths) worldwide. In per capita terms, the amount of alcohol consumed globally increased from 2000 to 2010 and then slightly declined from 2010 to 2019. However, in absolute terms, the total amount of alcohol consumed increased partly due to population growth. 

In addition to the massive impact of alcohol on unintended injuries, with the resulting health and social harms, the prevention of many other non-communicable diseases (NCDs), particularly strokes, liver disease, and cancers, can be significantly enhanced by lowering or preventing alcohol consumption. As with taxes on other health harming products, alcohol taxes create a price differential compared with substitute products not containing alcohol, meaning that products with alcohol become less affordable and are thus consumed less, leading to improved health outcomes. 

Alcohol taxes, like all pro-health taxes, are considered to be a ‘triple-win’ for governments in that they can lead to

1. improved population health,
2. increased government revenues, and
3. reduce health inequality.

Reducing population-level alcohol consumption through the use of alcohol taxation is identified by the World Health Organization as a “best-buy” in preventing and controlling the burden of NCDs.

Furthermore, of all the health taxes now in common use, alcohol probably has the most untapped potential: despite being used as a fiscal tool for centuries and being implemented in over 86% of countries worldwide, alcohol taxes have yet to be utilized to achieve their fullest impact for population health, revenue generation and economic growth.

This document supports policymakers and other stakeholders to implement alcohol taxes more effectively, with a focus on the political economy of alcohol taxation and on how policy processes are shaped at a national level. It is the third in a series of resources that provide a practical overview of approaches to support national stakeholders to develop, strengthen, and implement fiscal policies for health. 

It provides a step-by-step approach to demonstrate how the Health Tax Action Framework can be applied to alcohol taxes. 

This document focuses on excise taxes levied on alcohol. Governments may apply a variety of taxes on alcohol, including customs duties, value-added or general sales taxes, and excise taxes. Of these, excise taxes are the most important for promoting health because they can be applied in a targeted manner to raise the cost of alcohol products relative to other goods. Increasing excise taxes and prices on alcohol products is one of the key recommendations of the WHO Global Action Plan for the Prevention and Control of Noncommunicable Diseases. 

Why alcohol taxes

Alcohol taxation has the potential to 1) generate large health gains, 2) raise public revenue, and 3) reduce inequalities, while also being the most cost-effective way to reduce alcohol consumption.

Alcoholic beverages are an attractive target for taxation because of the health risks linked with their consumption, and their lack of essential nutritional value. 

The health and economic burden 

Alcohol consumption represents a large health and economic burden for society. Alcohol consumption yields a net negative impact on the economy through its negative impacts on human health. The health repercussions of alcohol consumption, including alcohol dependence, contribute to productivity losses, unemployment, reductions in the size of the labor market, and premature death and disability.

Economic losses in high-income settings were found to represent as much as 1.5% to 2.6% of national yearly GDP.

In OECD countries, employment and productivity losses equal 32.7 million full-time workers per year and US$ PPP 595 billion per year.

Taxation reduces consumption 

Alcohol taxes reduce alcohol consumption resulting in improved health. Studies have shown that alcohol taxes have been effective at reducing alcohol consumption, through their increase in price.

As the price of alcohol increases, its consumption decreases. It is generally thought that at least a proportional decrease in consumption is to be expected for any increase in price among all consumers and across all product types. 

Increasing the price of alcohol through taxation can help halt progression to heavy alcohol use, reduce underage alcohol use (preventing onset, as in the case of Thailand’s evidence-based alcohol tax), and shape consumer perceptions and preferences.

Studies have shown that alcohol taxes reduce alcohol consumption, alcohol impaired driving, lower the frequency of diseases, injuries and deaths related to alcohol use, and contribute to reducing suicides, sexually transmitted diseases, and violence related to alcohol consumption. Further studies found reductions in the prevalence of lifetime alcohol use and delayed alcohol use initiation, and reductions in social inequalities due to alcohol harms.

Cost-effectiveness 

Alcohol taxation is a highly cost-effective way to decrease alcohol consumption, meaning it has a relatively large effect on consumption for the resources required to implement it, and as such is considered a “best buy” for the prevention and control of NCDs.

It has been estimated that implementing legislation to introduce or increase alcohol taxes has a low cost (<I$ 0.10 per capita) and a large impact on alcohol consumption and improved health outcomes.

The WHO SAFER initiative highlights alcohol taxes and pricing policies as one of the five high-impact strategies for reducing alcohol-related harms.

Supply-side effects 

Changes in alcohol tax design can lead to changes in the behavior of producers, distributors and retailers of alcoholic beverages. These changes are known as ‘supply-side effects’. Supply-side effects include reformulating alcoholic drinks to contain less alcohol, changing the sizes of containers (usually to smaller units) but also shifting production towards particular or new products whose consumption would be thought to be less affected by the changes in the alcohol tax. 

Raising government revenue 

Alcoholic beverages represent an enormous potential source of tax revenue.

A global study estimated that a one-time tax increase resulting in a 20% price change in alcohol products globally would generate over US$ 9.4 trillion over 50 years, while a one-time tax increase resulting in a 50% price change would generate US$ 17.8 trillion over 50 years.

Country-specific analyses find similar results.

In South Africa, an increase in excise taxes on beer by 40% could lead to increased annual revenues of more than ZAR 14 billion (approximately US$ 1 billion, or 0.3% of South Africa’s GDP).

A modeling study that focused on raising taxes on beer and rum in order to reach target health impacts (reducing national alcohol consumption) found that, for 15 Caribbean Community (CARICOM) countries, an increase in taxes to obtain a 5% reduction in alcohol consumption would yield per-capita tax revenues of US$ 4.91, larger than the cost delivering a package of essential noncommunicable disease interventions.

Reducing healthcare spending 

Improvements in health from higher alcohol taxes would reduce future healthcare spending for both governments and households. It costs over I$ 138 billion per year to treat alcohol-associated diseases; in OECD countries this equates to I$ 61 per capita annually – around 2.4% of total health expenditure in those countries.

This burden is increasing in developing countries, which are those least able to cope with the public health and social problems that alcohol consumption causes. Given the expected rise in the global NCD-related burden of disease, opportunities to reduce future healthcare spending will become increasingly important.

Correct negative externalities and internalities 

Alcohol consumption has both a social cost (e.g. healthcare spending) and an individual cost (e.g. ill health) to the individual, their family and community as well as to the government, which are not is reflected in the price a consumer pays for an alcoholic beverage. Other negative externalities, including crime and violence, have often been used to justify governmental intervention.

By increasing the price of alcohol, alcohol taxes can be used to offset not only these social costs (externalities) but also unforeseen individual costs (called ‘internalities’). Even when consumers are aware of potential negative health effects associated with alcohol consumption, they may overly discount such costs, and they are often exposed to aggressive product marketing highlighting the supposed benefits of alcohol consumption while failing to provide information about harms.

Improved equity 

The burden of alcohol harms is not shared equally within and between countries. An important concept to understand is the so-called alcohol-harm paradox, where individuals in deprived groups experience higher rates of harm related to alcohol consumption compared with those in advantaged groups despite consuming similar or lower levels of alcohol, due to the clustering of other risk factors in such groups.

Alcohol expenditure can also exacerbate poverty in low-income households by taking up a significant proportion of income earned.

There are also notable differences by gender. Men are more often current and heavier alcohol consumers than women and as such have a higher prevalence of NCDs, although among heavy alcohol consumers women develop more medical problems. Alcohol consumption is also associated with domestic abuse and sexual assault, with a disproportionate impact on women.

Certain regions, notably Eastern Europe, have significantly higher shares of the population who consume alcohol or who are heavy alcohol consumers and have notably higher burdens of NCDs than other regions of comparable income or demographics.

Alcohol taxation is likely to reduce these inequalities.

Using alcohol tax revenues for health: Sustainable financing for health in the Philippines 

One of the most salient examples of the efficient use of alcohol tax revenues for health is The Philippines’s “Sin Tax” reform in 2012. This reform significantly increased excise taxes on tobacco and alcohol and simplified the excise tax regimes from a multi-tiered ad valorem structure to a two-tiered structure which converged to one unitary rate by 2017. The minimum tax on the cheapest cigarettes was raised from P2.72 prior to 2012 to P12 in 2013, and later rose to P31.2 by 2018. Alcohol tax increases were lower but saw an increase in excise tax for the cheapest beer rise from P11 pre-2012 to P24.4 by 2018. Spirits are now subject to a specific tax of P20 per-proof liter (adjusted for annual inflation) and a 20% ad valorem tax. 

Revenues generated from the “Sin Tax” law were earmarked to ensure a source of sustainable financing for the country’s Universal Health Coverage Program.

Fifteen percent of earmarked revenue goes towards tobacco farmer livelihoods. Of the remaining 85%, 80% finances health insurance coverage of the poor and elderly, and the remainder supports health facility improvements. In 2019 the base of earmarks was changed from incremental revenues to total revenues. In 2020 100% of alcohol revenues were earmarked for health. 

Overall, the earmarks have expanded health coverage for over 15.2 million families, representing with their dependents about half of the Philippines’ population. 

Alcohol taxation advocacy – key messages

Source Website: UN Interagency Task Force on NCDs (UNIATF)