Can High Tax Reduce High Consumption of Alcohol? [opinion]

NAMIBIA became independent in 1990 after a long struggle against the colonial masters, who had occupied the Land of the Brave for nearly two centuries.

It has been stated that the fight for economical freedom is not over. What about the war on alcohol? Former President Hifikepunye Pohamba said he could not govern drunkards. But what about raising taxation on beer?

Namibia, through the ministry of finance, has raised revenue through excise tax on alcohol to promote the well-being of society. The ministry uses excise taxes either to raise revenue or to discourage a certain behaviour.

It is believed that high tax modifies consumption patterns and limits the use of products or even discourages their use or misuse entirely. Economists suggest that the optimal revenue raising taxes should be levied on items with an inelastic demand, while behaviour-altering taxes should be levied where demand is elastic.

Many people state that alcohol has an inelastic demand (meaning that it is a necessity and not a luxury).

There is considerable debate among researchers whether higher prices in alcoholic beverages can reduce the intake of alcohol or whether high taxes will result in a change in consumption patterns.

In general, studies have shown that price elasticity depends on a number of factors, including types of beverages, drinking cultures, changes in disposable income, target populations, and long- or short-term effects, etc.

Public health workers suggest that by making alcoholic beverages more expensive, consumption will be reduced and social and health problems will be minimised.

Abstinence from alcohol builds families and money is saved. Children with fathers and mothers who don’t drink alcohol often make better judgements in life.

In 2002, alcohol generated about 24 billion euros in excise duties alone in the European Union. In the US the alcohol industry pays over US$21 billion.

There is evidence from research that taxation does not effectively target those who abuse alcohol or who have risky drinking patterns. In many Eastern European countries, alcohol consumption and harmful drinking patterns remain high. Binge drinking continues as the predominant pattern of drinking. Increased taxation may also contribute to harmful drinking patterns of other licit and illicit beverages. Any government hoping to increase its revenue through taxation of alcoholic beverages will see revenue fall as non-taxed beverages are substituted for those that are taxed.

In Namibia there is high possibility that high tax may not lower revenue because there are many binge drinkers. Some economists have suggested that abusive drinkers be taxed at a high tax rate in order to change their behaviour.

In conclusion, I urge government to raise taxes on alcohol to alleviate poverty and increase revenue which will be used to build hospitals and roads.

* Oscar Matengu is a student of master in taxation, University of Pretoria.

Source : The Namibian