Taxation on alcohol is a common strategy used in health promotion to reduce sales and consumption of alcohol. The usual forms of taxes that are enforced on alcohol fall under the category of excise taxes. Excise taxes are indirect taxes imposed by national, state or local (county or city) governments on sales of certain products, such as tobacco, oil, gas etc, that apply when people purchase the products. The excise tax is different than the sales tax and is usually a fixed rate for a specific quantity. In many countries in addition to excise tax there may also be sales taxes.
The main purpose of taxation is for governments to generate revenue, but an indirect effect of taxation is that it increases prices causing a downward pressure on consumer demand (International Center for Alcohol Policies [ICAP], 2006). Even a small increase in price has an impact on reducing consumer demand (Cook & Moore, 2002). This decrease in consumer demand is of special value for health promotion professionals. An increase in the price of alcoholic beverages causes a decrease in per capita consumption and that results in fewer incidences of alcohol-related problems.
Several case studies demonstrate that alcohol taxation is inversely related to alcohol consumption and negative sequelae associated with alcohol use. In 2004, in Finland, changes in alcohol taxation were made where quotas were abolished for travelers' tax-free imports of alcoholic beverages from other European Union (EU) countries (Makela & Osterberg, 2009). As a result of this decrease in taxation the alcohol consumption increased by 10% and alcohol induced liver disease deaths increased by 46%. Similarly in Australia taxation was used to decrease the consumption of alcohol (Doran & Shakeshaft, 2008). In a meta-analysis of 112 studies with 1,003 relationships of tax and consumption it was found that significant relationships between alcohol tax or price measures and consumption of alcohol existed (aggregate r = -0.17 for beer, -0.30 for wine, -0.29 for spirits and -0.44 for total alcohol) (Wagenaar, Salois, & Komro, 2009). The study concluded that alcoholic beverage prices and taxes are inversely related to drinking.
In terms of effects of taxation on alcohol-related problems some studies have found that higher taxes can reduce driving deaths (Laixuthai & Chaloupka, 1993; Ponicki, Gruenewald, & LaScala, 2007). Another study has found that taxation on distilled spirits can lower cirrhosis rates (Ponicki & Gruenewald, 2006). A study has found that higher taxes may lower rates of sexually transmitted infections in youth (Grossman, Kaestner, & Markowitz, 2005). Taxation has also shown to reduce the percentage of youth who drink heavily and who engage in binge drinking (Cook & Moore, 2002).
Taxation is a measure that is directed toward entire population. It does not differentiate between those who have a problem with alcohol and those who do not have a problem with alcohol. Therefore it is not necessarily effective against reducing alcohol use among those who abuse alcohol or those who exhibit risky drinking patterns (ICAP, 2006). Higher taxation also leads to production and sales of illicit alcohol in many countries. This form of alcohol has even more harmful effects both from safety and health perspectives. An example of the rise in illicit alcohol in response to governmental taxes is noted in Zimbabwe (Jernigan, 1997). The government imposed a higher tax on lager beer which resulted in a number of users taking up locally available opaque beer. The government had to finally reduce the tax to protect its revenue.
Taxation is not cost effective under all circumstances. A study by the World Health Organization (WHO) found that in communities with a high prevalence of heavy drinkers such as those found in Europe and North America the most cost effective intervention is taxation; whereas in populations with lower prevalence of heavy drinking taxation is less cost effective and other measures such as physician advice, roadside breath analyzers, and ban on alcohol advertising are more cost effective (Chisholm, Rehm, Ommeren, & Monteiro, 2004). …