Volpe Recommends Changes in Alcohol Taxation Policy

Posted: August 29, 2000 at 1:00 am, Last Updated: November 30, -0001 at 12:00 am

By Elena Barbre

Emerging economies, with their often cumbersome legal systems and convoluted tax structures, would be well advised to simplify their alcohol tax laws to match the capabilities of their governments and spur economic development. This is exactly what John Volpe, a professor in the School of Public Policy’s International Commerce and Policy Program, has proposed to the International Monetary Fund (IMF) in a soon-to-be released study he cowrote on alcohol taxation in developing and transitional economies.

“Guidebook for the Taxation and Management of Alcohol” will be published by the International Trade and Development Center. It was commissioned in response to a paper written by the IMF, and will be distributed to finance ministers in developing and transitional economies. The goal, says Volpe, is to provide these governments with a guide to the factors they should consider when establishing a tax system that will meet their overall revenue requirements, and ultimately to convince the IMF to rethink some of its less than optimal positions on taxing beer, wine, and spirits in developing countries.

Among the recommendations outlined in the study are the following:

  • All drinks containing alcohol should be taxed on the amount of alcohol in the container. Differential taxes on different alcoholic drinks will distort consumer choices, leading to economic inefficiencies.

  • Alcoholic drinks should be taxed fairly. The rate of tax should be proportional to rates on other consumer products within a country and to alcohol tax rates in neighboring countries.

  • Alcohol tax rates set excessively high to spur maximum revenue gain inevitably lead to cross-border shopping, smuggling, counterfeiting, and tax evasion.

  • Best practices of other emerging economies, not developed economies, should be emulated.

The study draws on the expertise of major spirits producers gained from years of trading in more than 200 markets around the world. It invites dialogue with the policy makers and opinion leaders who are involved in tax policy on alcohol.

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