The local distilled spirits industry favors the imposition of an ad valorem tax on imported wines to make the proposed tax increase fair to the alcohol beverage sector.
Destiliria Limtuaco & Co., the country’s oldest distilled spirits maker, is preparing an extensive study to determine the impact of the tax increase on prices per volume liter to consumers and its effect on the economy.
“We were saying that if you impose a specific tax and an ad valorem tax on distilled spirits, then you must follow the same principle with respect to wines,” company president and chief executive Livia Limpe-Aw said in a chance interview.
“There should be an ad valorem tax for wines also to make the tax progressive. So the more expensive wine, the higher the tax. Make it fair to the distilled spirits,” she said.
Unlike imported wines, the distilled spirits industry is taxed twice. Distilleries pay a specific tax on top of the ad valorem.
“We know how the direction of taxes go, they never go down, they always go up,” Limpe-Aw said.
Pending the proposed final tax rate, the company is doing initial researches on the socio-economic impact of the tax increase.
She said the industry would submit the position paper to the Finance Department next year as soon as the final rates were declared and the impact calculated.
Compared with distilled spirits, imported wines are slapped with only a specific tax only based on the liter volume of the alcoholic strength of a beverage. Ad valorem, meanwhile, is a tax percentage of the sale price of a product or goods.
Fermented wines are usually low in alcohol content with a maximum proof of 14 percent for most wines, while spirits have higher content. A rum can contain as much as 45 percent alcohol.
Saddled by both specific and ad valorem taxes, the spirits industry is worried that sales may further go down.
“It really depends on the demographic. So if you’re in the mass market D and E, which is the bread and butter of most distilleries, you’d be hit, smack on the face,” said Limpe-Aw.
Local industry sales had been flat since four years ago at 66 million cases, she said.
“In fact, on hindsight, it is losing market to imported alcoholic fares, given the the increase in the drinkers’ markets. Per capita consumption is going down due to various reasons that could be price increase, prohibitions on drinking in the open and possibly for those riding on the health bandwagon,” she said.
Whiles sales have been declining, revenues of distilleries are still higher than the wines category due to the sheer volume of consumption and the drinking profile of Filipinos.