And up goes the alcohol tax!

After stagnated at same rate for a decade, the latest Singapore budget will raise alcohol tax by a whopping 25%. Within minutes, many social media active alcoholics expressed their outrage before setting out to dry taps and bottles. Expecting additional 125 million dollars in tax revenue to derive from this adjustment, is this driven by number or for greater moral cause?

In early 20th century, call for alcohol ban was prevalent in United States and several non wine-producing European countries. The results varied. Iceland banned beer for 74 years until 1 March 1989, while Hungary alcohol ban lasted for a mere five months. Right or wrong, these bans were eventually repealed by the same reason, the need for state revenue.

Coming back home, justification for tax raise put up by the finance minister was to curb excessive consumption of alcohol. That sounded like a statement used for the opening of a Corporate Social Responsible mission. But I sensed a relation to the Little India incident too.

Some statisticians believed there’s a positive effect to alcohol tax. A study examined 28 years of alcohol and health related issues in Alaska, and noted alcohol related death rate dropped by 29 percent when it was first imposed. An upward revision of tax rate in 2002, reduced the death rate by another 11 percent. I wonder if they had examined the suicide rate in these two years as well.

October 2012, a research paper published on Institute of Economic Affairs countered the benefits of an alcohol tax and illustrated several downsides, all looked pretty gloomy. Illicit alcohol, smugglers, unrecorded sales and a shadow economy. But of course, Singapore is unlikely to be in such a dire state.

Here’s the raw numbers. Before Budget 2014, the alcohol tax for wine and spirits was S$70 per litre of alcohol. A typical 750 ml bottle of red wine at 14 percent alcohol by volume was taxed at S$7.35. Today’s new system will tax at S$88 per litre of alcohol, with the same bottle taxed at S$9.24. The tax value of most still wines will not go beyond S$11.

Most businesses decide pricing after marking up the cost of wine by certain percentage, which includes their expected profit margin. Factoring that, I would expect most to reasonably mark up the price from S$5 to S$8 per bottle on retail, and possibly S$10 to S$13 for on-premise consumption.

But also be on the lookout, there are businesses who will take the opportunity to mark up their prices by 25 percent altogether. If you noticed a bottle has increased more than S$10 on retail, don’t buy. They are trying to hedge a bigger profit from the situation. Tell your spouse, your partner, parents, friends, shout out on social media, and stop supporting these businesses.

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