Why the government must differentiate between liquor and milder forms

India needs to follow EU on Alcobev taxation to meet WHO target of reducing alcohol consumption

India is an oddity in the world of alcohol. Globally, milder forms of alcohol such as beer and wine dominate. Beer accounts for 68 per cent of all alcoholic beverages consumed worldwide. But in India, it is the other way round. Distilled spirits or liquors dominate with 63 per cent of all alcoholic beverages consumed. This dominance of hard liquor is a nightmare for any public health policy planner due to risks associated with the harmful use of alcohol.

 

In a relatively poorer country like India, alcohol culture can evolve around a bang-for-buck behaviour, which, put simply, means consuming a maximum amount of actual alcohol at the minimum possible cost. That is what hard liquor delivers. The most popular pack of liquor is ‘nips’ or ‘pauwa’, which contains 180 ml of beverage and is priced, on an average, at Rs 140. It contains 42.8 per cent alcohol content (ABV), which means that the consumer gets 77 ml of pure alcohol at a cost of Rs 1.8 per ml.

 

 

In comparison, a mild option like beer delivers almost half the alcohol at twice the cost. The average price for the popular 650 ml bottle of strong beer is Rs 160. With an average of 7 per cent alcohol content, it means that consumer gets around 45-46 ml of pure alcohol at a cost of Rs 3.6 per ml. For someone seeking best ‘kick’ out of the rupee spent, this is a no brainer. We are leaving the desi or country liquor out of this equation because that’s so cheap that the comparisons would become meaningless.

 

Approach towards hard and mild drinks needs a reset

 

This distortion is due to the fact that in India the excise policies do not really distinguish between a hard drink like liquor and a mild alcoholic beverage like beer or wine for taxation and availability. Same tax structures, rules and regulations apply to both. It perhaps goes back to the time when the same companies produced liquor and beer, and it helped to have the same taxation and distribution rules. However, with globalisation, the rift between liquor and beer is becoming more and more visible, and hence this approach needs a reset. Many states in India do have some policy preference for beer and wines, but it is in bits and pieces and not as a structured policy tool to nudge consumers towards milder alcohols and reduce harmful use of alcohol.

 

In most parts of the world, especially in the richer and more developed OECD countries, policy levers like excise tax rates and controls on availability and marketing are adjusted according to beverage type and strength, to promote the production and consumption of lower alcohol-strength beverages, which in turn helps reduce alcohol-related harm at the population level. Such differentiation has been used to regulate alcohol around the world for centuries, including in the UK since the 18th century, Denmark since 1918, the United States since 1933, and in all EFTA Members, and all EU Members.

 

Alcoholic beverages contain alcohol and water in different proportions, but people buy an alcoholic beverage for the alcohol it contains and not the water. If the taxes are on the basis of value or volume of the beverage, then in effect the consumers are paying tax not only on alcohol but also on water which, in the case of beer, is 93-95 per cent of the liquid in the bottle. That surely does not make sense.

 

The UK reformed its alcohol tax structure in 2023 to make it simpler and more economically rational. Under the new system, all categories are taxed based on alcohol strength, so the higher alcohol by volume (ABV) products pay more tax per unit of alcohol than lower ABV products.

 

Taxation based on beverage type

 

Most OECD members now apply a lower excise rate to beer than to spirits. In mature markets, regulations on taxation, marketing and availability commonly differ by beverage type as well as alcohol content, and are less restrictive for beverages with less concentrated alcohol like beer. Experts call for this practice to be implemented more consistently across countries. (Rehm et al, 2019)

 

This differentiated taxation is also endorsed by the World Health Organization (WHO). “The most effective approach to taxation with a view to improving public health and reducing this harm is to tax the volume of alcohol through a specific system of taxation. Such a system may be most effective at improving health if it has higher rates of taxation for stronger products for two reasons: first, drinkers can consume a greater volume of alcohol more quickly through stronger products, and such products may therefore be more closely associated with heavy episodic drinking and intoxication; and second, production and distribution costs may be lower, at least in some cases, for stronger products, meaning that the same volume of alcohol can be sold more cheaply in higher ABV products even at the same rate of specific duty,” says a report by WHO Regional Office for Europe (2020) (p21 Alcohol pricing in the WHO European Region).

 

Policies that nudge consumers toward lower alcohol beverages are a time-tested, evidence-based way to help improve public health outcomes. Taxation based on the beverage type and alcohol strength is the best way to improve public health outcomes. A comprehensive study of the impact of alcohol policies in Russia by WHO Europe (2019) found that policies shifting consumption away from high-strength alcohol beverages toward lower-alcohol beverages were associated with improving multiple public health indicators. While any beverage containing alcohol can be abused, independent research supports a conclusion that beverages with a low concentration of alcohol, like beer, are less tied to population health risks like alcohol poisoning. (Rehm and Hasan, 2020; Razvodovsky, 2015; Mäkelä et al, 2011; WHO, 2020; Mitchell Jr et al, 2014).

 

Clear policies needed on taxation, availability and licensing

 

The state governments in India need to create clear daylight between excise policies for products with high alcohol content like liquor and that for milder options like wine and beer on taxation, availability and licensing. Taxation on an alcoholic beverage needs to be linked directly with the amount of alcohol it contains in as simple a manner as so many Rs per ml of actual alcohol content (Rs per ABV).

 

Further, beer and wine licences should be liberalised to make these products far more easily accessible to consumers than hard liquor. To protect existing excise revenues, a good starting point would be a tax neutral position for liquor and then recasting of tax rates for wine and beer. This would deliver the ‘revenue positive substitution’ of harmful alcohol with less harmful alcoholic options, thus delivering both revenues and public health outcomes.

 

On the other hand, if the governments do not act on differentiating milder alcoholic beverages from hard liquor, the target set by the WHO in reducing alcohol consumption by 10 per cent in 2030 over 2010 would remain a pipe dream because bulk of global alcohol consumption is coming from spirits and bulk of the spirits are consumed in India. 

 

(The writer is the director general, Brewers Association of India)  Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper