Alcohol tax


on alcoholic beverages are per unit taxes levied by governments to raise revenue or used as corrective taxes to control health-related externalities associated with consumption of alcohol. Almost all countries tax alcohol. This page addresses the economics and politics of alcohol excise taxation.

Background

taxes are specific taxes applied to production, distribution or sale of a commodity or service, such as alcohol, tobacco, gasoline, sugary drinks, marijuana, plastic bags, indoor tanning, bicycles, firearms, and gambling. Other terms for these taxes are an excise duty, indirect tax, unit tax, user fee, commodity tax, consumption tax, luxury tax, sumptuary tax, and sin tax. Excise taxes may be used to raise revenue or as corrective taxes to address externalities associated with production or consumption. Taxing producers using specific taxes is believed to reduce administrative costs and risks of non-compliance. Excise taxes on alcohol are applied on a per unit basis on manufacturers and importers, although there may be variation by alcohol content. In contrast, sales taxes and value-added taxes are ad valorem taxes that are levied on the price or value of sale. Alcoholic beverages are heavily taxed, with distilled spirits bearing higher taxes followed by wine and then beer.
Governments worldwide have levied excise taxes on alcohol for centuries. In 1572, the County of Holland imposed a tax on beer to fund a war with Spain. England instituted an excise duty on alcohol in 1643 to support its military. Following the Revolutionary War, a tax on distilled spirits in 1791 was the first act of taxation by the newly-formed federal government of the United States. The tax was unpopular on the frontier and led to the Whiskey Rebellion that ended in 1794 when federal forces – led by President George Washington ‒ marched into western Pennsylvania. These duties were instituted by governments to raise needed revenues, which is effective if consumption does not respond very much to tax-induced changes in retail prices. This economic condition is known as a "price inelastic" demand. Evidence on the price elasticity of demand for alcohol beverages is reviewed below. Recent policy proposals for increased excise taxes are largely motivated by a desire to reduce alcohol abuse, including heavy drinking, binge drinking, drunk driving, and other health-related harms from heavy or excessive drinking. Tax revenues may also be ear-marked as user fees for health-related programs. This page reviews evidence for alcohol excises to be effective in reducing heavy drinking, with a focus on conditions in the US and other developed countries. Higher alcohol excise taxes to address externalities are an example of a Pigouvian tax, with early policy proposals along these lines by economists Charles Phelps and Philip Cook.
In 2010, the World Health Organization launched its Global Strategy to Reduce the Harmful Use of Alcohol. This program was expanded in 2018 and 2022 to address policy options under the SAFER initiative. Based on considerations of cost-effectiveness, fairness, and feasibility, WHO identified several policy options as "best buys" for reducing alcohol-related harms. The top three options were:
  • Taxation: Enacting or increasing excise taxes on alcohol beverages.
  • Advertising restrictions: Enacting and enforcing bans or comprehensive restrictions on alcohol advertising, sponsorship, and promotion.
  • Availability restrictions: Enacting and enforcing restrictions on physical availability of retailed alcohol.
With regard to taxation and pricing, WHO urged its member governments to influence final prices of alcohol by: establishing a system of taxation applied to alcohol content of beverages with backing by effective enforcement; increasing existing taxes and adjusting regularly for inflation; banning use of price promotions; establishing minimum prices for alcohol and providing price incentives for consumption of non-alcoholic beverages; and reducing or eliminating subsidies to economic operators in the area of alcohol.
Following WHO's policy proposals, there was an expansion of interest in the economics of alcohol taxation and its public health implications. The US Centers for Disease Control and Prevention reviewed empirical evidence relating to alcohol prices and alcohol harms and concluded "public health effects are expected to be proportional to the size of the tax increase."

Regional differences

Excise taxes on alcohol are levied on a quantity basis. In the US, federal taxes on beer are currently set at $3.50 per 31-gallon barrel for small producers, $16 for medium-sized producers and all importers, and $18 for larger producers. The tax on table wines with 16% or less alcohol by volume is $1.07 per gallon. Higher rates apply to fortified and sparkling wines. Distilled spirits are taxed at a rate of $13.50 per proof gallon. A proof gallon in the US is a gallon of alcohol that is 50% abv, so a beverage with 40% abv is taxed at a rate of 0.8 or $10.80 per gallon. Federal excise taxes per "standard drink" are estimated at: beer, $0.054; wine, $0.042; and spirits, $0.127. Alcohol sales in the US are also subject to taxation at state and local levels. Alcohol sales worldwide are subject to excise and ad valorem taxes. Import duties also apply. Comparison of excise, sales, and total tax rates across countries and beverages requires specification of modal beverage prices.
Several organizations provide data on current levels of alcohol taxation by beverage, country or state including WHO and the Tax Foundation. This section provides a summary for fourteen developed countries and the US states for beer and spirits taxes. Comparisons for wine are more complicated as there are a number of countries that do not tax wine or only impose ad valorem taxes. Excise taxes also vary according to beverage abv. Data presented below apply generally to the period 2022 to 2024.

By country

  • Australia – excise taxes on the most sold brand of beer is 17.73% of the retail price. Excise taxes on the most sold brand of distilled spirits is 56.50% of the retail price based on alcohol-specific content. Total tax rate on beer is 26.82%, including VAT/sales taxes and import duties, and 65.59% on spirits. Wine is taxed at a flat rate of 29% of the wholesale price.
  • Belgium – excise taxes on beer and spirits are 10.53% and 39.78%, respectively. Total tax rates on beer and spirits are 28.46% and 57.18%, respectively. Excise tax on wine is $7.47 USD per 9L case of still wine. VAT rate is 21%.
  • Brazil – excise taxes for the state of Sao Paulo on beer and spirits are 2.28% and 9.16%. Total tax rates on beer and spirits are 29.70% and 32.37%. Brazil has a complex tax structure that applies to production, importation, and final sales of alcohol. Ad valorem taxes on wine are about 40%.
  • Canada – excise taxes on beer and spirits are 5.00% and 11.87%. Total tax rates on beer and spirits are 16.50% and 23.38%. Excise tax on wine is $4.77 USD per 9L case. VAT rate for wine is 5%. Additional ad valorem taxes are imposed at the provincial level, ranging from 5% to 25% of the purchase price.
  • China – excise taxes on beer and spirits are 2.12% and 16.30%. Total tax rates on beer and spirits are 15.26% and 31.14%. For wine, excise tax is 10% and VAT is 17%. China has substantial tariffs on imported wines, with rates on US wine ranging from 29% to 54%.
  • Croatia – excise taxes on beer and spirits are 8.93% and 25.30%. Total tax rates on beer and spirits are 28.93% and 45.30%. There is no excise tax on wine. VAT rate is 25%.
  • Czechia – excise taxes on beer and spirits are 11.28% and 37.82%. Total tax rates on beer and spirits are 28.63% and 55.17%. There is no excise tax on wine. VAT rate is 21%.
  • Germany – excise taxes on beer and spirits are 5.56% and 40.29%. Total tax rates on beer and spirits are 21.52% and 56.25%. There is no excise tax on wine. VAT rate is 19%.
  • Greece – excise taxes on beer and spirits are 21.05% and 36.41%. Total tax rates on beer and spirit are 40.40% and 55.77%. There is no excise tax on wine. VAT rate is 24%.
  • Japan – excise taxes on beer and spirits are 31.96% and 16.20%. Total tax rates on beer and spirits are 41.05% and 25.29%. Excise tax on wine is $8.19 USD per 9L case. VAT rate is 10%.
  • Mexico – excise taxes on beer and spirits are 18.06% and 29.86%. Total tax rates on beer and spirits are 31.85% and 43.66%. Ad valorem tax on wine is 26.5% and total tax is 40-50%.
  • Norway – excise taxes on beer and spirits are 40.06% and 68.51%. Total tax rates on beer and spirits are 67.32% and 88.87%. Excise tax on wine is $60.57 USD per 9L case. VAT rate is 20%.
  • South Korea – excise taxes on beer and spirits are 15.27% and 43.07%. Total tax rates on beer and spirits are 37.76% and 70.11%. Sales tax on wine is 30% and VAT rate is 10%.
  • United Kingdom – excise taxes on beer and spirits are 27.45% and 47.15%. Total tax rates on beer and spirits are 44.12% and 63.82%. Excise tax on wine is $33.37 USD per 9L case. VAT rate is 20%.
WHO's 2023 report for 148 countries found average excise tax rates for beer and spirits of 17.2% and 26.5%, respectively. Total taxes on beer and spirits were 29.0% and 39.6%. For the sample of fourteen countries, several comparisons are also possible. First, excises on spirits are always higher than beer, with Japan as an exception. Median values for fourteen countries are: beer excise, 13.3%; spirits excise, 37.1%; beer total tax, 29.3%; and spirits total tax, 55.5%. Second, tax rates vary substantially. Range of excises on beer is 2.12% in China to 40.06% in Norway. Range of excises on spirits is 9.16% in Brazil to 68.51% in Norway. Third, total taxes on alcohol are substantial, with most countries having a rate of 25% or more for beer and 50% or more for spirits. Fourth, excises on wine can be substantial as illustrated by Norway and the UK.
In the US, individual states impose excise and sales taxes on alcohol. Figure 1 shows the variation in 2024 for excises on beer among the 50 US states and District of Columbia. Excise rates vary from $0.02 per gallon in Wyoming to $1.29 per gallon in Tennessee, with a median rate of $0.26 per gallon. Taxes are the single most costly ingredient in beer.
The highest and lowest state excise tax rates by beverage in 2024 are displayed below. Rates vary substantially, suggesting that political factors are at work. Beer taxes are lower in traditional beer producing states of Missouri, Wisconsin, Colorado, and Pennsylvania. Beer taxes are higher in Tennessee and Kentucky, where spirits production is important. Spirits taxes are higher in two states with important wine producers, Oregon and Washington. Wine taxes are also lower in California and New York. Median tax rates for beer, wine and spirits are $0.26, $0.74, and $6.06 per gallon, respectively. These tax rates imply average state excises per proof gallon for beer, $2.60; wine, $3.08; and spirits, $4.85 per gallon.