Excise Tax Reforms

The document discusses excise tax reforms in several countries and industries. It outlines best practices for defining tax bases and applying standardized approaches to taxation. Mexico will repeal its excise tax on automotive fuels and replace it with a fixed-quota regime starting in 2018 as part of an energy reform. In the US, over 40% of what beer drinkers pay goes to various taxes, which is the most expensive ingredient. The US beer industry contributes $253 billion to the economy and over 1.75 million jobs. Federal excise taxes on beer are set at $18/barrel for large brewers but small brewers pay lower rates to encourage growth.

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Excise Tax Reforms

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Chetan Mitra

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Excise Tax Reforms

An accepted key principle in good tax policy is that the objective of an indirect tax should be
neutrality, or the principle that the tax rate, tax base and tax structure should not impact
markedly on investment, production or consumption. It certainly should not be used to
target or to favor one particular industry, one particular product, or one particular tax
payer over another.
Tax policy can, however, in certain limited circumstances, include the need to levy special
or discriminatory taxes such as excise, in response to the externalities (or harm) associated
with the consumption of certain goods and services. These types of goods and services that
we associate with excise on these grounds are usually alcohol, tobacco, motor vehicles, and
gambling.
Therefore, the main objective of this chapter is to stress the benefits of moving towards
standardized approaches to the ways in which the region defines, classifies and treats like
products as well as standardized approaches to the way in which they are taxed such as
applying and defining a tax base. The approaches outlined in this section are taken from
many sources and represent what the study group considers as best practice; they should be
utilized by excise tax policymakers as a starting point as they consider future reforms of
their national excise tax systems.
Mexico
As a consequence of the energy reform of 2014, pursuant to which the price of automotive
fuels will no longer be controlled by the government and companies would be allowed to
obtain permits to sell such fuels in an open market and with free determination of prices, the
existing excise tax regime applicable to automotive fuels will be repealed and replaced by a
fixed-quotas regime. A transitory regime for the determination of the excise tax on
automotive fuels will be applicable during 2016 and 2017, and the new regime based on fixed
quotas will be applicable as of 2018.
USA
On average, more than 40 percent of what American beer drinkers pay for a beer goes toward
federal, state and local taxesfrom excise to consumption to sales taxes, as well as the
normal business taxes. That makes taxes the most expensive ingredient in beer today.

Additionally, the U.S. beer industry contributes nearly $253 billion to our economy and
supports 1.75 million American jobs.
History of the Federal Excise Tax on Beer
Existing federal excise taxes on beer are set at a rate of $18/barrel for brewers of more than 2
million barrels (62 million gallons, or the equivalent of 110 million six-packs) and all beer
importers. Since the late 1970s, growth in the small brewing sector has been encouraged by
tax credits offered to brewers which produce less than 2 million barrels, cutting their excise
tax rate to $7/barrel on the first 60,000 barrels and allowing them a far lower overall effective
tax rate on all barrels up to 2 million.
Today there are more than 3,300 breweries in the United States. More than 90 percent of all
federally-permitted brewers produce fewer than 7,143 barrels annually, meeting the definition
of a small brewer set by the Alcohol and Tobacco Tax and Trade Bureau (TTB). Many of
those small brewers are brewpubs, which are restaurants with brewing operations designed to
sell locally. As an industry, we're proud to do our part in keeping America great. But the truth
is, we're doing more than our fair share, shouldering a higher tax burden than just about every
other consumer product. Research shows that the tax burden borne by beer drinkers is more
than 68 percent higher than for the average purchase made in the U.S.