Scribd
Upload
362 views1 page

Case Study 1

- Beer sales in the Philippines dropped 7% in the past year, reversing over a decade of 14% annual growth, due to a large tax increase on beer from 37% to 60% that took effect in 1990-1991. - This tax hike significantly hurt the profits of beer companies and retailers, leading to billions in lost revenues, thousands of lost jobs, and economic hardship for many beer drinkers and workers. - Despite large advertising campaigns, beer companies were unable to boost declining sales in the difficult economic environment caused by natural disasters and the tax increase's impact on consumers.

Uploaded by

Novelyn Masing
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
362 views1 page

Case Study 1

- Beer sales in the Philippines dropped 7% in the past year, reversing over a decade of 14% annual growth, due to a large tax increase on beer from 37% to 60% that took effect in 1990-1991. - This tax hike significantly hurt the profits of beer companies and retailers, leading to billions in lost revenues, thousands of lost jobs, and economic hardship for many beer drinkers and workers. - Despite large advertising campaigns, beer companies were unable to boost declining sales in the difficult economic environment caused by natural disasters and the tax increase's impact on consumers.

Uploaded by

Novelyn Masing
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 1

CASE STUDY 1

Beer Sales on downtrend, Taxes Blamed

Declining beer sales have reportedly hit San Miguel Corporation (SMC) and its chief
rival Asia Brewery, Inc. If beer business is not as healthy as it used to be about five years ago, it
is due to the continuing downtrend in the beer sales. Sales dropped seven percent last year,
reversing the average growth rate of about 14 percent from 1984 to early 1990.

The significant decrease in last year’s beer sales was attributed chiefly in the higher ad
valorem tax from 37 percent to 60 percent that took effect in 1990-1991 period. This situation
adversely affected the industry’s profit and loss statement.

Aggravating this situation was the unfavorable economic climate brought about by the
natural calamities, making it difficult for farmers, fishermen, and ordinary wage earners who
consume about 98 percent of the beer industry. These people who consider beer drinking as a
simple and wholesome pleasure paid P 8.6 billion in taxes out of the total P 8.84 billion collected
in beer taxes as cleaned for industry statistics.

Amid this depressing economic environment, SMC and Asia Brewery have launched a
high-powered advertising blitz using television, screen and sports personalities in promoting
their respective products.

Understandably, the strategy of these two rival corporations is to capture a bigger share in
the market by whetting the appetite of the beer drinkers and led them to buy the beverage. Sad to
say, the market did not respond positively on the multi-million peso advertising campaigns of
these to corporations.

This could be gleaned from the fact that since the increase in ad valorem tax that took
effect in 1990-1991 beer sales fell to considerable level. Not only that, income taxes, value
added taxes, and other business taxes of the industry took a downtrend. Even the industry’s over
270,000 retailers nationwide lost estimated P 8.5 billion in revenues and about two billion in
gross income.

Apart from this, the income of the industry and its haulers, distributors, suppliers went
down by P 10 billion over the past two years. What is even more disheartening is that more than
2,700 workers directly employed by the industry lost their jobs, bringing economic suffering to
their independents.
Another round of beer taxes increases will result in further decrease in sales and spawn chain of
economic problems including underemployment and others.
Source: Jake Espino, Business Section. The Sunday Bulletin, 1992.

Questions:
1. Is the demand for beer price elastic or inelastic? Explain and illustrate your answer.
2. What factors influence this elasticity?
3. Is specific tax a better alternative to raise tax revenue? Explain.

You might also like