Writer"s choice Essay Example

High excise rates and the Laffer curve

The Laffer curve represents a hypothetical case between tax revenue and corresponding tax rates. It hypothesizes that 0% tax rate generates no revenue while at the same time a 100% tax rate will also generate no income since there will be no incentive to the taxpayer. Application of excise duties has thus to be made in consideration of the elasticity of demand. In this case, a high excise duty will reduce consumption of alcohol depending on the consumer’s propensity to consume. The excise duty should thus be appropriate in such a way that it will stimulate consumption. However very high excise duties will reduce consumption vis-à-vis revenue generated from the tax regime.

Excise tariff for beer, wine and distilled spirits in Australia

Excise duties for beer, spirits, and wine vary greatly in Australia. For instance, the excise duty for beer is mainly based on three classes: low strength, medium strength, and high strength. To prevent abuse high strength beers attract greater excise tariffs. Classification also depend whether the beer is for commercial or non-commercial purposes. Pre-mixed drinks and spirits also attract different excise rates. Excise duties on these forms of alcohol are specific since it is based on the alcoholic content present in every bottle of the alcoholic drink.

Wines enjoy a different tax regime. The wines equalization tax (WET), applies for the sake of wines. This tax is ad valorem since it does not depend on any physical characteristic. The WET is based on the value of the wine and is levied at 29 percent of the wholesale price of the wine being taxed. Thus, alcohol tax in Australia is applied selectively depending on the type of alcohol, the use of the alcohol, as well as the alcoholic content present.