Chapter 3 -- The Role of Goverment in a Market Economy

http://www.smh.com.au/news/national/government-push-to-cork-alcopop-loophole/2008/11/22/1226770800593.html

Excise Tax in Drinks

Summary
The federal government in Australia closed a big loophole drinks that taste similar to alcopops. The reason was because the alcohol makers found a solution where they were trying to eliminate taxes by producing pre-mixed drinks. They did this by using the beer method where the alcohol was filtered out. These drinks are packaged like regular ready-to-drink beverages that contain sugar and flavouring such as fruit juices. This loophole caused producers to pay a cheaper excise rate of $40.46 per litre of alcohol instead of $68.54 per litre of alcohol. The government will further investigate more loopholes that concern them.

Connection
In Chapter 3, the definition of excise taxes are extra costs the government imposes on the sale of particular commodities. The suppliers of alcohol tend to pay for the excise tax to the government in which allows the government to gain some revenue. The supplier raises the price of alcoholic beverages so that the consumers suffer more by paying more taxes. This leads the suppliers to find a smart loophole in their drinks where they can decrease excise tax amounts. The loophole was created by the suppliers because they hoped of gaining more profit for themselves. Consumers will be satisfied with this cheaper product because it almost tastes the same as alcopops. Therefore, the loophole gives advantages to both the consumer and supplier.

Reflection
It is reasonable why a product with an elastic demand, in this case alcohol, has the objective of raising revenue for the government. With excise taxes imposed on alcohol, consumers will still continue buying them. I am not surprised that manufactures have found this loophole to benefit their product through profits for themselves. I don’t think closing the loophole will solve the problem because eventually other loopholes will be discovered. Therefore, I believe that it is best that the government should tighten the definition of beer in the tax act instead.