Effects of excise tax on government revenue contribution and consumption patterns - evidence from the alcohol sector in Kenya

Abstract

This study sought to find out the effect that excise tax on alcoholic drinks has with respect to government revenue contribution and consumption of alcoholic products. The product of choice used as a proxy for the alcohol sector was Tusker due to its data availability and large legalized market share. The gap warranting this research is the lack of information on how effective excise tax has been over the years that has kept the government a firm user of it. From the analysis, it is evident that there is no relationship between alcohol consumption and excise tax but there is a positive linear relationship between excise tax and contribution to government revenue From the finding it is evident that the government as well as policy makers need to focus on other alternatives to lower alcohol consumption's that directly target access to the alcohol. The in-elasticity of demand for alcohol products is a contributing factor and so excise tax has little to no effect on consumption. But excise tax on alcohol is a sustainable source of long term revenue for the government. Thus the conclusion is that excise tax is more of an economic tool for the government than the social tool it is intended to be.