PM+: EU spirits taxes in need of review

Written by Paul Skehan on 29 April 2015 in Opinion Plus
Opinion Plus

High tax rates on spirits in Europe don't always generate their expected revenues, warns Paul Skehan of spiritsEUROPE.

Over the last two years, European consumers have faced 32 increases in excise tax rates on spirits in 19 EU countries.

The years of austerity have had multiple, interconnected and negative effects across Europe.

Not only have they knocked a hole in the pockets and wallets of consumers, it has also left large deficiencies in many exchequers, deficiencies that finance ministers look to make up through increased taxation of our spirits products.

As a result, about 70 per cent of the price paid by European consumers for a bottle of spirits is now tax, up to 77 per cent in the UK and even 86 per cent in France.


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We want to inform policymakers in Brussels and EU member states about the real impact of such tax hikes and to convince them to freeze, if not cut duty on spirits as recently done in the UK, to generate jobs and growth through production and distribution.

Most countries have already reached a tipping point, with evidence suggesting that increasing tax rates in fact does not always generate the expected revenues, as demonstrated in a recent report published by spiritsEUROPE.

A good example of this is Portugal where a 43 per cent tax increase on spirits between 2001 and 2014 resulted in a 32 per cent decrease in revenues, including an up to 20 per cent shortfall in 2012 between expected and collected revenues.

Despite repeated calls - again this week at the Informal Council of Health Ministers in Riga but also from a number of MEPs – high taxes are not a tool to necessarily reduce alcohol-related harm because they cannot distinguish between abusive and moderate drinkers.

They can even backfire, allowing informal markets to flourish (moonshine, counterfeit, smuggling, surrogate alcohol, etc.), posing a serious health threat to consumers by providing inferior or even toxic products.

Let's not forget the 45 people who died and dozens more who suffered serious illness in the Czech and Slovak Republics as well as in Poland after drinking illicit vodka and rum tainted with methanol in 2012.

Today, data suggests there is a correlation between the size of the illegal market and the level of tax or excise burden in relation to disposable income.

Squeezed wallets and inflated prices can offer an open invitation to criminals selling counterfeit or illicit alcohol products. A perfect storm.

There are many examples of this across Europe, such as in Greece where 40 per cent of the market is illicit (following a 125 per cent tax increase between 2008 and 2014), representing an annual tax loss of €140m.

This is why we are calling for systematic and comparable research to measure the scale and value of illicit alcohol in Europe.

Such research would benefit business, public administrations, customs services, police, and consumers' health.

To conclude, it is time for exchequers in a number of markets to consider lowering the tax on spirits and to introduce a fair and equitable tax treatment between beer, wine and spirits.

The current imbalance in taxes between the different types of beverage in a number of EU markets is huge, to the point that although spirits products are the least consumed (25 per cent versus 43 per cent for beer and 32 per cent for wine), they contribute the most to exchequers across Europe (47 per cent versus 31 per cent for beer and 22 per cent for wine).

Alcoholic beverages do compete with each other and the tax system should not distort that competition.

 

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About the author

Paul Skehan is Director General of spiritsEUROPE

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