Close Menu

High tax on spirits gives rise to black market

A total of 32 tax increases across 19 EU countries in the past two years have had a “very negative impact on consumers and distillers”, encouraging the black market to flourish, a spirits trade body has claimed.

In its recent report, Tax: A break on European Spirits Growth, Spirits Europe argues that high taxes “do not always generate the expected revenues and do not reduce alcohol-related harm”, adding that excessive tax actually acts as an incentive for black markets to take root.

“Years of austerity has had multiple, interconnected, negative effects on our businesses”, said Paul Skehan, director general of Spirits Europe.

“Not only has it knocked a hole in the pockets and wallets of our consumers, it has also left large deficiencies in many exchequers, deficiencies that Finance Ministers look to make up through increased taxation of our products.”

“Today data suggest there is a correlation between the size of the illegal market and the level of tax/excise burden in relation with disposable income. Squeezed wallets and inflated prices offer an open invitation to criminals selling counterfeit or illicit alcohol products. A perfect storm“.

Releasing its report, the trade body said it was time for exchequers in a number of markets to consider lowering tax on spirits to help “generate jobs and growth through production and distribution”. It stressed that alcoholic beverages should be able to compete with each other on a level playing field and that the tax system “should not distort that competition”.

On average, 70% of the price paid by European consumers for a bottle of spirits is tax, the report said, despite spirits being consumed the least with 43% of the market belonging to beer and 32% to wine, compared to 25% for spirits.

Earlier this year the UK’s chancellor of the exchequer, George Osborne, announced a 2% cut to spirits duty in the 2015 Budget, following a campaign by the the Wine and Spirit Trade Association (WSTA), Scotch Whisky Association (SWA) and the Taxpayers’ Alliance.

Furthermore, the organisation claims that high taxes do not reduce alcohol-related harm because they “cannot distinguish between abusive and moderate drinkers”.

It looks like you're in Asia, would you like to be redirected to the Drinks Business Asia edition?

Yes, take me to the Asia edition No