How not to do it: taxes up, revenues down…
The significant hike of spirits excise in 2015 (+41%) in Belgium has led to a -24% drop in sales, according to statistics published by Belgian trade association Vinum Et Spiritus in November. Yet reduced sales did not mean reduced consumption, as more and more Belgians started to buy their favourite spirits in neighboring countries. The net result? A loss: although excise revenues have increased by €160 million after 33 months – which is a staggering €655 million lower than the budget forecast – due to VAT losses of €198 million, the net loss amounted to €38 million by end of October 2018. In other words, the tax increase missed two targets at once: neither did it increase revenues, nor dit it reduce consumption. High time for a fairer and more balanced approach towards taxing spirits.
In Estonia, the government decided four years ago to introduce a series of sharp alcohol excise duty hikes between 2015 and 2018. The increases have led to a growing flow of consumers travelling to neighboring Latvia to purchase alcohol at lower prices. Even Finnish consumers have changed track, travelling increasingly to Latvia instead of Estonia, as before. This – admittedly predictable – outcome led the Government to decide cancel the tax hike originally foreseen for 2018 and put the one foreseen for 2020 on hold. Yet the damage is done: a significant shortfall of €89 millions in 2018 in projected alcohol excise revenues. High time for a fairer and more balanced approach towards taxing spirits.
Latvia is pursuing a similar plan to increase excise tax every year in March and thereafter until 2020. In the past, a similar plan with a 41% tax increase between 2008 and 2010 resulted in a 18% drop in revenues (€21m ), and an average percentage of illicit alcohol at 32%. The projected impact of the current tax increase is a 25% decrease in revenue (€35 million). High time for a fairer and more balanced approach towards taxing spirits.
The Lithuanian Government adopted a three-year plan to successively increase excise on all alcoholic beverages starting from 1 March 2016. While the original plan included a 2.5% increases in March 2017 and 2018, in March 2017 excise on spirits increased 23% to €1,665.04 per hlpa. However, the planned excise increases for March 2018 did not take place. On 1 March 2019 spirits excise is set to increase to €1,832 per hlpa. The impact might well be the same, as observed in the other countries. High time for a fairer and more balanced approach towards taxing spirits.
It is important to keep in mind that the excise burden is particularly high in the Baltic EU Member States, more than double the EU average, despite spirits excise duty rates being lower than average.
We understand the need for taxation and support a fair and balanced tax regime. But measures like the above cannot be seen as a viable way forward. The disproportionate increases we constantly witness have a hugely negative impact on our sector, including a disproportionate effect on SME distillers whose markets are primarily local, not international. It’s bad enough if excessive tax rises hamper growth and employment. Yet if they also reduce revenues, upset moderate consumers, and don’t have a meaningful impact on curbing excessive drinking the one and only conclusion must be: it’s high time for a fairer and more balanced approach towards taxing spirits!