Alcohol in the Shadow Economy
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Alcohol in the Shadow Economy Unregulated, Untaxed, and Potentially Toxic Figures provided by Euromonitor International JUNE 2018 1 UNRECORDED ALCOHOL Alcohol in the Shadow Economy Alcohol in the Shadow Economy Taxonomy of Unregulated It is in everyone’s interest to bring unregulated and Unrecorded Alcohol alcohol into the legal, regulated sphere. Alcohol production and trade exist both within and by adulterated alcohol serve as a reminder outside of government regulation; the relative size of that unregulated alcohol can cost lives 3. Regulated RECORDED ALCOHOL each depends on the region of the world and social, cultural, and economic factors. Both segments are SOCIETAL COST: Unregulated and illicit Licit beverage alcohol products produced and sold within a regulatory framework and reflected in official statistics of well established and people often – knowingly and alcohol has the greatest impact on the poorest either the country where they are produced, the country where they are consumed, or both. Thus, in some cases, alcohol unknowingly – interact fluidly with both of them. and most vulnerable in society, whether in the considered recorded in the country of production may not be recorded in the country of consumption, and vice versa. world’s poorer or wealthier nations. Therefore, The regulated alcohol market is recorded in bringing unregulated alcohol into the regulated government statistics; unregulated alcohol, which sector can contribute to breaking the cycle of UNRECORDED ALCOHOL is largely illegal, is more difficult to assess and falls ill health and to reducing health inequalities. into the “unrecorded” sphere (see Taxonomy of LEGAL CROSS-BORDER TRADE OR SHOPPING Unregulated and Unrecorded Alcohol). This segment ECONOMIC COST: Illicit alcohol is responsible Beverage alcohol licitly purchased outside of, and brought into, is complex and diverse and includes everything for significant fiscal loss to government. The a market for the personal use of the consumer. from high-quality artisanal homebrew to illicit combined fiscal loss in just 18 of the countries drinks that may contain methanol or other toxic included in this report adds up to more than USD Shared ingredients. In 2014, the World Health Organization $1.8 billion. Illegal alcohol, particularly counterfeit Unregulated INFORMAL ALCOHOL Objective: (WHO) issued its Global Status Report on Alcohol and smuggled products, can erode confidence Beverage alcohol produced outside of a regulatory framework and whose production and Bring Unregulated and Health and estimated, based on 2010 figures, in government standards, enforcement, and in consumption tend to follow cultural and artisanal practices. Includes home production. Alcohol into the that unrecorded alcohol made up an average the integrity of legitimate, regulated brands. May be licit or illicit, depending on the laws governing a particular jurisdiction. Regulated Fold 25% of all alcohol consumed worldwide [2]. Tackling the unregulated market is everyone’s CONTRABAND/SMUGGLED ALCOHOL Alcohol produced and sold illegally outside of business; governments, communities, and legitimate Shared Alcohol with original branding that has been illegally imported/smuggled into a jurisdiction producers share a commitment to reducing harmful Objective: government regulation is the most problematic part and sold, evading tariffs/customs. Includes beverages brought across the border either drinking and to common objectives: bringing Tackle of unrecorded alcohol; it is untaxed, circumvents in excess of the applicable traveler’s allowance regulation or via smuggling. Illicit Alcohol restrictions around availability, is of inconsistent unregulated alcohol into the regulated fold and quality, and, depending on the ingredients used putting a stop to illegal production and trade. These COUNTERFEIT ALCOHOL to make it, is even potentially toxic. This report objectives can only be achieved where there is an Fraudulent imitations of legitimate branded products, including refilling, falsification, and considers these wide-reaching implications and enabling regulatory framework that allows legitimate tampering. These beverages infringe the intellectual property rights of legitimate producers. brings together recent data on the illicit market, businesses to thrive and does not encourage a shadow economy. Partnerships between government, TAX LEAKAGE compiled by the global market research firm Euromonitor International. While illicit alcohol is also the private sector, and civil society in a whole-of- Illicit Legally produced alcohol beverages on which the required excise widespread across Asia and parts of Europe, this society approach can help promote a virtuous circle tax was not paid in the jurisdiction of production. report focuses on data from Africa and Latin America. of growth and health that is in everyone’s interest. NON-CONFORMING ALCOHOL Unregulated alcohol is more widespread in lower- Products that are not compliant with production processes, guidelines, or labeling legislation. % income countries than in more affluent ones. Yet, Low Income 45 Includes products produced with denatured alcohol or ilicit industrial alcohol. whether in mature or emerging economies, it is Lower-Middle Income 41% SURROGATE ALCOHOL largely consumed in some of the world’s poorest Upper-Middle Income 25% Alcohol or alcohol-containing products not meant or sold for human consumption but that are communities and, because it lacks quality and High Income 8% consumed as substitutes for beverage alcohol. May be regulated and legal for different purposes. production standards, may contribute to an already significant problem of ill health. While home-produced artisanal alcohol may be part of cultural heritage UNREGULATED ALCOHOL Adapted from IARD Taxonomy of Unrecorded Alcohol[1]. and largely unproblematic, the illicit sector is not IS DISPROPORTIONATELY The International Alliance for Responsible Drinking (IARD) is a not-for-profit organization dedicated to addressing harmful drinking worldwide and only large but also comes at a significant cost. PREVALENT IN LOWER- promoting responsible drinking, amongst those who choose to drink. IARD is supported by its member companies from all sectors of the regulated INCOME COUNTRIES [2,4] alcohol industry – beer, wine, and spirits – in their common purpose of being part of the solution to reducing the harmful use of alcohol. For more HUMAN COST: The deaths in early 2018 of information on our membership and what we do, please visit www.iard.org. almost 150 people in Indonesia from poisoning 2 3 Alcohol in the Shadow Economy Alcohol in the Shadow Economy Illicit alcohol accounts for a sizeable proportion of total alcohol, particularly in low- and middle- income countries. Honduras (2015) Nicaragua (2011) Czech Republic (2014) Russia (2014) Illicit alcohol: 20% Illicit alcohol: 4.6% Illicit Alcohol: 7% Illicit Alcohol: 38% ▶ 15% Distilled, 3% Fermented, 82% Other ▶ 91% Distilled, 2% Fermented, 7% Other ▶ 26% Distilled, 66% Fermented, ▶ 73% Distilled, 16% Fermented, > 91% Contraband 8% Other 11% Other 9% Counterfeit & illegal > 47% Counterfeit & illegal > 27% Tax leakage Fiscal Loss : $6 MM 46% Contraband 23% Counterfeit & illegal Dominican Republic (2016) Fiscal Loss: $99 MM Mexico (2013) Illicit Alcohol: 29% ▶ (69% Distilled, 0.1% Fermented, Illicit alcohol: 34% 30% Other) ▶ 76% Distilled, 24% Fermented > 50% Contraband > 52% Tax evasion 33% Tax leakage 18% Contraband Fiscal Loss: $262 MM Uganda (2015) Fiscal Loss: $7 MM Illicit Alcohol: 61% Venezuela (2011) ▶ 72% Distilled, El Salvador (2015) Cameroon (2014) 24% Fermented Illicit alcohol: 16% 4% Other Illicit alcohol: 22% ▶ 97% Distilled, 3% Fermented Illicit Alcohol: 56% > 53% Illegal artisanal 33% Counterfeit & illegal ▶ 60% Distilled, 40% Other ▶ 90% Distilled, Fiscal Loss: $172 MM > 50% Counterfeit & illegal 10% Fermented Key 47% Surrogate Trinidad and Tobago (2013) Fiscal Loss: $112 MM Fiscal Loss: $16 MM Tanzania (2015) Illicit Alcohol: 5% ▶ 98% Distilled, 1% Fermented, Illicit Alcohol: 51% Costa Rica (2014) 1% Other ▶ 75% Distilled, Illicit alcohol: Illicit pure alcohol as > 98% Contraband 25% Fermented percentage of total pure alcohol Illicit alcohol: 19% 0.9% Surrogate > 83% Illegal artisanal ▶ 67% Distilled, 17% Fermented, 16% Other Fiscal Loss: $9 MM Fiscal Loss: $110 MM ▶ Types of illicit alcohol as a > 91% Contraband, 4% Counterfeit & illegal percentage of the total illicit alcohol Fiscal Loss: $75 MM Suriname (2016) Zambia (2014) Illicit Alcohol: 18% Illicit Alcohol: 39% (Distilled, Fermented, Other) Panama (2015) ▶ 98% Distilled, ▶ 23% Distilled, 65% 2% Fermented Fermented, 13% Other > Categories of illicit alcohol as Illicit alcohol: 2% > 95% Contraband > 58% Tax leakage 38% Contraband percentage of total illicit alcohol ▶ (87% Distilled, 4% Fermented, 7% Other) 3% Counterfeit & illegal Fiscal Loss: $51 MM > 68% Contraband Fiscal Loss: $9 MM 24% Illegal artisanal (Contraband, Counterfeit & illegal, Fiscal Loss: $6 MM Brazil (2011) Illegal artisanal, Illegal informal, Malawi (2015) Surrogate, Tax evasion) Colombia (2015) Illicit Alcohol: 28% Illicit Alcohol: 61% Illicit alcohol: 22% ▶ 86% Distilled, ▶ 76% Distilled, Fiscal Loss: USD $ million (MM) 13% Fermented, 24% Fermented ▶ 72% Distilled, 5% Fermented, 23% Other 0.2% Other > 52% Counterfeit & illegal, > 44% Tax leakage 29% Contraband 37% Illegal artisanal NOTES: Fiscal Loss: $406 MM Mozambique (2014) ‘Other’ includes surrogate alcohol Bolivia (2013) Illicit Alcohol: 66% Ecuador (2015) ▶ 81% Distilled,