braKe European spirits growth Foreword Heavy burden on consumers

MINIMUM RATES EXCISE RATES We now have a new Commission and a new Parliament a time of great change, of great opportunity and of great expectations. To ensure the establishment and functioning of Since January 2013, excise rates on spirits drinks the internal market, the European Union created have increased in 19 EU Member States, increasing a common legal framework for VAT and excise tax. sometimes more than once in the same year.

Our sector shares those expectations. we support it has also left large deficiencies in many exchequers, Th e legislation defi nes the alcohol products that are the renewed focus on jobs and growth; we look for deficiencies that Finance Ministers look to make subject to excise duty/VAT and specifi es minimum rates is tAX iN FrANCe a turnaround in the european economy. As a very up through increased taxation of our products. And per category. Revenues from excise and VAT taxation 86% consumer-centric business sector, we have endured squeezed wallets and inflated prices offer an open go to national governments. €11 is tax for a bottle of spirits these past years of austerity measure after austerity invitation to criminals selling counterfeit or illicit alcohol sold at an average price of €13 measure. we look forward to seeing the plans for products. A perfect storm. rejuvenation that president Juncker will bring forward, and we look forward to playing our part in that economic we support fair taxation, we understand its need. recovery. But the increases we have witnessed over the recent 77% is tAX iN uK past cannot be considered fair. excise increases up to €13 is tax for a bottle of indeed, the “era of austerity” has had multiple, 60% in recent years have a huge impact on our sector blended Scotch sold at €17 interconnected, negative effects on our businesses. including a disproportionate effect on our sMe distillers Not only has it knocked a hole in the pockets and whose markets are more local, less international. 2 wallets of our consumers, thereby dampening demand, 68% is tAX iN pOLAND €5.4 is tax for a standard bottle of Polish sold at €8

€550 or €1000/hlpa1 €187/hlpa €0/hlpa 64% is tAX iN itALY SPIRITS BEER WINE €9.5 is tax for a bottle of Limoncello sold at an average price of €15 spiritseuroPe KeY messages hlpa: hectolitres of pure alcohol

1Once the spirits duty rate in a country is set above €1000/hlpa, it cannot fall below anymore. Sources: DG TAXUD and IWSR 2013 Excise tax on alcohol beverages should be fair and equitable MeMBer stAtes HAVe tHe FreeDOM Excessive taxes depress revenues, growth and employment and create an excessive burden on consumers tO set rAtes At LeVeLs ABOVe spirit DriNKs Are AMONG tHe HiGHest tHe eu LeGAL MiNiMuM rAtes tAXeD CONsuMer GOODs iN eurOpe Member States should reduce the economic incentives that allow informal markets to fl ourish

In terms of health policy, tax is a blunt instrument that impacts on moderate drinkers without having meaningful impact on those with risky drinking behaviours CONCLUSION

On average, 2/3rds of the price paid by European consumers for a bottle of spirits is tax. Large contribution to exchequers WE SUPPORT FAIR TAXATION, BUT EXCISE TAXES SHOULD BE FAIR TO ALL in 2013, BUSINESSES ENGAGED IN PRODUCING AND SELLING WINE, BEER AND SPIRITS. €21 400 000 000 the spirits sector generated:

> 3000

SPIRITS BEER In 2013, the spirits sector generated €21.4bn 16% €14.7 billion in excise duties and to €6.7 billion in VAT for the exchequers throughout Europe. > 2501-3000 ± the GDP of Latvia (€23.3bn in 2013) in excise duties & VAt of the eu budget 2013

Sources: DG Taxud and IWSR 2013 > 2001-2500 Towards a fair & equitable tax treatment

Today, the diff erence of tax treatment is such that although similar rates of increase might be applied, 4 the overall eff ect on the real tax rate is considerably larger for spirits than for other lower-taxed products. > 1501-2000 Even a smaller % increase for spirits may result in much higher amount being taxed. ALL ALCOHOL BeVerAGes COMpete witH eACH OtHer, tHe GREECE 2010 NETHERLANDS 2012 eXCise tAX sYsteM sHOuLD NOt > 1001-1500 outcome of tax increases in 2010-2011 2011 outcome of tax increases 2012-2014 2014 DistOrt tHAt COMpetitiON

3000 WINE + €1,188 2500 /hlpa + €182 > 501-1000 2000 /hlpa Alcohol is alcohol is alcohol. Spirits should be taxed fairly! 1500 + €310 + €96

€/hlpa /hlpa 1000 /hlpa

500 > 1-500

0

BEER SPIRITS BEER SPIRITS Aperitif Spirits Beer Wine +87% tax increase +87% tax increase +16% tax increase +12% tax increase 60ml 30ml 250ml 100ml > 0 same tax % increase, even with slightly lower % increase, but disproportionate effect on spirits spirits still pay even more than beer €/hlpa - May 2014 = aA STANDARD DRINK STANDARD DRINK ± 10g of Source: DG TAXUD Source: DG TAXUD Lower consumption, but higher tax Excessive tax rates: incentive for black markets

Illicit trade in alcohol cuts into the sector, thereby reducing Republic and Poland after drinking illicit vodka or rum EUROPEAN UNION its ability to grow, invest and employ; but also cuts into the tainted with methanol in 2012). 50% tax revenues that national exchequers could normally expect 47% to receive. Bulgaria increased excise rates on spirits by 46% between 40% 43% 2005 and 2006. Nowadays, 35% of the market is illicit (mainly We believe that cost can be counted in billions. In addition, home-made “” and non declared spirits’ production) and 30% 31% 32% the consumption of illegal production (such as , €52m of tax revenues are lost annually. counterfeit, smuggling, surrogate alcohol, etc) pose a serious 20% 25% 22% health threat by providing consumers with inferior or even We believe the scale of the illicit markets is directly linked to toxic products (e.g. over 45 people died and dozens more excessive increases in tax on legitimate products. 10% suff ered serious illness in the Czech Republic, the Slovak 0% Per caPita sPirits eXcise burden in increase in excise tax Average % of tax revenues relation to disPosable income in eu-28 between 2008-2014 illicit alcohol lost annually

CZECH REPUBLIC SWEDEN 80% > 200 60% 64% 49% 32% m 57% > 175-199 Latvia €33 40% 44% 40% 41% 39% 6 34% 20% 27% > 150-174 20% % 16% 3 15% 0% Poland 25% 15% €281m > 125-149

FRANCE GREECE > 100-124 80% Greece 125% 40% €140m % > 75-99 60% 75 72% 59% 56% 40% > 50-74 UK 44% 5% €274m 20% % 28% Sources: spiritsEUROPE based on EUROSTAT and DG TAXUD 24% % % 26 > 50 17% 22 4 18% 0 % 2013 data. No data available for Croatia and Malta 0% tax Burden index From information available, it seems there is (eu average=100) a correlation between the size of the illegal Sources: Estimates based on national customs data and WHO 2014 market and the level of tax/excise burden in relation to disposable income. Spirits Consumption Beer Consumption Wine Consumption 2013 Spirits Excise Revenue Beer Excise Revenue Wine Excise Revenue CONCLUSION per capita consumption is in litres of pure alcohol, provided by iwsr 2013. spirits, beer and wine are assumed to be 40%, 12%, and 5% ABV, respectively. Need for systematic and comparable research to measure the scale & value of illicit alcohol in Europe. Such research would benefit business, public administrations, customs services, police, and consumers’ health. Sources: DG TAXUD & IWSR Tax rates = Revenues

2008 +8% -10% 2010 +125% +13% Over the last two years, there have been a total of 32 individual negative impact on spirits producers, but also on other parts CZECH REPUBLIC - GREECE - spirits excise rises within the EU-28. However, higher taxes of the economy, in particular the hospitality and tourism 2013 Excise rate In revenues 2013 Excise rate In revenues do not always generate higher revenues because consumers sectors. A number of Member States have reached the limit shift their demand to less expensive products or buy abroad (the profi t maximizing point) beyond which increasing tax (with VAT revenues decreasing). Increasingly, consumers also rates will not generate further tax revenues but will instead 26500 28500 28500 1135 1362 2174 2550 2550 buy from the grey/ paying no tax whatsoever. lead to reductions. 400 3500 All these changes in consumers’ purchasing decisions have 11000 29000 350 28000 3000 eXcise dutY rates & revenues (sPirits and all alcoHolic beverages) 9000 300 27000 2500

7000 26000 250 291 Spirits Excise Revenues Total Alcohol Excise Revenues Spirits Excise Duty Rate 2000 25000 200 257 7082 5000 1500 6380 24000 150 rate: €/hlpa rate: revenue: €m revenue: rate: Kč/hlpa rate: revenue: Kčm revenue: 836 881 916 957 1001 1031 1192 3000 1000 300 1300 23000 100 PORTUGAL 1200 22000 500 250 50 1100 1000 2001-2014 21000 200 247 1000 0 0 900 8 +43% 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 150 800 Excise rate 173 rate: €/hlpa rate: revenue: €m revenue: 700

100 134 -32% 600 91 In revenues 50 500 We are calling on taX cut tHat Will generate groWtH 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2008 +49% -8% & emPloYment LATVIA - 2014 Excise rate In revenues €138M shortfall €1,602M €1,469M 2006-2013 Yearly over-estimation of 8.5% expected revenues revenues collected in Portugal with a peak of 20% in 2012. 630 853 890 940 940 100 1000

80 800 654 765 800 905 942 1035 On 18 March 2015, the UK Government 1200 82 ITALY 60 75 600 decided to cut excise duty on spirits by 2%. 1000 40 400 According to an independent analysis by EY, 2004-2014 800

rate: LVL/hlpa rate: such a cut will boost public finances by £1.5bn,

revenue: LVLm revenue: 20 200 +43% 600 through increased investment across the industry,

Excise rate 400 571 0 0 greater tax income from corporation tax and rate: €/hlpa rate: revenue: €m revenue:

438 VAT and from more jobs created in pubs, bars, 200 2008 2009 2010 2011 2012 2013 2014 -23% restaurants, shops and the wider supply chain In revenues 0 due to increased confidence in the industry. 2002 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* 2015

*( Jan/Nov) Sources: DG TAXUD and spiritsEUROPE Portugal sources: DG TAXUD & spiritsEUROPE • Italy sources: DG TAXUD & Italian Ministry of Finance (Bulletin 153-January 2015) High taxes do not necessarily reduce harm

minimum unit Pricing Tax cannot distinguish between abusive and responsible drinking patterns and is therefore ineff ective Empirical evidence shows that countries countries with lower rates such as Italy, in addressing alcohol misuse. Taxes have very little infl uence on alcohol misuse, yet high taxes carry with high excise duty rates on alcohol Bulgaria and Luxembourg have also unintended consequences, such as increased incentives for informal and unregulated markets to thrive. beverages such as UK, Ireland, Finland, relatively low binge drinking rates for Wealthy drinkers, whether Norway have relatively high level of both adults and 15/16 year olds. Last but moderate or heavy, are unlikely tAX is A FisCAL iNstruMeNt, NOt sOCietAL heavy episode drinking among adults not least, tax decreases in some Nordic to be affected by MUP. (see Eurobarometer below) and among countries a couple of years ago did not Th e heaviest drinkers/alcohol abusers are least responsive to price changes. Th erefore, the 15/16 year olds (see www.espad.org), with lead to increases in alcohol-related harm, They have sufficient resources to heaviest drinkers tend to continue consuming alcoholic beverages even if they are more expensive. the exception of Sweden. In comparison, according to recent peer-reviewed papers. buy alcoholic beverages, even for higher prices.Therefore, MUP Th e less well-off heavy drinkers try to maintain their alcohol intake by either switching to will have little or no impact on cheaper drinks of the same category - or to a diff erent category - or turn to the unregulated market eu-27: For drinKers aged 15+(eurobarometer 2009) better-off, heavy alcohol drinkers. (illicit drinks that are potentially unsafe). LOW-INCOME drinkers, whether moderate or heavy, On the other hand, moderate drinkers are more responsive to price changes and therefore are likely will be forced to take a decision to reduce their consumption after price increases, which, in turn, may lead to reduced health benefi ts. facing price increases.

MODERATE drinkers will reduce/stop drinking Moderate drinkers are the vast majority and are impacted by tax increases while the minority of or switch from on-trade to off-trade consumption, losing social heavy drinkers responsible for alcohol related harm does not significantly change their behaviour. and health benefits. 10

relative all-cause mortalitY risK: HEAVY PeoPle consuming 1 to 4 alcoHolic drinKs/daY comPared WitH abstainers drinkers in the low-income category will try to maintain their level of proportion of people within weekly/daily intake by switching from on-trade 82.4% drinking limits (moderate drinkers) to off-trade, saving money on food to Women Men All buy alcoholic beverages, or buying from the lowest-hand of the market, including illegal, surrogate products. proportion of people above weekly recommended 10.9% guidelines but never 5+ drinks in the last 30 days 1.4 Moderate consumption can be 1.3 As a result, we believe associated with health benef its proportion of people who consumed alcohol-related harm is not 1.2 6.7% 5+ drinks at least once in the last 30 days likely to decline with MUP. Numerous scientific studies show 1.1 that otherwise healthy adults who consume alcoholic beverages in 1.0 relative risk relative moderation (regular moderate drinking compared to heavy 0.9 episodic drinking) may face lower risk for a number of conditions, in 0.8 particular age-related risks such as CONCLUSION coronary heart diseases, ischemic Drinks per day: 0 1 2 3 4 5 stroke, diabetes and dementia. High excise rates appear to be unrelated to abusive drinking patterns and are not preventing necessarily heavy episodic drinking events. Inserted by spiritsEUROPE • Source: Di Castelnuovo et al. 2006 (p.2442) €21 400 000 000 Generated through VAT and excise

€10 000 000 000 1 000 000

Export sales outside the EU EU Jobs in production & sales

140+ 32 8 Prevention National programmes associations Multinationals

1 Organisation

rue Belliard 12, 1040 Brussels • [email protected] www.spirits.eu

The bibliography related to last chapter (p.10/11) is available at http://spirits.eu/files/24/bibliography-tax-brochure--april-2015.pdf