Harmonisation of alcohol duty discussed again

- Last updated on GMT

Related tags: Member states, European union, Alcoholic beverage

The addition of 10 new Member States to the European Union on 1 May
has prompted Europe's tax officials to revive the thorny debate
over the harmonisation of alcohol duty rates - a debate which is
unlikely to be any more fruitful than all the previous attempts to
bring rates closer together to reduce smuggling and fraud.

Any discussion of harmonising tax rates always leads to heated debate among national tax authorities, and this has certainly been the case when it came to alcohol duty in the past - despite claims that greater harmonisation would reduce the level of fraud, among other benefits. Nor has it been countries with high duty rates, such as Sweden, Ireland and the UK, which have been the only ones complaining; countries with low rates, such as Germany (for beer) and France (for wine) have also cautioned Brussels that any attempt to impose increased duties would be strongly opposed.

But the European Commission has nonetheless continued to consider some form of harmonisation, publishing a report this week which it hopes will "launch a broad debate on the subject"

The report looks at the effect of the present system on the proper functioning of the Internal Market, the competition between the different types of alcoholic drinks due to differences in levels of excise duty, the current real value of the minimum rates that were set in 1992 and the wider objectives of the EU Treaty.

Perhaps not surprisingly, the Commission concludes that greater harmonisation of duty rates is needed "so as to reduce distortions of competition and fraud"​. But it also recognises that a diktat from Brussels would not be welcomed: "Given the widely differing views in the Member States about the appropriate levels of the minimum rates, and given that any change would require unanimous agreement, the Commission is not making a proposal at this time."

Instead, it is seeking a wider debate of the issue within the various EU institutions (Council, Parliament and the Economic and Social Committee), and said it would decide whether or not to submit proposals on all or some of the issues raised in its report on the basis of the outcome of this debate.

"It is clear to all that the widely divergent levels of alcohol taxation in Member States distort the market and facilitate fraud and smuggling, but without the agreement of all Member States nothing can change,"​ said taxation Commissioner Frits Bolkestein. "A full debate is needed to establish whether there is now any consensus for improvements to the present situation."

Drinks producers in many countries have called for greater harmonisation of duty rates in a bid to reduce both fraud and lost business. Shoppers in Sweden often pop over to Denmark to buy their liquor, because the duties are lower there, while Danes will, in turn, buy their booze in Germany. Brewers in the south of England, meanwhile, have constantly complained about the business lost to beer sellers in northern France, where rates are much lower.

But the Commission is more concerned with the issue of smuggling - i.e. illegal trading rather than legitimate cross-border purchases - and firmly believes that a harmonisation of rates "would go a long way towards providing a solution to this problem"​. Furthermore, the Commission said that "most Member States agree to this but there is no agreement on what the level of the minimum rates should be"​.

One thing the Commission was more clear about, however, was that duty rates - at whatever level they are set - are not generally a major factor in how consumers choose their beverage of choice.

"The choice of the consumer for a certain product category depends on a variety of other factors in addition to price,"​ the Commission said, citing habits, occasion, culture and climate as factors of equal importance. "As a consequence, the demand for a certain type of beverage is relatively insensitive to changes in its own price or to changes in the price of competing types of alcoholic beverage."

The Commission is also keen to persuade Member States to take other factors into consideration when considering how high (or low) to set duty rates, in particular health and agricultural policy. "A majority of Member States do not usually take into account health policy considerations when they fix their rates [although fighting alcoholism is the principal reason why Scandinavian rates are so high], while as far as agricultural policy is concerned, the current zero minimum excise duty rate for wine is often seen by wine producing Member States and by producers as a necessary auxiliary measure, in order to promote the basic objectives of the Common Market Organisation for wine.

"However, some of the other Member States would require any changes to the minimum rates to be made conditional upon the introduction of a positive minimum excise duty rate for wine. The issue of wine taxation remains therefore a very controversial and politically sensitive issue."

The report also raises the question of whether the option to tax still and sparkling alcoholic beverages differently should be retained or abolished. Many producers, for example of sparkling wines, complain that there is no justification for treating these products as "luxury" items and taxing them higher than still wines.

The report also takes the opportunity to look at the various categories of alcoholic beverages, in particular ready-to-drink premixed spirits, which it said had recently "been the subject of some confusion for both operators and Member States"​ although again it gave no particular recommendation of how to treat such products.

The desire to promote a debate on this issue barely conceals the Commission's continuing desire to set harmonised rates - an issue which Bolkestein apparently refuses to let go of. But the debate is also likely to be a mere repetition of the same viewpoints already made abundantly clear by Member States - that they reserve the right to set their own rates either to protect national industries or consumer health or, indeed, on the wider principle that tax issues in general are sacrosanct - regardless, in many cases, of what consumers would like.

Related topics: Retail & Shopper Insights

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