By Kunal Sawhney, CEO of Kalkine (www.kalkine.co.uk)
The recent demand of two major trade bodies — UKHospitality and the British Institute of Innkeeping — to simplify the alcohol duty system has again opened Pandora’s box of complicated taxation rules in the country.
It is needless to say that the cur- rent system of alcohol duties are complicated, economically complex and morally oppressive. Studies show that they fail to achieve their basic aim and have a serious negative impact on the lifestyles of the majority of drinkers. The alcohol duty’s revamp can create a fairer system for everyone and also improve the nation’s financial and social health.
The tax receipts from alcohol duties amounted to almost £11.15 billion British pounds in 2019-20, down from £12.1 billion in 2018-19. Of this, wine duties are the highest, which is around £4.16 billion in 2019/20.
THE DUTY FRAMEWORK
UK alcohol taxation dates back to 1643.The duty rates are adjusted annually by the Chancellor of the Exchequer as part of the Annual Budget and are based on the terms of the Provisional Collection of Taxes Act 1968. All alcohols have value-added taxes.
At present, the system has four individual taxes: beer, cider and perry, spirits; and wine and made-wine. Spirits duty is the simplest and is charged at a single rate by litres of pure alcohol. Similarly, beer duty is levied, just like in spirits. On the same lines, cider duty is levied at four different rates depending on high or low strength and still or sparkling.
Current alcohol duty rates since 1 February 2019
Beer – Rate per hectolitre per cent of alcohol in the beer
Beer – General Beer Duty – £19.08
Beer – high strength:
Exceeding 7.5% abv – in addition to the General Beer Duty – £5.69
Beer – lower strength:
Exceeding 1.2% – not exceeding 2.8% abv – £8.42
Cider and perry – Rate per hectolitre of product
Still cider and perry: £40.38
Exceeding 1.2% – less than 6.9% abv
Still cider and perry: £50.71
At least 6.9% – not exceeding 7.5% abv
Still cider and perry: £61.04
Exceeding 7.5% – less than 8.5% abv
Sparkling cider and perry: £40.38
Exceeding 1.2% – not exceeding 5.5% abv
Sparkling cider and perry: £288.10
Exceeding 5.5% – less than 8.5% abv
(Source: HM Revenue & Customs)
Being one of the major economies in Europe, the UK’s alcoholic beverages segment is robust and is expected to grow at a compound annual growth rate (CAGR) of 3.1 per cent. Earlier in 2018, Britain’s alcoholic drinks market was estimated at $44.8 billion and is expected to reach $54.9 billion in 2025, according to a market research firm Research and Markets.
Governments have taxed the consumption of alcohol for centuries, with different intentions at different times. Usually, governments were simply taking advantage of high demand to raise money from alcohol, and in the wake of high duties, smuggling has typically followed. In some parts of Britain, such as Cornwall, during the 18th and 19th centuries, smuggling of luxury goods (including drink) from Europe was more economically significant than the legitimate economy.
Previously, UK duty regulations were aligned with the EU. Now, with the Brexit transition period coming to an end, the UK government is planning to shape the duty regime to suit the national priorities. It is noted here that the UK is already paying 11 times more alcohol duty in comparison with Germany or France.
In the March budget session, the UK government had announced the alcohol duty review in order to assess the present system and note the inconsistencies.The government aimed to simplify the alcohol taxation system to make it more reasonable and economically viable.
The government has already agreed that there are variations in the current alcohol duty system like fruit or Hopped ciders are scheduled to pay wine tax rather than cider tax. Also, the strong ciders, which have alcohol levels above 7.5 per cent, pay less tax per unit than beer.The government has been considering applying the unified tax rate to all types of alcohols such as cider, wine, spirits and beer.
Not only that, there are other aspects which the government has taken a note of.This also includes the taxes applied based on the places where it sold like in restaurants or supermarkets.
Trade bodies UK Hospitality, and the BII have also supported reduced duty on draught products and rebates for bottles or cans sold through hospitality premises.
Experts and critics have said that the UK’s alcohol duties regime has given rise to the problem of the “white van man”, who makes a fortune by bootlegging alcohol. Most experts have pressed for the UK tariffs to be at par with other countries in the continent.The inconsistencies in duty in the UK alcohol market has been a point of discussion for trade bodies within the country.
For instance, the Wine and Spirit Trade Association (WSTA) has welcomed the government’s duty review and called the current alcohol duty system an intricate and uneven playing field. Miles Beale, CEO of WSTA, said Britain’s wine and spirits segment creates almost £50 billion a year in economic activity, supporting about 360,000 jobs and contributing a whopping £17 billion to the exchequer.The current alcohol duty is unfair to businesses and the government.
The British Beer & Pub Association (BBPA) has applauded the government’s alcohol duty review and said this would help the alcohol industry in the UK to revamp its process so that businesses and taxpayers can have a uniform field in the market.
Similarly, Campaign for Real Ale national chairman Nik Antona has praised the alcohol duty review and said this is a great move by the government to save the pubs and implement lower taxes on the selected alcoholic drinks.
The alcohol review has come at a time when the UK is battling with the pandemic crisis, which has severely hit its economy.
Though the alcohol duty review provides an opportunity for the government to address the inconsistencies in the segment, the whole situation is a bit puzzling for the government. If it increases the tariffs, it is expected to stimulate duty evasion and revenue loss. On the other hand, the reduction in duties will make the government open to criticism of social irresponsibility.