The effects on the spirts sector of the continuous crises after 2009 and the potential impact of the adjustment of the tax framework
The new IOBE study entitled “The Spirits Sector in Greece: Contribution to the economy and prospects” resents the most recent data and developments concerning the spirits sector in Greece and evaluates the contribution of the spirits sector’s supply chain to the Greek economy. In addition, the study examines the economic impact of the convergence of the excise duty on spirits to the average EU level, with the aim of mitigating market distortions and stimulating GDP, employment, and tax revenues.
This study, In particular examined, the effects on the spirits market of the continuous and prolonged crises experienced by the Greek economy after 2009, as well as the potential impact of the adjustment of the tax framework applicable to spirits.
The sector of spirits production and marketing is part of a wider sectoral system, which also includes large parts of catering and tourism (hospitality sectors). According to the IOBE study, the overall contribution of the wider supply chain of spirit drinks to the Greek economy is particularly important, as in 2021 it contributed €1.75 billion to GDP and supported 61 thousand full-time jobs.
The escalation of excise duty rates on spirit drinks in the period 2009-2010 led to a reduction in consumption and the substitution of part of the legal market by illegal alcoholic beverages, trends that were also reinforced by the decrease in consumers’ disposable income.
The pandemic was a test for the supply chain of spirits, dramatically affecting consumption due to the forced lockdowns in entertainment and food service and the limitation of tourist flows. Alcohol consumption fell by 65% in 2020 and recovered in 2021, but not to pre-pandemic levels. Legal recorded sales of spirit drinks in 2021 were at 90% of the 2019 level and 50% compared to 2009.
According to the IOBE study, Greece has the highest rate of VAT on spirit drinks among the EU-27 countries (in purchasing power units) and more than twice the average of neighboring countries, some of which are competitors on the tourism market.
High taxation within the wider economic environment, as the pandemic, energy costs and high inflation have strengthened uncertainties in the economy.
In the study, it was estimated that the total losses of tax revenue from the illegal trade in alcoholic beverages amount to approximately €60 million (non-payment of excise tax and VAT), not counting the losses from the so-called “two-day distillation products”. With reference to the last, excise tax losses from the popular “bulk tsipouro”, are estimated at up to €90 million
It is estimated that the restriction of the illegal trade in spirits sector e.g. through a reduction of the excise tax, but also through coordinated controls, will bring multiplier benefits to tax revenues, public health, the viability of many businesses and employment, and will strengthen the operating framework of healthy businesses.
Indicatively, the study estimated that a possible reduction of illegal trade by 20% would lead to approximately €30 million in additional tax revenue from VAT and excise tax per year, while a greater reduction by 50% and substitution of these consumption amounts with legal spirits, could lead to additional revenues of €70m from VAT and excise tax.
Effects of the convergence of spirit drinks taxation with the European Union average
The challenges that the spirit sector now has to face, in addition to the high tax burden, are related to the wider economic environment, as the pandemic, energy costs and high inflation have strengthened uncertainties in the economy
In this context, according to the IOBE study, it would be positive to support the businesses of the wider supply chain of alcoholic beverages to cope with these challenges, with the basic measure being the readjustment of the level of taxation.
The study assessed the effect of reducing the excise tax on spirits from the current level of €2,550 per 100 lt of ethyl alcohol to €1,800 per 100 lt of ethyl alcohol (EU average). A reduction in the excise tax rate can help curb the illegal trade in spirits and replace unregistered with legal consumption, which is controlled and safe, while strengthening the legal segment of the market, creating a more robust business environment with restraint or employment enhancement
Based on IOBE’s analysis, the convergence of the excise tax with the EU average will have a positive effect on the Greek economy, leading to:
- Increase in GDP from €159 million to €314 million.
- Increased employment throughout the spirits supply chain from 5.5 thousand to 11.5 thousand jobs
- Total revenue change (VAT, excise tax, income taxes) up to €11.9 million.
In addition to the adjustment of the taxation of spirits with its convergence towards the EU average, positive contributions to the operation of the market and the development of the spirits sector could be made by:
- The improvement of the digital functions of the control and supervision services of spirit drinks with the universal application of the LOTIFY system and the creation of an electronic register of two-day distillation rpoducts and distillers, with the aim of limiting illegal trade,
- The regulation of the production and distribution of spirits in bulk, through electronic monitoring of such from production to consumption, in combination with the provision of incentives to traditional distillers for the standardization of their products,
- The support of domestically produced spirit drinks through the establishment of a product promotion program of geographical indications and the financing of a program of strategic entry into foreign markets, with the aim of strengthening exports and improving access to financing and information on distribution channels abroad, in particular for small and very small Greek businesses, and
- The facilitation of business investments by electronic processing of studies and submission of all the elements of an investment to an institution.
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