The rise of counterfeit products in spirits and wine across Europe cause annual government losses estimated at €1.2 billion as well as approximately 4,800 jobs in these sectors, a new study has found.
A new report published on Tuesday (26 July) by the European Union Intellectual Property Office (EUIPO) showed that 4.4% of legitimate sales of spirits and 2.3% of legitimate sales of wine are lost each year due to counterfeiting of alcoholic drinks.
Together with severe adverse effects on public health, the illicit trade in spirits and wines deprives EU governments of much-needed public revenue.
Heavy revenue losses
“The total yearly loss of government revenue as a result of counterfeit products in these sectors across the EU-28 in terms of household income taxes, social security contributions, corporate income taxes, VAT, and excise duties is estimated at €1.2 billion,” the report said.
The biggest annual losses were recorded in Spain (€263 million), followed by Italy (€162m), Germany (€140m), and France (€136m).
Hit hard by the economic crisis and austerity-driven policies, several cash-strapped EU countries looked for fresh money by increasing excise taxes on alcohol. As a result, an increasing number of EU citizens turned to the black market, where alcoholic beverages tend to be cheaper than legal alcohol.
Regarding the excise taxes imposed on alcohol drinks, the report noted that the UK lost an estimated €197m each year, France €100m and Germany approximately €140m.
Red carpet for smugglers
For the spirits industry, tax increases offer a fertile ground for the black market to flourish.
In Greece for instance, tax hikes on alcohol resulted in much lower-than-expected excise tax revenues.
Between 2009 and 2011, the Greek spirits sector has faced a cumulative increase of 125% in the rate paid on their products. On top of that, the VAT rate has also jumped from 19% to 23%.
“This acts as a red carpet to the smugglers and bootleggers who offer their illicit products at a fraction of the price of the legitimate products. At the same time, there is a health risk for citizens and tourists alike,” Paul Skehan, director general of spiritsEUROPE, told EURACTIV.
“We just have to remember the 45 people who died in the Czech Republic, Slovakia and Poland after drinking illicit products tainted with methanol in 2012,” he added, underlining that the Greek government’s efforts to fight against illicit alcohol, such as mobile prosecution squads, are a step in the right direction.
“But [these measures] need to be accompanied by a tax reduction to cut the incentive for the black market to flourish,” Skehan added.
Employment severely affected
The EU agency, which is based in Alicante, also measured the impact on employment.
According to the latest Eurostat data published in May, approximately 21.084 million men and women in the 28 EU member states were jobless. The unemployment rate was 8.6%, down from 8.7% in April 2016 and from 9.6% in May 2015. The highest rates were recorded in Greece (24.1% in March 2016) and Spain (19.8%).
EUIPO stressed that under-the-counter spirits and wines cost the EU 4,800 jobs directly. But the impact on other market sectors is also remarkable.
“When the knock-on effects of counterfeit wines and spirits in the marketplace are taken into account, 18,500 additional jobs are lost in the EU economy, of which notably 8,600 jobs are in agriculture and 1,300 jobs in the food industry,” the report noted.
António Campinos, EUIPO’s executive director, underlined that the spirits and wines manufacturing sectors in the EU overwhelmingly consist of small and medium sized enterprises, with an average of ten workers per firm.
“This report shows the economic impact of counterfeiting on this industry, and its consequences for the EU economy as a whole. Our findings are intended to help policymakers as they respond to the challenges of counterfeiting in this crucial economic sector,” Campinos said.