SPIRITS & WINES: UK tax stamps represent cost to travel retail

UK. In his pre-Budget report this week the UK Chancellor of the Exchequer Gordon Brown outlined plans to reduce the level of tax losses from spirits fraud by introducing tax stamps. The good news for travel retailers and suppliers is that the government decided not to go ahead with some related measures that would have reduced the number of movements allowed between bonded stores for goods, whilst they are held in duty suspension.

Such a measure would have prevented duty free movements via a central distribution warehouse or any third party warehouse. The government also decided not to implement a limit of only one sale of goods whilst held in duty suspension (prior to sale in an “export” shop or travel retail shop). Even by itself, this measure would have prevented airlines from receiving goods in duty suspension, as there is normally more than one change of ownership in the supply chain.

Airlines generally take delivery of goods from third-party bonds, warehouses or concessionaires, who have themselves, received the goods from suppliers. And all airport retailers in the UK such as World Duty Free, Alpha and The Nuance Group operate a central bonded warehouse, supplying to other local warehouses in airports.

UK Travel Retail Forum secretary general Barry Goddard commented: “The good news is that, following our representations, the government has decided not to implement options 1 and 2 in the consultation paper that we submitted to HM Customs. The bad news is that, despite deciding in the 2002 Budget that they would not introduce tax stamps on spirits, the Chancellor announced that they would after all be introduced in 2006, unless the trade can devise a workable alternative before the 2004 Budget.

“We still have a lot of work to do,” he said.

The introduction of tax stamps was recommended by a report in 2001, but the necessary legislation was not proceeded with at that time. Instead a Joint Spirits Task Force was set up between HM Customs & Excise and the industry to explore other options for reducing fraud.

However spirits tax evasion in the country has continued to escalate, with estimates showing an increase of +16% in the year 2001/02. Against this background, and despite the co-operative attitude of the spirits industry, the government said it has been unable to identify alternative means to tax stamps that would deliver the substantial reduction in fraud that is required. It estimated that the introduction of stamps would reduce fraud by £160 million (US$279 million) in its first full year.

Representatives of the UK spirits industry reacted with alarm to the proposals. Wine & Spirit Association director Quentin Rappoport said: “We agree that there is a serious problem with spirits fraud, but introducing stamps is definitely not the solution. Stamps are ineffective as a means of control, as they can be easily counterfeited, even if they have expensive holograms. Furthermore they represent significant additional costs to the industry, which will cripple small companies.”

Scotch Whisky Association chief executive Gavin Hewitt said: “We will be working hard to convince the Treasury that tax stamps would be a backward step, damaging productivity and competitiveness, and that alternative measures would be more effective. Stamps have been shown not to be the solution.

If the introduction of tax stamps on spirits is indeed confirmed in the 2004 Budget, the government said it will soften the blow for the trade by considering an extension of existing deferment arrangements (in order to reduce the negative cash-flow effect of stamps) and will also consider freezing spirits duty for the remainder of this Parliament.

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