Spirits lift for alcohol makers as tax cut gains support

The tax on spirits could be reduced this year following talks last week between the government and the National Spirit Industry Council (KRPS) and the Sejm Treasury Committee, though any cuts face opposition from the Finance Ministry, which argues that the budget cannot afford any lower revenue this year. KPRS Chairman Józef Kapela met with Tadeusz Steckiewicz, secretary of state at the Treasury Ministry and Deputy Finance Minister Irena Ogóż to negotiate a reduction in the tax on spirits last Thursday. Spirit manufacturers blame high taxation - which jumped by 33% in 2000 from zł. 4.5 to zł. 6 per 100 liters of pure alcohol - for the growth of illegal cross-border imports, bootlegging and counterfeit versions of major brands, resulting in lower sales and profits.

"After today's stormy discussions I have reason to be at least a little optimistic that there will be a reduction (in the spirit tax) this year," Kapela said. "I think 18-20% is a certainty, but this will definitely not put an end to the black market." Kapela estimated that a 20% tax reduction would mean 16 million more liters of spirits would be sold per year, representing sales growth of 16%. But Kapela and Steckiewicz agreed that only a 50% cut in the alcohol tax would bring about a major reduction in illegal activity - good news for Poland's 16 state-owned Polmos distilleries, which saw sales fall by 60% in real terms from 1992 to 2000. As a result, profits plunged from zł. 113 million ($25.5 million) in 1996 to losses of zł. 45 million ($10.9 million) in 1999, according to the Supreme Chamber of Control (NIK). "The consumption level of alcohol from illegal sources ... is estimated at up to 50% of Polish alcohol consumption," said Andrzej Szumowski, spokesman for Poznań-based distillery Wyborowa, which is owned by French beverage group Pernod Ricard. "As a result of the tax reductions, the legal sales of alcohol would increase significantly and the condition of the spirit industry would be a great deal better than at present."

But according to Kapela, Ogóż was not persuaded by the arguments of the treasury and the KRPS, saying that such a large tax cut would lower budget revenue to the extent that it would not be balanced by increased sales revenue at the Polmos distilleries. Ogóż told the Polish Press Agency (PAP) that an 18% cut would cut budget revenue by more than zł. 730 million ($178 million). "A final decision will require further meetings between the government and the KRPS," Kapela said. But another source of pressure on Ogóż comes from the Sejm Treasury Committee, which decided to recommend a tax reduction to the Finance Ministry. When the committee met with Ogóż last Wednesday she did not rule out a tax cut but argued that spirit prices in neighboring countries such as the Czech Republic and Slovakia are so low that "even a 30% reduction in excise duty will not improve the situation ... and (it) would contravene the Law on Counteracting Alcoholism and Upbringing in Sobriety," said Grażyna Paturalska, an MP with the Civic Platform (PO) party, who was present at the meeting.