The loud debate about wine taxation is accompanied by a billion-dollar “split” in possible revenues for the state coffers.
According to the Ministry of Finance and the Government’s National Economic Council, the introduction of an excise tax on wine can bring in an extra four billion crowns to the budget annually. On the contrary, winemakers talk about an income gain of “only” 1.45 billion crowns and thus add an argument why wine should not be taxed in the near future. So-called still (all non-sparkling) wines have zero consumption tax in the Czech Republic compared to other alcohol.
The actors of Tuesday’s meeting, where wine taxation was discussed, were given the homework to resolve the aforementioned discrepancy in numbers during the next meetings.
The winemakers rely on a new impact study that they presented at the meeting of the working group. The wine fund had it processed by several agencies for almost a million crowns.
However, only a three-page extract from the document is public. It is not so clear how the developers arrived at some numbers. “The document cannot be sent due to contractual conditions, only to members of the working group. It’s a standard procedure,” explained the head of the Winemakers’ Association, Martin Chlad.
People will drink less, winemakers fear
Among other things, the study mentions that the introduction of an excise tax on wine would reduce the income from VAT (by 610 million crowns), it would lead to the dismissal of workers in the winery and thus lower levies for employees (minus 575 million crowns), it also takes into account the effects of an increase in black market (minus 259 million crowns).
According to the document, almost 22,000 people now work in the industry, and when the tax is introduced, it calculates a decrease of more than 3,700 workers in the wine industry.
According to winemakers, wine consumption per person would drop by five liters to 13.7 liters per year due to the introduction of the excise tax, i.e. by more than a quarter.
Experts from the National Economic Council of the Government criticize partial figures from the study. According to them, the document primarily exaggerates the effects of taxation on wine consumption.
“The document from the winemakers does not take into account that a large part of Czech wines would have half the tax rate according to the proposal. Since Czech winemakers already have higher prices than cheap foreign competition, they would increase by, for example, 10 percent. With this increase, we can estimate a significantly smaller decrease in consumption and impacts on Czech wines, especially from smaller wineries,” argues sociologist from PAQ Research and NERV member Daniel Prokop.
It is also based on its own study from October, in which the authors recommend reforms to the tax system. According to her, taxing still wines would bring an extra 3.8 to 4.9 billion crowns to the state coffers.
Another member of the government’s advisory body, Charles University economist Petr Janský, perceives it similarly. “The winemakers don’t show how they arrived at the numbers. This can’t be taken too seriously. It is purposeful. It is not conducive to having more realistic estimates,” he responded.
Chlad objects that the impact study is based on data from Eurostat, the Czech Statistical Office and a survey of a thousand respondents and 350 winemakers.
On the contrary, he disputes the government’s figures. “The Ministry of Finance was based only on the linear product from NERV. They took the consumption of wine and multiplied the considered tax rate,” said Chlad.
Winemakers also claim that any consumption tax on still wines will be reflected in the gray economy. “The growth of the black market is expected in the area of wine trading. Unrealized tax collections will reach 1.25 billion crowns,” the study summarized.
But according to the sociologist, it can be the other way around. “The problem today is that if there are no tax warehouses for wine, there is no record keeping and this can support the gray market and VAT evasion. It is quite a relevant hypothesis that taxation, on the contrary, would significantly reduce the gray market,” argued Prokop.
According to him, the study commissioned by the Wine Fund also does not take into account the positive budgetary effects that limiting alcohol consumption would bring. “The health effects are missing. When they report such a massive drop in consumption, it would certainly have a major impact,” argued Prokop. In this regard, experts mention a reduction in the number of traffic accidents or illnesses and hospitalizations associated with lower alcohol consumption.
According to Chlad, the government’s calculations only took into account the income side, they did not address the expenditure side. “This is also why our study focused only on revenues in the budget. We should have answered the Ministry of Finance – what will it bring to its coffers,” Chlad responded.
Janský goes even further with the debate on wine taxation. “I see the point in it, even if theoretically no extra billions were collected from it. After all, we don’t want to have alcohol taxed like orange juice. After all, it is also about health aspects,” he added.
Minimum price for alcohol?
Sociologist Prokop, on the other hand, welcomes the discussion on the minimum unit price of ethanol, which winemakers opened on Tuesday.
The system works in Ireland or Scotland. “However, there it works in addition to excise duty, not instead of it. The minimum price of wine according to Scottish rules is higher – about 100-110 crowns per liter when converted to our wages,” he responded.
The shift of winemakers to a rational discussion is fine. Two notes: 1) in Ireland and Scotland there is a minimum unit price (MUP) in addition to consumption tax, not instead of it, 2) the minimum price according to the Scottish one is higher – approx. 100-110 CZK / liter of wine at our wages. /1https://t.co/7mBEHOdNx0
— Daniel Prokop (@dan_prokop) November 29, 2023
However, according to Chlad, they are not typical wine producers. “What we said applies to us. First of all, we need to bring order to our market by amending the law and, in parallel, conduct a debate on changing the European directive,” said Chlad.
He alludes to the fact that winemakers in other European powers also have zero excise duty. “Perhaps the French collect some money in taxes, but their market transparency and control system are in a completely different state. And there is an existential penalty for misconduct. That is why it is incomparable and they would sacrifice us by introducing the tax,” he added.
How they calculate the minimum unit price of alcohol in Scotland
Czech winemakers came up with a proposal for a minimum unit price for ethanol. However, they did not specify more detailed calculation options or the proposed minimum price.
In Scotland, a similar system has been operating for over five years. The minimum price per unit of alcohol is set at half a pound.
The number of units in a bottle of alcohol is obtained by the equation:
Volume of liquid (ml) x Content (% alcohol) x 0.001 = Number of units
Example: A bottle of Scotch wine with a volume of 0.75 liters and a content of 14% alcohol.
Calculation 750 × 14 × 0.001 = 10.5 units. A bottle of such wine can cost at least 147 crowns in conversion.
According to experts, the minimum unit price would also raise the prices of cheaper beers or schnapps in the Czech Republic.
The Ministry of Finance is still skeptical about the minimum price for ethanol. “We have dealt with this proposal before. However, the Act on Prices does not allow for price regulation of goods for reasons of public health protection,” responded the spokesperson of the department, Petra Vodstrčilová.
The ministry did not calculate how much money the measure would bring to the state coffers. Setting a minimum price, however, would have a very limited budgetary impact,” she added.