Excise tax hopes face opposition

Date: 19/10/1995

By Fiona McHugh

THE European Commission's goal of harmonising the various excise duties imposed on products such as cigarettes, alcoholic beverages and mineral oils by each EU government faces stiff opposition from member states unwilling to surrender their fiscal sovereignty.

Ahead of a major Commission conference on the subject planned for November, diplomats and industry experts say the chances of the 15 member states agreeing on a common duty rate are, at best, slim.

The conference comes in the wake of a report on the Union's excise-duty regime published by the Commission earlier this year which is due to be discussed by EU finance ministers next Monday (23 October).

“The conclusion the review came to was that we needed to speak with all of the players before we could even think about legislating,” explains one Commission official.

At stake are billions of ecus in tax revenue. For northern member states which impose much higher excise rates than their southern neighbours, duties are crucial money-spinners. Any cut in them would have to be compensated for by an equivalent increase in income or some other form of tax, an option likely to be greeted with little enthusiasm by governments with one eye on the voters at home.

Huge differences currently exist in the levels of excise duty imposed across the EU, with certain northern member states levying duties equivalent to up to three times the actual cost of some alcoholic spirits and southern members imposing little or no duties on competing products like wine.

Spirits producers from high-duty northern states who have been clamouring for action say this causes a gross distortion in the single market. “Alcohol is alcohol, whether it is wine or spirits, and they should be treated equally,” said one.

Illegal trade between member states is another crucial issue which will be tackled at the conference to be held in the Portuguese capital Lisbon from 13 to 15 November.

Since customs checks were dropped in 1993, consumers from high-duty countries such as Denmark, Austria, Holland and Great Britain, lured by low alcohol and tobacco prices, have flocked into low-duty countries such as France, Italy and Spain to shop. Under EU single market rules, people travelling within the bloc can buy almost as much alcohol and tobacco as they like at local duty rates provided it is for their own consumption. But there are fears that large quantities of goods are being smuggled into high-duty countries for sale on the black market.

Austria, Denmark and Ireland are among those who want the EU to do something to stop this trade. But they do not want to lower their rates. Countries such as France, Italy and Spain are equally determined to protect their wine producers by maintaining low rates.

Italy, for one, insists there is no question of the southern member states changing their position.

“Increasing duties on wine is out of the question for the Mediterranean countries because for us wine is an integral part of our civilisation,” said an Italian official. “We agreed to an increase in VAT some years ago so another increase would be impossible.”

But those on the other side of the argument appear equally determined. One Irish diplomat commented: “If we reduced our excise rates we would have to change our whole tax basket. I can't see us doing that in the near future. There is a built-in difference of opinion between the member states which will be very hard to reconcile.”

It will fall to the Commission to bridge this divide, but no one is taking any bets on its chances of success.

“Even within the Commission, let alone between member states, there is major disagreement about what should be done,” said one diplomat who will play a key role in the forthcoming debate over the future of the excise system.

The Commission is expected to produce another report after the conference and eventually a proposal for the revision of existing excise duty rates.