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www.bryggeriforeningen.dk
Estonia, 14. March 2017
New Paradigm:Abolishing excise duties as a regulatory instrument – the Danish case
Niels Hald, CEO, Danish Brewers’ Association
www.bryggeriforeningen.dk
The tax regime
Excise duty on soft drinks
3
Introduced in Denmark in 1934 and abolished in 2014
0,00
0,20
0,40
0,60
0,80
1,00
1,20
1,40
1,60
1,80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
DKK/ LExcise duty rate
Abolished
Excise duty on soft drinks and total sales
4Source: Ministry of Taxation
Effects of the soft drink tax before2014: Double Economy
• Danish work places
• Revenue for the state
• Part of Public Health regulation
• Environment – Return and deposit system
Sale in DK
2/3 of Consumption
• Loss of Danish jobs
• Loss of state revenue
• Illegal trade
• Discriminates law-abiding citizens
• Overconsumption (stock piling)
• Environmental loss: Double transportation and not recollected packaging
Border sale/
Illegal trade1/3 of Consumption
5
Border sale
6
• Danes purchase soft drinks (and Beer) in German border shops
• 1/3 of national consumption of soft drinks sold from border shops
• Danes are travelling for soft drinks and beer … AND brings other goods from the border shops
Ice cream
Beer
Wine
Soft DrinkCandy &
Chocolate
Fat ?
0%
25%
50%
75%
100%
0% 10% 20% 30% 40%
Shar
e o
f D
ane
s go
ing
to t
he
bo
rde
r to
bu
y
Share of sale from Border shops
Sensitivity to Cross Border sale
DK63%
Border37%
Danes consumption of Soft Drinks
Loss of jobs
• High excises on beer and soft drinks – the two drivers on the border trade – damages Danish economy
• The cross border sales represented a loss in turnover of Danish shops of 5,5 billion DKK and 3000 jobs
• Prof. econ. Jan Bentzen (2013): A 50 % reduction of the excises of beer and soft drinks would create 1300 new jobs
7
Loss of state revenue
Danish state lost (2012): More than 1,5 billion DKK
• Lost excise on beer: 500 mio. DKK
• Lost excise on soft drinks: 250 mio. DKK
• Lost VAT on beer and soft drinks: 1,1 bio. DKK
• Lost from illegal trade: 0,5 Billion DKK
8
Illegal tradeDiscrimation of law-abiding citizens
Illegal trade constantly increasing (31 mio. liters in 2012)
Tax and custom authorities using huge resources on confiscating illegal stocks
Large illegal sales from small shop
Large illegal sales to ”friends”, within companies etc.
Supporting a ”parallel” economy
Law-abiding shops cannot compete
State loss of 50 mio. euro p.a.
9
Effects on income distribution:Hitting low income group
10
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
0%
10%
20%
30%
40%
50%
60%
70%
80%
Under200.000 kr.
200.000 -399.999 kr.
400.000 -599.999 kr.
600.000 -799.999 kr.
800.000 -999.999 kr.
Mere end1.000.000 kr.
An
tal
ind
kø
bs
ture
pr.
år
Pc
t
Grænsehandel
Handler ved grænsen overhovedet Antal gange pr år Forventet
• Excise duty on soft drinks effects the disposable income for low-income groups
• Low-income groups do not purchase soft drinks (and Beers) at the border
Border trade/illegal trade leads to stock piling and overconsumption
11
• Cross-border trade leads to overconsumption
• Danes purchasing soft drinks and beer in the border shops buys for stock piling. As a consequence they have easy access to consumption
• Consumer surveys shows that Danes buying in the border shops consider their consumption to be higher than it would have been if they did not purchase in the border shops
The Environment
Packaging from the border and illegal trade are not collected via the deposit system -ends up as ordinary waste
62.500 T CO2 would have been saved if 1,25 billion cans had been collected and re-used
70.000 T CO2-reduction by avoiding the dual carriage of cans
12
No effect on health
13
• Soft drinks constitute a negligible part of total calorie intake
• Share of sugar free soft drinks are increasing
• Other sources of sugar is increasing relatively
• Obesity is multi-causal: Lifestyle, less physically demanding work and leisure activities
53%
24%
14%
3%2%4%
Sugar intake
Sukker og slik 53 %
Drikkevarer 24 %
Frugt (grønt) 14 %
Mælk 3 %
Kornprodukter 2 %
Fisk, diverse 4 %
www.bryggeriforeningen.dk
Changing Paradigma
Danish Growth Plan 2013
• The Aim: – Redirect Danish citizens from German border shops to Danish shops.
– Stop illegal sales
– Create growth and job in the Danish economy
– Focus on life style
• Excise Duty on soft drinks:– Reduced by 50% on 1 July 2013 and fully removed on 1 January 2014
• Excise duty on Beer:– Reduced by 15% on 1 July 2013
15
Abandoning duties as a regulatory instrument
• Excise on Fat (2013)
– Administrative cumbersome, discriminatory, difficult to make fair, risk of illegal state aid
• Excise on sugar (Introduction dropped in 2013)
– Administrative cumbersome, discriminatory
• Excise on Soft Drink (2014)
– Administrative cumbersome, loss of work places, harmful to the environment
• Excise on Beer (Reduced in 2013)
– Administrative cumbersome, loss of work places, harm environment
16
Lower Prices for the consumers
17
80
90
100
110
120
130
140
2012 2013 2014 2015 2016
Index (2015=100)
Consumer Price (soft drinks)
-50% Abolish
ReducedConsumer
Price (25-30%)
Source: Danish Department of Statistics
Cross Border salesAffected by Danish Growth Plan 2013
18
100
200
300
400
2008 2009 2010 2011 2012 2013 2014 2015
Mio. l.
Development in sales,Denmark & Border
Border
Denmark
Sale reduced in Border Shops and increased i Denmark
Source: Ministry of Taxation
Excise level and sale
19
0,00
0,50
1,00
1,50
2,00
2007 2008 2009 2010 2011 2012 2013 2014 2015
DKK/litre
Excise level and Border sale
Excise
Volumen
0,00
0,50
1,00
1,50
2,00
2007 2008 2009 2010 2011 2012 2013 2014 2015
DKK/litre
Excise level and Danish sale
Excise
Volumen
0,00
0,50
1,00
1,50
2,00
2007 2008 2009 2010 2011 2012 2013 2014 2015
DKK/litre
Excise level and total sale
Excise
Volumen
Source:• Tal fra Bryggeriforeningen• Skatteministeriets Grænsehandelsrapport
Focus on life style
20
• Information
• Exercise
• Making water and no-sugar alternatives available
• Marketing rules for children
• No vending machines in schools
• Reformulation
• Partnerships
Weaknesses of excise duties
Excise duties/consumption taxes have had their days in a world of open economies. They actually increase consumption and harm the environment
• They do not reduce consumption
• On the contrary, they lead to increased consumption due to stock piling in connection with border trade
• They distort trade and are discriminatory
• They cause increased illegal sale and crime
• They are socially unbalanced and hit the citizens with the lowest incomes the hardest
21
Nordic Trends on excise duties and state control
• No taxes on soft drinks in Denmark, Sweden and Finland
• Denmark gave up fat tax because of bureaucratic chaos
• Denmark gave up sugar tax
• Denmark has lowered the tax on beer and removed the tax on soft drinks
• Iceland plans to dismantle the state alcohol monopoly
• Norway under pressure to do the same
• Finland increases the limit on the strength of the alcohol which may be sold in stores
Conclusion
23
• More production and sale in Denmark
• Less illegal trade
• Optimism among producers
• More jobs in Denmark
• Improving disposable income for low-income Groups
• Less harm to environment
• Lower prices for consumers
• Less purchase for stock piling