The 15 percent increase in excise duty that Poland’s government plans to implement next year will likely decrease budget inflows by zł.150 million, according to estimates by the Sobieski Institute advisory. The Treasury has said it hopes the increase could bring in an extra zł.780 million in revenue to state coffers next year.
The government plans to pour on a 15 percent increase in the excise tax on alcohol
“It is difficult to say for sure what consumers will do, but outside assessments say that the 15 percent increase in levies will likely result in a 10 percent or even bigger drop in sales volumes,” said Leszek Wiwała, the president of the Employers and Entrepreneurs Association (ZPP).
In two out of three scenarios presented by the Sobieski Institute, the revenue from the excise tax on spirits will decrease. The most pessimistic forecast sees as much as a zł.1 billion drop in revenue caused by a 25 percent decrease in sales. Only the most optimistic scenario sees increased budget inflows of some zł.550 million, with only a 7 percent fall in sales volumes.
“The drop in sales volumes will be greater than the Finance Ministry has forecast. This is a conclusion based on historical data, market projections and examples from other countries,” said Maciej Rapkiewicz, an expert from the Sobieski Institute.
Mr Rapkiewicz added that the optimal solution for the state budget would be to raise excise tax by 5 percent not only on spirits, but on all types of alcohol. “In this case, budget revenue from alcohol products would amount to nearly zł.11.03 billion and would be higher by over zł.529.6 million from what the Finance Ministry’s tax hike will bring,” Mr Rapkiewicz explained.
Naturally, alcohol producers protest against any tax increase. According to Andrzej Szumowski, vice president of alcohol producer Wyborowa, Polish consumers are very sensitive to price changes in the spirits segment.
“Our experience shows that even a 5-7 percent increase in prices leads to a drop in sales,” Mr Szumowski said, adding, “Consumers will simply go elsewhere and unfortunately many of them will buy illegal alcohol products.”
In 2012, the average Pole drank eight liters of spirits, seven liters of wine and 99 liters of beer.
The black market on alcohol products is not the only one likely to see increased activity in 2014. Estimates by ZPP show that 13 percent of all cigarettes consumed in Poland are purchased illegally. That market share is set to increase further next year, as the government has decided to hike excise duty on tobacco products by 5 percent.
Black market cigarettes, usually imported from Poland’s eastern neighbors, are already up to 50 percent cheaper than legal ones. In 2012 a pack of low-end cigarettes cost only €0.59 in Russia and €0.92 in Belarus, according to data collected by consulting firm EY. Meanwhile in Poland the least expensive cigarette brand cost €3.15 a pack.
Ten years ago excise duties made up 70 percent of the price for a packet of cigarettes. Today that share stands at 80 percent.
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