Cracking down on the illicit trade could fund a cut in income tax

August 29, 2012 4:03 PM

A committee of MPs have today called for more people to be prosecuted for smuggling alcohol by HM Revenue & Customs (HMRC). The Public Accounts Committee cited the paucity of successful prosecutions in the four years to 2009-10 as evidence of HMRC’s failure to adequately grasp the problem. Our Tax Gap report shows that during this period, £4.5 billion’s worth of tax revenues has been lost to the illicit trade in beer and spirits, whilst HMRC is less sure as to how much is lost on wine. According to their latest figures, illicit trade accounts for 11 per cent of the Spirits market and 14 per cent of the beer market.

Obviously, those who break the law should be prosecuted, but the booming illicit trade has its roots in punitively high alcohol duty. Despite claims that price increases benefit public health, there is a body of evidence that shows no link between higher prices and overall consumption. Constant increases in alcohol duty are simply another way for governments to milk ever more money from the taxpayer.

Furthermore, escalating taxes have fuelled the trade in counterfeit alcohol - seizures of fake hooch have increased fivefold in the last two years as criminals capitalise on increasing demand for more affordable alcohol.

The illegal trade of excessively taxed goods such as alcohol, tobacco and diesel cost the treasury £28.5 billion between 2005-06 and 2009-10 – more than enough to fund a 1p reduction in the basic rate of income tax. The criminal trade in these goods will continue to flourish in the absence of sensible and restrained tax and regulatory policies.A committee of MPs have today called for more people to be prosecuted for smuggling alcohol by HM Revenue & Customs (HMRC). The Public Accounts Committee cited the paucity of successful prosecutions in the four years to 2009-10 as evidence of HMRC’s failure to adequately grasp the problem. Our Tax Gap report shows that during this period, £4.5 billion’s worth of tax revenues has been lost to the illicit trade in beer and spirits, whilst HMRC is less sure as to how much is lost on wine. According to their latest figures, illicit trade accounts for 11 per cent of the Spirits market and 14 per cent of the beer market.

Obviously, those who break the law should be prosecuted, but the booming illicit trade has its roots in punitively high alcohol duty. Despite claims that price increases benefit public health, there is a body of evidence that shows no link between higher prices and overall consumption. Constant increases in alcohol duty are simply another way for governments to milk ever more money from the taxpayer.

Furthermore, escalating taxes have fuelled the trade in counterfeit alcohol - seizures of fake hooch have increased fivefold in the last two years as criminals capitalise on increasing demand for more affordable alcohol.

The illegal trade of excessively taxed goods such as alcohol, tobacco and diesel cost the treasury £28.5 billion between 2005-06 and 2009-10 – more than enough to fund a 1p reduction in the basic rate of income tax. The criminal trade in these goods will continue to flourish in the absence of sensible and restrained tax and regulatory policies.

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