Monday, 14 August 2017

European wine taxes — and what to do about them

Almost all countries have some sort of tax on wine. Some places have a uniform tax throughout the country; and some countries have taxes that vary between their states (eg. the USA — see State and Local Alcohol Tax Revenue, 2014). The countries of the European Union (EU) may have many common economic policies, but uniform taxes is certainly not one of them. Therefore, the tax on wine varies considerably between the countries of Europe.

There are three possible taxes that might apply to wine:
  • Import Duty, if the wine comes from outside Europe
  • Value-Added Tax, which applies to all goods and services, and which goes by many names throughout the world (eg. VAT, TVA, IVA, GST, MwSt, Moms)
  • Excise Tax, which applies to specific products, such as alcohol or tobacco (and, in the dim past, also things like salt and sugar).
Here, we will concern ourselves only with the latter two taxes, on the assumption that the wine has originated in Europe or has already been imported there.

Recently, the Facebook page of the American Association of Wine Economists has considered this issue in one of their posts: Excise Taxes and VAT on Still Wine in the EU 2017. I have used these data as my basis; but I have modified them to account for the fact that in Europe the Value-Added Tax is charged on the total bottle price, including the Excise Tax (and also the Import Duty, for that matter). I have also added the data for Norway and Switzerland, which are currently not in the EU.

This graph shows the full data for 29 European countries, with the combined taxes on the wine expressed as a percentage of the final bottle price paid by the consumer.


Note that the EU countries are neatly bracketed by the two non-EU countries, with Swiss alcohol being dramatically cheaper than the Norwegian stuff. Also, note that the six "top" countries stand out from the rest — there is not a great difference between Estonia (23%) and Germany (16%), but the denizens of Denmark, Sweden, the UK, Finland, Ireland and Norway pay notably more tax for their wine than do other Europeans.

What to do?

Needless to say, the residents of these six countries do not take this situation lying down. Something must be done!

And the thing to do is to take advantage of the fact that there is free trade throughout the EU. That is, if you are a resident of a country with a sales tax that you don't like, then you can simply purchase your goods in another country, with a tax more to your liking. [*]

So, the British go to France, this being their closest country with lower alcohol taxes. These days there are large shopping complexes at the appropriate entry points into France (or exit points if you are going the other way). These are often owned and run by British companies. You simply order your goods online before you leave Britain, travel to France for the day (or a few days, if you want a proper holiday), and pick up your pre-packed goods on the way home. It is as simple as that.

I have no idea what the wine drinkers plan to do if Brexit is implemented.

Similarly, the Swedes and Danes go to Germany. Once again, there are large shopping complexes just where the main roads cross the Danish border, or near the boats too / from Sweden. These are usually run by Germans, and you don't order your goods ahead of time; but Scandinavians do commonly stop at them on their drive home at the end of any trip down south.

The Finns go to Sweden, on boats. There are a couple of large cruise liners that go back and forth between Stockholm and Helsinki every evening. Each trip runs overnight, and you spend the following day in the destination city, returning home that evening (ie. the entire trip, there and back. takes 40 hours). These boats are nominally run to transport trucked goods to Finland, which would otherwise need to be accessed via a long land detour through Russia — the boat is officially part of European road number E18. But, in reality, these are duty-free party boats, with a casino, nightclub, movie theater, duty-free shops, etc. Both Swedes and Finns are observed to depart from these boats with shopping carts loaded with duty-free alcohol.

Finally, the Norwegians go to Sweden for their alcohol. This might seem odd, since Norway is not in the EU and Sweden is, so that the goods are technically being imported into Norway (and should therefore attract Import Duty). However, there is unrestricted land movement of people between these two countries, and only large trucks are stopped at the customs points. It has always been like this, even though the two countries parted company over a century ago. (Note: if you fly between the two countries, then you will need to go through passport control and customs, but not if you drive.)


So, if you drive south from, say, Oslo (the largest city in Norway), then just after you cross the Swedish border (about 90 minutes from Oslo) you will encounter two large shopping complexes, labeled Nordby and Svinesund in the satellite photo above. These are in the middle of a forest, with no nearby Swedish town — the Swedes have constructed them solely for the Norwegians. If you visit these shops, you will see lots of these people packing their station wagons with goods that attract much lower taxes in Sweden than they do in Norway. Indeed, Nordby actually has the liquor store with the biggest annual turnover in Sweden!

Such is life in modern Europe.



[*] In this sense, the European Union is more united than is the United States, where free trade in alcohol is still not widespread (see Consumers short-changed again on shipping), in spite of the fact that Prohibition was repealed eight decades ago.

4 comments:

  1. Out of curiosity in summer 2016, I visited three of the large stores in Calais that cater to the UK trade. On a Monday afternoon all three were empty of customers and depressing. Lots of wine and little selection, like the grocery and chain stores here in the US. There were pallets and pallets of wine with different labels, but hardly a bottle costing more than $5. There were some, but relatively few recognizable brands and none that I recall in any significant quantity.

    It seemed that the Brits had figured out it was likely all the same $1 bulk wine with different labels at $3.99.

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    Replies
    1. Indeed, people visiting these types of stores are usually looking for the cheapest alcohol, which will always be the supermarkets' own brands. It is not necessarily much different elsewhere in Europe. Finding "name brands" usually requires visiting a shop serving the locals, rather than the tourists.

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  2. David, what prices did you use to calculate the percentage of combined taxes on the final bottle price? Is it the average bottle price for each country?
    I assume the average Swiss spends more on a bottle of wine than the average Brit, and therefor the percentage of taxes would be lower when looking at the retail price?

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  3. The AAWE data simply specify a set price of €10 per bottle. The VAT is then a percentage, and the Excise is a fixed amount.

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