Have the Czech authorities failed in regulating the liquor market?
The recent outbreak of methanol poisonings from bootleg liquor has drawn attention to the Czech alcohol market and its regulation. Up to 25 percent of all spirits sold in the country is estimated to come from illicit producers; the Czechs also have some of the highest alcohol consumption levels in the world. So has the state failed to control the liquor market and protect consumers?
The scandal has put the spotlight on, among other issues, the alcohol black market. A few years ago, the Czech Union of Spirits Producers and Importers, an industry group, commissioned a report which found that up to 25 percent of the spirits market is illegal. Anthony Schofield is the CEO of the Czech liquor producer Jan Becher, part of the French distiller Pernod Ricard.
“It’s been tolerated and is has never been clamped down on. It’s a very high percentage. If you look at the products that have been contaminated, these are black market branded products that have been around for a long time that have been sold on a regular basis.
“Prior to the ban on Friday, people were allowed to sell six-litre plastic containers with alcohol. Why anybody would want to buy that for their own consumption is a mystery to me.”
According to various media reports, the alcohol black market saw its heyday in the mid and late 1990s where several large-scale bootleg operations were running in the economically-depressed Moravian-Silesian region. Untaxed ethanol was imported into the country from Poland labelled as cement, tiles, and other products.
Yvona Legierská, who for four years served as deputy finance minister in a past Social Democrat government, says the authorities failed to register a sudden drop in excise tax revenues which came a year after the tax stamps were introduced, and which in her opinion indicated a substantial growth of the black market.
“Looking at the statistics of excise tax revenues on spirits, we can see a big drop in 2007. I can’t find any other explanation than the fact that since then, there have been much bigger tax evasions because all surveys suggest the consumption of alcohol in the country is not decreasing.”
The current Czech government has denied accusations it has neglected the situation. Deputy finance minister Ladislav Minčič says their own estimates of the size of illegal alcohol market are much lower than those by liquor ´producers.
Mr Minčič also says the Finance Ministry is doing what it can to control the market.
“The Finance Ministry, or the Customs Administration, has carried out inspections in recent months and years in the same way as before. I can say that around 10,000 inspections were carried out last year focusing on ethanol; 151,000 litres of pure alcohol were confiscated. But it’s impossible to check every bottle.”
However, some victims of methanol poisoning bought bottles with contaminated liquor in regular stores, rather than street stands. That suggests untaxed and potentially dangerous liquor has deeply penetrated the Czech distribution network, which was also the main reason behind the government’s overall ban on the sales of spirits.
One of the ways of getting the industry under tighter control would be to include excise tax in the actual stamps. That means the producers would pay the tax by purchasing the stamps, says tax expert Yvona Legierská.
“I think the time has come to include excise tax in the actual stamps, similarly to the stamps on cigarettes. For many producers, that would mean that they would need more cash to buy these stamps. But it would ensure that the tax is paid. Another suggestion is that customs officials should physically supervise the production process of spirits, and be present there at every stage of the process.”
Levying excise tax through the tax stamps on alcohol containers would also probably have to be introduced in the face of opposition from spirits producers who would instead prefer tighter state control of sales. Zdeněk Chromý is deputy board chairman of Rudolf Jelínek, a Moravian liquor manufacturer.
“My first reaction would be that this is more costly for legitimate producers who would need more cash flow. I think a better way to go would be to keep the current system, and to have more direct control of tax stamps distribution and of the black market.”
The flourishing of the black market with alcohol has also been blamed on the rate of the excise tax. The Czech government collects 265 crowns from one litre of pure ethanol. That means the state gets 53 crowns from half a litre of common Czech spirits such as tuzemák or vodka with 40 percent of alcohol volume. This, along with value added tax, makes up more than half of the final price of liquor. Some experts argue that lower taxation would decrease the demand for cheap alcohol from dubious sources.
But lowering the tax and making alcohol cheaper would probably lead to higher consumption while strikingly high consumption of alcohol is seen as another reason behind the growth of illegal market. On average, Czechs annually consume over 15 litres of pure alcohol according to the latest data by the World Health Organization which puts them at the top of the statistics. Dr Lars Møller is the manager of the WHO’s alcohol and illicit drugs programme.
“The consumption was increasing since the 1960s and has only been decreasing in the last couple of years which we have seen in many European countries due to the financial crisis. But it has a lot to with the policies – alcohol is quite cheap to buy, it’s cheap to go out and drink in the Czech Republic; it’s also very available – you can get access to alcohol during the whole day and night and there are no restrictions or a licensing system. So it’s quite liberal, which could explain it.”
Lars Møller from the WHO also points to the result of the European School Survey Project on Alcohol and Other Drugs, or ESPAD, which suggests young Czechs are at a very high risk from alcohol.
“What is really alarming in the Czech Republic now are the new data from the ESPAD survey among 15- and 16-years-old where the Czech Republic is now in the lead in heavy drinking, frequent drinking, and drunkenness. This is very scary I think. It starts at a young age and you can expect these habits will stay with the people as they grow older.”
Despite high consumption and threat posed by alcohol to underage drinkers, the Czech government has no anti-alcohol policies currently in place. Jindřich Vobořil is the government’s anti-drug coordinator.
“There is no national policy focusing exclusively on alcohol. We have an anti-drug policy which includes alcohol issues as well. But so far, we have no action plan for alcohol. So this is going to be our work for the coming months. This is where we stand at this moment.”
“We have already prepared several suggestions. We have a debate with members of Parliament about changes to the Czech alcohol, tobacco and drug law. One of the propositions is focusing on the availability of alcohol for underage people. This methanol situation is highlighting the whole context. 23 people have died of methanol poisoning but every year, about 300 people died of ethanol – normal alcohol – poisoning.”
