Illegal distilleries on the rise following hike in excise tax
The Czech state earned lower excise duty revenues from alcohol sales than anticipated last year, despite a 10 percent tax hike at the beginning of the year. Some analysts put it down to a decline in alcohol consumption, but the Union of Distillers says many fruit growers have reverted to DIY.
Higher taxes on alcohol, implemented through excise duties or increased VAT, are used by governments to boost revenue and reduce public health costs associated with consumption. The previous Czech government saw the dual benefits of this and resorted to a 3-phase increase in excise tax (10% in 2024, 10% in 2025, and 5% in 2026). However, neither of the expected benefits has so far materialized. In fact, state revenues from the tax on alcohol have even declined over the past two years. So where’s the hitch?
The Union of Distillers says everything points to the fact that brandy lovers have simply reverted to DIY so as to avoid higher costs.
Customs officers in southeast Moravia –where every farmer knows how to make good brandy from plums, apricots and even walnuts - uncovered five illegal alcohol distilleries in the past two months, pointing to a sharp rise in black-market production. The trend is costing the state millions in excise tax revenue and causing existential problems for licensed distilleries.
The renowned brandy producer Rudolf Jelínek operates a licensed growers’ distillery. Over the past decade, production volumes there have dropped by roughly 50 percent. Other distilleries in the region report similar declines at a time when consumption is not falling. Miroslav Motyčka, a board member of the Union of Distillers says the reason is obvious - it is becoming increasingly attractive for some people to distill illegally at home.
“Illegal products are significantly cheaper. The incentive runs into hundreds of crowns per liter. That is a substantial gap and it leads to the fact that growers’ distilleries, without exception, report declining interest from fruit growers in having their harvest distilled. We are convinced that for every liter of plum brandy or fruit spirit distilled legally in a growers’ distillery, several liters are produced completely outside the system in illegal home operations,” Motyčka says estimating the size of the black market in the region.
Under Czech law, any production of spirits outside licensed facilities is prohibited, even for personal use. Yet, since mid-December of last year, customs officers in the Zlín region have uncovered four illegal distilleries. In the nearly two years prior, they had not detected a single case.
The Customs Administration has intensified inspections focused on illegal alcohol production.
But distillers say this is not enough arguing that stricter penalties would help curb the black market more effectively. Currently, offenders face reassessment of excise tax and fines typically amounting to tens of thousands of crowns. At that rate the money saved on illegal production may well make up for the fine.
