www.bryggeriforeningen.dk

Estonia, 14. March 2017

New Paradigm:Abolishing excise duties as a regulatory instrument – the Danish case

Niels Hald, CEO, Danish Brewers’ Association

www.bryggeriforeningen.dk

The tax regime

Excise duty on soft drinks

3

Introduced in Denmark in 1934 and abolished in 2014

0,00

0,20

0,40

0,60

0,80

1,00

1,20

1,40

1,60

1,80

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

DKK/ LExcise duty rate

Abolished

Excise duty on soft drinks and total sales

4Source: Ministry of Taxation

Effects of the soft drink tax before2014: Double Economy

• Danish work places

• Revenue for the state

• Part of Public Health regulation

• Environment – Return and deposit system

Sale in DK

2/3 of Consumption

• Loss of Danish jobs

• Loss of state revenue

• Illegal trade

• Discriminates law-abiding citizens

• Overconsumption (stock piling)

• Environmental loss: Double transportation and not recollected packaging

Border sale/

Illegal trade1/3 of Consumption

5

Border sale

6

• Danes purchase soft drinks (and Beer) in German border shops

• 1/3 of national consumption of soft drinks sold from border shops

• Danes are travelling for soft drinks and beer … AND brings other goods from the border shops

Ice cream

Beer

Wine

Soft DrinkCandy &

Chocolate

Fat ?

0%

25%

50%

75%

100%

0% 10% 20% 30% 40%

Shar

e o

f D

ane

s go

ing

to t

he

bo

rde

r to

bu

y

Share of sale from Border shops

Sensitivity to Cross Border sale

DK63%

Border37%

Danes consumption of Soft Drinks

Loss of jobs

• High excises on beer and soft drinks – the two drivers on the border trade – damages Danish economy

• The cross border sales represented a loss in turnover of Danish shops of 5,5 billion DKK and 3000 jobs

• Prof. econ. Jan Bentzen (2013): A 50 % reduction of the excises of beer and soft drinks would create 1300 new jobs

7

Loss of state revenue

Danish state lost (2012): More than 1,5 billion DKK

• Lost excise on beer: 500 mio. DKK

• Lost excise on soft drinks: 250 mio. DKK

• Lost VAT on beer and soft drinks: 1,1 bio. DKK

• Lost from illegal trade: 0,5 Billion DKK

8

Illegal tradeDiscrimation of law-abiding citizens

Illegal trade constantly increasing (31 mio. liters in 2012)

Tax and custom authorities using huge resources on confiscating illegal stocks

Large illegal sales from small shop

Large illegal sales to ”friends”, within companies etc.

Supporting a ”parallel” economy

Law-abiding shops cannot compete

State loss of 50 mio. euro p.a.

9

Effects on income distribution:Hitting low income group

10

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

0%

10%

20%

30%

40%

50%

60%

70%

80%

Under200.000 kr.

200.000 -399.999 kr.

400.000 -599.999 kr.

600.000 -799.999 kr.

800.000 -999.999 kr.

Mere end1.000.000 kr.

An

tal

ind

kø

bs

ture

pr.

år

Pc

t

Grænsehandel

Handler ved grænsen overhovedet Antal gange pr år Forventet

• Excise duty on soft drinks effects the disposable income for low-income groups

• Low-income groups do not purchase soft drinks (and Beers) at the border

Border trade/illegal trade leads to stock piling and overconsumption

11

• Cross-border trade leads to overconsumption

• Danes purchasing soft drinks and beer in the border shops buys for stock piling. As a consequence they have easy access to consumption

• Consumer surveys shows that Danes buying in the border shops consider their consumption to be higher than it would have been if they did not purchase in the border shops

The Environment

Packaging from the border and illegal trade are not collected via the deposit system -ends up as ordinary waste

62.500 T CO2 would have been saved if 1,25 billion cans had been collected and re-used

70.000 T CO2-reduction by avoiding the dual carriage of cans

12

No effect on health

13

• Soft drinks constitute a negligible part of total calorie intake

• Share of sugar free soft drinks are increasing

• Other sources of sugar is increasing relatively

• Obesity is multi-causal: Lifestyle, less physically demanding work and leisure activities

53%

24%

14%

3%2%4%

Sugar intake

Sukker og slik 53 %

Drikkevarer 24 %

Frugt (grønt) 14 %

Mælk 3 %

Kornprodukter 2 %

Fisk, diverse 4 %

www.bryggeriforeningen.dk

Changing Paradigma

Danish Growth Plan 2013

• The Aim: – Redirect Danish citizens from German border shops to Danish shops.

– Stop illegal sales

– Create growth and job in the Danish economy

– Focus on life style

• Excise Duty on soft drinks:– Reduced by 50% on 1 July 2013 and fully removed on 1 January 2014

• Excise duty on Beer:– Reduced by 15% on 1 July 2013

15

Abandoning duties as a regulatory instrument

• Excise on Fat (2013)

– Administrative cumbersome, discriminatory, difficult to make fair, risk of illegal state aid

• Excise on sugar (Introduction dropped in 2013)

– Administrative cumbersome, discriminatory

• Excise on Soft Drink (2014)

– Administrative cumbersome, loss of work places, harmful to the environment

• Excise on Beer (Reduced in 2013)

– Administrative cumbersome, loss of work places, harm environment

16

Lower Prices for the consumers

17

80

90

100

110

120

130

140

2012 2013 2014 2015 2016

Index (2015=100)

Consumer Price (soft drinks)

-50% Abolish

ReducedConsumer

Price (25-30%)

Source: Danish Department of Statistics

Cross Border salesAffected by Danish Growth Plan 2013

18

100

200

300

400

2008 2009 2010 2011 2012 2013 2014 2015

Mio. l.

Development in sales,Denmark & Border

Border

Denmark

Sale reduced in Border Shops and increased i Denmark

Source: Ministry of Taxation

Excise level and sale

19

0,00

0,50

1,00

1,50

2,00

2007 2008 2009 2010 2011 2012 2013 2014 2015

DKK/litre

Excise level and Border sale

Excise

Volumen

0,00

0,50

1,00

1,50

2,00

2007 2008 2009 2010 2011 2012 2013 2014 2015

DKK/litre

Excise level and Danish sale

Excise

Volumen

0,00

0,50

1,00

1,50

2,00

2007 2008 2009 2010 2011 2012 2013 2014 2015

DKK/litre

Excise level and total sale

Excise

Volumen

Source:• Tal fra Bryggeriforeningen• Skatteministeriets Grænsehandelsrapport

Focus on life style

20

• Information

• Exercise

• Making water and no-sugar alternatives available

• Marketing rules for children

• No vending machines in schools

• Reformulation

• Partnerships

Weaknesses of excise duties

Excise duties/consumption taxes have had their days in a world of open economies. They actually increase consumption and harm the environment

• They do not reduce consumption

• On the contrary, they lead to increased consumption due to stock piling in connection with border trade

• They distort trade and are discriminatory

• They cause increased illegal sale and crime

• They are socially unbalanced and hit the citizens with the lowest incomes the hardest

21

Nordic Trends on excise duties and state control

• No taxes on soft drinks in Denmark, Sweden and Finland

• Denmark gave up fat tax because of bureaucratic chaos

• Denmark gave up sugar tax

• Denmark has lowered the tax on beer and removed the tax on soft drinks

• Iceland plans to dismantle the state alcohol monopoly

• Norway under pressure to do the same

• Finland increases the limit on the strength of the alcohol which may be sold in stores

Conclusion

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• More production and sale in Denmark

• Less illegal trade

• Optimism among producers

• More jobs in Denmark

• Improving disposable income for low-income Groups

• Less harm to environment

• Lower prices for consumers

• Less purchase for stock piling