Poland’s 15% tax hike could damage spirits industry

The Polish government is set to put further strain on its spirits industry with the introduction of a second tax increase on spirits in under five years.

Polish vodka brands like Crysta de Luxe, owned by Stock Spirits, will be subject to a 15% excise hike in Poland next year

Early next year Warsaw will impose a huge excise tax hike of 15% for spirits only, its second increase since 2009 when the levy was raised for both spirits and beer.

However experts have warned that such an increase could put terminal strain on spirits producers in the region, and in fact lead to lower tax revenues for the government.

“We echo the Polish Spirits Association and also warn the Exchequers across Europe over the risks of considering the spirits industry as the cash-cow to bridge the gap of national deficits,” Spirits Europe said. “There are increasing risks that tax rises will not generate the expected revenue.  Economists have long demonstrated that increasing tax rates beyond a certain point (the profit maximizing point) does not generate further tax revenues but instead leads to a reduction.”

Spirits Europe claims the practice is already happening in countries such as Portugal, Czech Republic, Lithuania and Greece.

Further excise tax increases could also place a strain on producers already struggling to cope with flagging domestic sales.

According to the Union of Employers of the Polish Spirits Industry (ZPPS) in a report published in June this year, one in four Polish producers failed to make a profit in 2012.

Domestic sales of vodka fell by 2.6% last year, although flavoured varieties increased by 7%. As such, the ZPPS believes the industry needs to concentrate more on exports, and rally together to help market “the Polish vodka brand”.

“Export could be a good strategy for the crisis,” said Leszek Wiwala, chairman of the ZPPS. “Last year, however, exports fell by more than 20 per cent, owing to cuts in companies’ promotional budgets.”

However imported whisky is continuing to perform well in Poland, with sales increasing 22% in 2012.