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Illicit spirits could represent 20% of UK market

Around £3.6 billion of UK tax revenue could have been lost due to the illicit spirits trade between 2010 and 2015, with counterfeit products now accounting for up to 20% of the total market.

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Illicit products could now account for 20% of the UK spirits market

The HMRC figures, published in successive editions of the department’s ‘Measuring Tax Gaps’ report, have been released by The Tax Payers’ Alliance as part of its recent analysis.

According to latest data, as much as £31.6bn of tax revenue could have been lost to the illicit market in spirits, beer, wine, cigarettes, tobacco and diesel – enough to fund a 1.5p cut in the basic rate of income tax.

While illicit spirits production and trading may have cost the government £3.6bn in lost taxes, illicit trade in beer cost £5.8bn and illicit trade in wine cost £3.5bn.

The TPA, which uses HMRC’s upper estimates of lost tax revenue, states that the illicit market share of spirits in the UK could now be as much as 20%, while beer is 22% and wine is 9%.

TPA claims that HMRC often revises its lost tax estimates annually, showing more revenue is often lost than previously thought.

The association also argues that if the Treasury increases duty on products such as alcohol, tobacco and diesel, this could “risk boosting the illicit trade and losing the exchequer revenue without meeting public health objectives”.

“Analysing successive editions of ‘Measuring Tax Gaps’ clearly shows that HMRC tends to underestimate the amount of tax revenue lost to the illicit trade each year in alcohol and tobacco products, most of all in beer and cigarettes,” the TPA report states.

“Given that demand for these products is relatively inelastic, punitive proposals based on higher duties and prices are likely to exacerbate this problem over time.”

Chancellor of the exchequer Philip Hammond is set to deliver the Autumn Statement on 23 November.

In March this year, previous chancellor George Osborne implemented a freeze on spirits duty.

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