Stamp of authority

Stamp of authority

Tax stamps are being introduced for bottles of British spirits. In this issue we ask a panel whether they think they are a good idea

People | 01 Jun 2006 | Issue 56

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Simon Coughlin, Bruichladdich (SC)
John Glaser, Compass Box (JG)
Euan Shand, Duncan Taylor (ES)
David Williamson, Scotch Whisky Association (DW) Q. From a producer’s point of view are they a good thing or a bad thing?DW: International experience has been that tax stamps are ineffective and that there are better ways to target rogue traders who try to avoid paying excise duty.However, since the United Kingdom Government decided that it wanted to proceed with tax stamps, our priority has been to work closely with them to ensure that the scheme is workable and proportionate, minimising costs and disruption to the legitimate trade as much as possible.To this end, we have made welcome progress with the costs to the trade reduced by some £50 million a year, largely because the Government accepted two industry proposals; one was to allow duty stamps to be integrated into back labels, rather than a paper strip stamp over the bottle closure, and, second, was the decision not to require upfront payment for duty stamps. This would have had severe consequences for company cash flow, especially our smaller members.SC: We think they are an unnecessary burden on producers and are on balance a bad thing, and for the following reasons: One, they are based on a misconception of the size of duty fraud.Two, they require significant extra work - keeping records of all stamps applied - new artwork for printing of back labels - more stock holding - new bar code required for duty stamp products - dual stock holding for the same product, with and without duty stamps.- new change parts for labelling machinery.Three, they mean extra costs incurred on the above for stockholding, design fees, printing plates and meeting with customers to explain the barcode and ordering process.And finally, as the new chip and pin credit card ‘anti-fraud’ fiasco has just shown it will be a matter of weeks before the crooks behind duty fraud have found a way to replicate the duty stamps.ES: I agree. From a producer’s point of view they are just another bureaucratic hindrance because we have enough red tape without anymore.JG: Tax stamps are a sad and unfortunate constraint on the industry, particularly for small producers such as Compass Box. Of course I, like most others, question whether they will achieve the objectives the government has for them. But more importantly, they are yet another barrier to entry for the Scotch whisky industry and an unnecessary financial and logistical burden for small companies. I think it’s unfortunate that we were not able to get exclusions for small companies such as ours who have nothing whatsoever to do with the issue of spirits fraud, but for whom the regulation has a much greater relative cost.Q. What about from a consumer’s point of view are they a good or bad thing?JG: I think they will be largely irrelevant, except that they will be ugly and to some will make the purchase of high-end Scotch whisky seem one step removed from smuggling cigarettes.ES: From a consumer’s point of view other than the likelihood of even more tax being heaped on them they should not be affected too much.SC: On balance I think they are probably a good thing. It means the customer is more likely to get the real product, assuming no fraud, more so than before duty stamps and they may feel more confident that the purchase they are making has had duty paid on it.DW: The Government’s decision to accept our proposals to amend the scheme was good news for UK consumers because it means most distillers feel they can continue to operate in the market, protecting consumer choice.At the same time, our concern has always been that, as we have seen in other markets, tax stamps can be forged. The industry is committed to making the system work and has therefore shared its expertise in anticounterfeiting techniques with Government to help protect consumers.Q. The Government claims they will cut down on imitations.In the United Kingdom is this a major problem,and will tax stamps work?SC: I do not know the extent of the imitations problem, but it is currently not a problem with Bruichladdich. The fraudsters are making million of pounds with imitation as well as diverted stock destined for export finding its way for home use, so much so that they will not just stop this trade because of duty stamps and anyone that thinks they will is not being realistic. They will find a way round them or produce them themselves.We are told that customs officers will be able to go into shops in the United Kingdom and trace stock from the duty stamp or discover stock that does not have them. As if!There aren’t any customs officers left to do this and even if they did, prosecuting a few shop owners is a waste of time. Customs and Excise has passed the buck to the producers, exaggerated the problem (which has been recognised now) covering themselves allowing for mass redundancies within Customs and Excise.DW: Yes, the good news is that cooperation between the industry and Government over recent years – targeting the areas of highest risk – has already had a significant impact. All the figures show that fraud is falling dramatically and is now much lower than when tax stamps were proposed.We estimate that excise duty is now paid on about 97 per cent of all spirits sold in the UK.In the end it will be a mix of measures that will work. That is why we believe our partnership approach with the Government, for example sharing intelligence on unusual trends in the supply chain and fast tracking enquiries, will continue to bring benefits for consumers and producers. This cooperation was formalised in a landmark agreement with UK Customs last November.ES: I think the Government should concentrate on more important issues.Compared with its current problems a few bucks on fraud is the tip of the iceberg.If it goes any way to cutting back on fraud I’m all for it.
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