“Consumers will definitely look towards the neighboring country [Bulgaria] to buy cheaper alcohol [as is the case currently between Greece and Bulgaria], so the actual result of this measure will be that ultimately the Romanian state will see losses from the income tax,” believes Nikos Xystouris, general manager of spirits importer PPD Romania, a company that ended 2012 with a turnover of EUR26 million.
He says this decision comes at the wrong time for the spirits market, considering that the last quarter of the year is when sales peak.
The 33% increase in the excise on alcohol, from EUR750 to EUR1,000 per hectoliter, puts Romania alongside countries such as Austria, Luxembourg, Slovakia and the Czech Republic in terms of the level of this tax. The Romanian tax compares with an excise of around EUR500 per hectoliter in Bulgaria, while in Macedonia, Albania and Ukraine it is less than EUR500 per hectoliter. In Greece the excise on alcohol is over EUR2,500 per hectoliter, while the highest excise is levied in Norway – over EUR9,000 per hl.
Black-market consumption will exceed 70% of the total
Spirits consumption is around 166 million liters per year, around 113 million liters of which are flavored spirits (palinca, tuica, rachiu), the latter not being subject to taxation, shows data of market research company IWSR.
“This very significant excise increase will ‘add even more fuel to the fire of tax evasion’ in this overtaxed sector. The excise so far accounted for 50-60% of the turnover, if we add VAT and the other taxes, we get to over 90%, which is the gain of those who do tax evasion,” warns Andi Dascal, general manager of spirits producer Prodvinalco in Cluj.
“Unless the government takes the appropriate measures to combat tax evasion, all producers who are good tax payers will be affected,” says Florin Radulescu, general manager of producer Prodal ’94 and president of owners’ association Spirits Romania, which includes Alexandrion Romania, B.D.G. Import, Cristalex, Diageo, Pernod Ricard Romania, Prodal ’94 and Prodvinalco.
Nikos Xystouris, general manager of PPD Romania, believes the Romanian state should also tax other alcohol-based drinks. The Government decided on September 1 to lower the VAT on bread from 24% to 9%, but offset this lowering by hiking the excise on alcohol, as well as on other luxury items, such as watches, certain types of cars and yachts.
“The Romanian state should also explore other alcohol-based drinks, from significantly larger categories in terms of volumes and of sales, which are currently not taxed at all or very little,” believes the manager.
Petru Berciu, managing partner of BDG Import, the largest spirits importer on the Romanian market, with turnover of almost EUR40 million in 2012, says the excise hike will have a negative impact on volumes sold and implicitly on the company’s profit.
Berciu says the prices of spirits in the company’s portfolio were boosted as of September 2 following the alcohol excise hike.
“The only product that will keep its old price in September is Jack Daniel’s, with the price increase to be implemented as of October 1 2013,” specifies Berciu, who is also one of the shareholders of BDG Import.
The company made price increases for whisky brands from 0% to 10%, for vodka of between 2% and 13% for liqueur between 3% and 8%, for rum between 4% and 10% and for cognac between 0% and 2%.
Florin Radulescu says Prodal ’94 boosted prices for products in the categories vodka, gin, brandy and whisky of between 10% and 15%, while lower-priced products saw their prices up by 15-20%. Prodal ’94 recorded a turnover of EUR8.9 million in 2012 and a net profit of EUR545,000, according to the balance sheet on the website of the Finance Ministry.
“Starting on September 1 we hiked prices by 25-28%, with the higher percentages being for the lower-priced products,” says Andi Dascal. He expects a turnover decline of 20-30% for the company he runs. Prodvinalco reported a turnover of 35.5 million lei (almost EUR8 million) last year and a drop of 20-30% would see the company’s sales slip to around RON25 million this year.
(English version by Daniela Stoican)