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New International Tax and Investment Center Research Reveals Link between Tax and Illicit Alcohol Market SizeThe International Tax and Investment Center (ITIC) released new research on illicit alcohol revealing that high tax rates on alcoholic beverages can divert consumers to the illicit alcohol market, which poses a major threat to public health and finances. Experts examined illicit alcohol in Colombia, the Dominican Republic, Malaysia, South Africa, and the United Kingdom to uncover the largest drivers of these illicit markets, which are bad for consumers, communities, and businesses due to their negative social and economic impacts. In alignment with the OECD's Illicit Trade in High-Risk Sectors report, the research showed that a significant price difference between the licit and illicit alcoholic beverages is one of the biggest drivers; if consumers struggle to afford legal alcoholic beverages, they will turn to cheaper, illicit ones that can be very dangerous and potentially lethal. Some of the severe consequences of the illicit alcohol market can be observed as recently as in the last two months in Peru and Ecuador, where over 60 deaths between the two countries were reported as a result of the ingestion of illicit alcohol. The research also explored how nations around the world have dealt with illicit alcohol commerce through tax and regulatory policies that lessen the incentives for criminals to engage in illicit alcohol production and trafficking. The study highlights five key findings:
Colombia provides an example of how a wide price difference can drive demand for illicit alcohol and create high levels of social acceptance for purchasing illegal beverages. Due in part to pricing, over 22.8% of the total ethanol consumed in the nation is illicit - a value of over US$1.5 billion, accounting for a fiscal loss of US$678 million. Meanwhile, the Dominican Republic's 33% market share of illicit alcohol showcases its danger to individuals, with over 500 deaths in the country over the past three years. "It's clear that excessive alcohol taxation fuels crime while harming the legal domestic industries whose taxes contribute to essential government services," states Witt. "Smart taxation is key here. Our findings support the idea that well-calibrated alcohol taxation policies that understand and target the illicit market will result in a reduced presence of illegal alcohol, increased tax collections for governments, improved public safety, and a level competitive field for alcohol companies. In short, this is a critical way for governments to reduce fiscal loss and, far more important, avoid needless and preventable death and injury." The full academic article, published in the latest edition of the World Customs Journal (Vol. 16, Number 2, September 2022) is currently available to Members of the International Network of Customs Universities (INCU). More about ITIC The International Tax and Investment Center (ITIC) is an independent, nonprofit research and education organization founded in 1993 to promote tax reform and public-private initiatives to improve the investment climate in transition and developing economies. ITIC serves as a clearinghouse for information on best practices in taxation and investment policy. ITIC encourages tax, trade and investment policies that enhance economic growth in non-OECD countries by facilitating mutual understanding and trust between business and governments.
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