Study: Treasury losing over $145m in unpaid taxes from illicit alcohol

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Illicit alcohol has continued to flood the Zambian market, losing the country an estimated US$145.5 million in unpaid taxes in 2017 alone, according to a new report released by Euromonitor International Consulting of the United Kingdom.

The report says more than two-thirds of the alcohol sold during the period under review, was made by illegitimate unregistered suppliers.

The study, whose objective was to understand the extent of the illicit alcohol trade in seven selected African countries, including Zambia, was undertaken at the request of Anheuser-Busch InBev (AB InBev), the parent company of Zambian Breweries.

Illicit alcohol trade, according to the report, poses a substantial health threat to consumers, while the negative economic consequences for alcoholic drinks companies and governments are equally considerable. Euromonitor identified that the loss to the Treasury had increased threefold since the last survey in Zambia in 2014, when it identified a fiscal loss of more than US$50 million to government through smuggling and unpaid taxes.

Some 70 percent of the alcohol sold is now illicit, compared with 40 percent in 2014.

“This report makes worrying reading,” said Zambian Breweries country director Jose Moran. “We appeal to government to enforce existing legislation that will prosecute people involved in the illicit alcohol business as government is losing substantial amounts of money through the illicit alcohol trade. This will help curb negative health and social effects brought about by tujilijili and junta.”

The report explained that cheap, unregulated packaged spirits have moved away from sachets, which are now banned, to smaller sized bottles of 200ml. The majority of the distilleries making these are unregistered producers and are not paying tax.
Only an estimated 30 percent of local spirits production in Zambia in 2017 were traceable to legitimate, registered manufacturers. This represents a significant fiscal loss to the state.

According to the study, Market Analysis for Illicit Alcohol in sub-Saharan Africa, smuggling of packaged products into Zambia from Namibia at the Katima Mulilo border is the largest contributor to fiscal loss, with spirits and wine showing high levels of smuggling in 2017.

The report observes that the smuggling of alcohol from Namibia occurs through containerised vehicles. Contents are typically declared as fish and other perishables that are tax-free.

The report exposed Lusaka’s COMESA Market as a significant hub for illicit alcohol distribution but to a far less extent compared with 2014, due to the cholera clean-up from September 2017.

The report findings highlighted townships such as Matero, Mandevu and Chilenje in Lusaka as “competing” with COMESA Market in distributing smuggled alcohol and other illicit products.
The Euromonitor market analysis noted, however, that there had been an increase in government lobbying to strengthen the regulation of illicit alcohol, mainly because of alcohol-related abuse.

The report justifies part of government’s drive as health-related, citing interventions made during the cholera outbreak in 2017 that compelled government to intervene in alcohol consumption in urban compounds, epicentres of disease in peri-urban areas, and shut down outdoor trade.

Moran said Zambian Breweries would continue to collaborate with government and other stakeholders to enhance the National Alcohol Policy’s vision of having a nation free from the negative social, health, and welfare consequences of alcohol abuse in the population, in order to enhance national development.

“We therefore appeal to the government to address this issue from the root as exposed by the report. Recently, we signed an MOU with the Drug Enforcement Commission (DEC) on looking at how we can collaborate with government using evidence-based data to fight this illegal alcohol trade as it has negative fiscal, health and social impact,” Mr Moran explained.

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