Thursday, December 6, 2012

Smash and Grab......

That yesterday’s increase in Excise Duty on wine is catastrophic for the Irish wine trade in Ireland is without doubt. Never has it been so clear that wine importers and independent wine retailers in Ireland need a lobby group.

An increase of just 10 cents on a pint of beer (anyone else find it weird that the Government still operates on Imperial measures for beer?) and nothing on spirits is a credit to the lobbying power of the VFI - and presumably both NOFFLA and DIGI (whoever they claim to represent?)

An almost 50% increase in Excise Duty on wine to a staggering €2.78 a bottle (and double for bubbly) says it all. A lonely letter published in the Irish Times on Tuesday (My Letter to the Irish Times) isn’t going to change much….

Who was that again who represents the interests of the Wine Trade here? Oh yeah, no-one. It was obviously just too easy a target for the Government.

It’s an absolute certainty that jobs will be lost in importers, independent retailers and also in hotels and restaurants as all these groups struggle with falling sales and reduced margins as we desperately try to remain competitive (no chance) against the lure of the North and the larger supermarkets who can afford to continue to discount whilst taking profits in other areas of their retail offering. There are a couple of brave people talking about no price rises, but bravery should be confused with stupidity and there’s a fine line between the two. Sales will fall and prices will inevitably go up.

And why did they not ban below-cost selling of all alcohol? That would have protected jobs. Because the Government makes the same amount of Excise Duty per bottle of wine irrespective of what price it is sold at. The Excise is levied as the wine leaves the warehouse, long before it hits the shop floor. So in a bizarre way, the Government benefits from the below cost selling of alcohol as they actually get more revenue from increased promotional sales. Just don’t tell that to the Health service or anyone who is a victim of alcohol abuse.

But there may be a bigger conspiracy…. admittedly far fetched, but bear with me…Excise is levied as the wine leaves the warehouse, or more correctly as it’s taken off the computer system in the warehouse and it can then technically be put into a “Duty Paid” area. It is not levied on the sale of a bottle in a shop. At the end of each month, the Revenue take by direct debit the Excise bill an importer/wholesaler has run up. This is guaranteed money to the Revenue as we all also have to have Bank Guarantees in place to ensure Revenue get paid irrespective of what happens.

Last night, prior to the midnight deadline, there were tens of millions of Euro worth of Excise charges (not wine, just Excise) incurred as importers shifted wine out of "Under Bond" status to avail of the old Excise Rate before it rose. (As an aside, it will be interesting to see what happens this – some importers may hold their prices at the old rates, or some may charge the new rates whilst having benefitted by being charged the old rates by Revenue – it’s a tempting option as every 100 cases sold nets them an extra €1,000.)

But that’s just a diversion, albeit an interesting one. The real story is that up to €50M in Excise is guaranteed to flow to the Revenue at the end of January (when the December bills are paid) from importers who did this. On top of this is Vat @ 23% on the value of the wine taken out of Bond. That also goes to Revenue at the end of January.

So there’s a pretty nice pot of maybe up to €100M coming the way of the Revenue within 60 days. In the meantime, the Government could get – and wholly deservedly so – an unprecedented attack on the unjust, unfair and discriminatory rise and realise the error of its ways – as jobs really are at stake.

The Finance Bill (which in effect “legalises” many of the Budget decisions) is published every February and in this they could then decide to reverse the misguided Excise increase. Then we’re all back to normal – but the Government has just pocketed a quick €100M by pulling a stroke on us all.

Smash and Grab……? Stranger things have happened….

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