As of January 1, 2016, any company in the United Kingdom that sells alcohol to another business will need to apply to register for the Alcohol Wholesaler Registration Scheme (AWRS). This law was introduced by HM Revenue and Customs (HMRC) to tackle alcohol fraud.
The failure to pay alcohol taxes and wide-scale illegal production and counterfeit operations have plagued the U.K. in recent years. Increasing reports of lethal fake alcohol highlight the concerns of a black market. Some reports have shown that up to one quarter of all alcohol outlets in England have been found to have counterfeit (and non-taxed) alcohol.
The United States had a well-publicized problem with “bootlegging” and tax evasion during the period of Prohibition. The primarily state-regulated system of American alcohol production, distribution and retail sale that has evolved after the repeal of Prohibition has essentially removed this concern for policymakers. A report authored by Robert Tobiassen for the Center for Alcohol Policy highlights how counterfeit and untaxed alcohol has been contained in the United States using state and federal regulation. The new U.K. wholesaler registry is a system that has been used in various forms in the United States for decades.
Similarly, Harley Duncan of KPMG researched the U.S. system of state alcohol regulation and noted its effectiveness in ensuring tax compliance. The successful American system stands in sharp contrast to reports of nearly $2 billion ($1.2 billion pounds) in lost alcohol duty annually in the United Kingdom.
The beauty of the American three-tier system is that it cuts the incentives and ability for counterfeit production or dangerous substitution and the non-payment of taxes. Generally, at the supplier level, suppliers are licensed and inspected by federal officials. These suppliers can sell only to state and federally-licensed independent wholesalers. These independent wholesalers are responsible for the suppliers’ products and can sell these products only after taxes have been paid to state licensed retailers. If a wholesaler sees product it did not bring into the retail outlet, he will report it. Other record keeping requirements assist the state in collecting taxes. The system shuts out access to the legal market for stolen, non-taxed, non-commercial or counterfeit products.
As a result, according to the Nielsen Company, there is more consumer choice for alcohol in the United States than any other consumer product. And because of the closed distribution system, the traditional avenues for counterfeit and tax evasion are thwarted.
The move by the United Kingdom to put more sunshine and oversight on its distribution system is a welcome move and one that will produce positive public goods for safety, tax collection and anti-counterfeit efforts.
This guest column was authored by Paul Pisano, Senior Vice President and General Counsel, National Beer Wholesalers Association, Alexandria, Virginia.