Behind the Headlines

Duty stamps - an attempt to reduce alcohol fraud

Duty stamps on the sale of alcohol stronger than 30 per cent was introduced in April 2006 as part of a range of measures designed to prevent fraud.

Alcohol fraud is moving duty-free goods from warehouse to warehouse to avoid paying excise tax.

The recommendation to introduce the measure was originally made in the Roques Report on excise diversion fraud, which was an attempt at examining the extent of the problem and a number of ways to stop the activity.

Out of 62 suggestions the government decided to adopt 44 of them, one of those being the duty stamp scheme.

A consultation with industry representatives took place in 2001. From that process, it emerged that the introduction of a new taxation scheme would place a heavy financial burden on wholesalers and retailers, and there was resistance to the measure.

Representatives claimed that the cost of the scheme would be disproportionate to the benefits and offered a range of alternative suggestions. However, the government decided to press ahead with duty stamps after an estimate that the Exchequer had lost £600m to spirit fraud and that was a trend set to continue.

Despite the introduction of duty stamps as a means of tracing duty paid goods, counterfeiters are now reproducing fake versions of the stamps to get around the rules.

Balihar Khalsa

Tackling spirit fraud - government and industry

Spirit fraud entered the spotlight in 2005 when the government introduced a number of measures to tackle the problem.

The Memorandum of Understanding (MoU) was one of those measures. It is an agreement between government and various trade bodies including: The Gin and Vodka Association, The Scotch Whisky Association and The Wine and Spirits Trade Association.

Edwin Atkinson, director of the Gin and Vodka Association, speaking in 2005, said: “UK spirits producers will be actively working with HMRC to tackle the spirits fraud problem.

“Particularly the large scale organised freight diversion frauds, which deprive the government of millions of pounds of revenue each year.”

Each year the MoU is amended and renewed in order to maintain the information sharing relationship between the regulators and the alcohol sector.

However, a report produced by HMRC earlier this year indicated that the MoUs have not been as successful as was expected. The ‘Alcohol Activity Report’ published in January said:

“The usefulness of information was generally low as it contained little risk information or information that HMRC was not already obtaining from other industry sources.”

The revelation has led to a renegotiation of the terms putting more of an emphasis on fraud, rather than distribution and supply chains.

One of the main problems that emerged in the run-up to the introduction of the MoU was the disparity between estimates of the amount of money that was being lost in spirit fraud.

HMRC estimates were much higher than the trade associations and no conclusive figures were available to demonstrate the amount of money being lost through the fraudulent spirit trade.

Balihar Khalsa