Government approves control labels on liquor products as means of cracking down on black market sales

15-04-2004

As part of its second phase of planned fiscal reforms the government has agreed on a draft bill proposing the stamping of liquor products in the Czech Republic. The method, the government says, will provide a means for quelling black market sales and cracking down on tax evasion. The question is will it be effective? As we now report not everyone thinks so.

The production and distribution of alcohol in the Czech Republic could be about to undergo a minor revolution - the production and stamping of new control labels on all liquor products in order to crack down on the black market illegal alcohol sales, in order to retrieve millions of crowns in previously evaded taxes. But will the system really work? Already some producers have expressed their dissatisfaction, among them Martin Petrasek, the director of the Czech Republic's largest alcohol producer Stock-Pilsen. In Martin Petrasek's view the draft bill will do little to prevent illegal sales.

"The stamping of liquor products will have little effect on the black market because paper stamps are easy to counterfeit. For that reason I see it simply as a bureaucratic measure that won't work. Neighbouring Slovakia, for example introduced control labels several years ago and they still regularly have cases of illegal alcohol being sold under the veil of counterfeit stamps."

Radek Nemecek, a spokesman at the Czech Finance Ministry disagrees: he says past experience - the labelling of cigarette packages in the Czech Republic - has been effective. And he says any minor negative effects of the new bill will be clearly outweighed by its usefulness overall - bringing in millions in previously lost tax revenue.

"I must strongly disagree with the criticism - we heard the same about the labelling of cigarette packages. The experience shows that the controls helped prevent tax evasion on tobacco products.

What about the fact that if approved the new law will require producers to invest millions in technology?

"Well, I think the benefits of this law exceed the costs that are connected with it."

The government says that firms will be able to 'write-off' their investment in the new technology; do you believe that will be enough to help?

"Yes, I'm sure that this will help a lot, especially small firms, to cope with this new law."

Does Martin Petrasek of Stock-Pilsen agree? Far from it. Not surprisingly, he argues that the labels will be more than just expensive; he says they will have an impact on productivity.

"The introduction of control labels is going to greatly complicate management. It is going to be expensive and it is going to slow down productivity, because the labelling machines are relatively slow. Concerning the funds of course we'll be able to put up the necessary investment. For a large company like ours that's not a problem to plan the necessary cash flow. But, I worry about are the smaller firms. I think they could find themselves in financial trouble."

For the moment, then, the view remains divided: will the bill be effective in cracking down on the black market, who will it hit most? If there is any indication of the complexity of the issue at least one other loophole to the law has already been pointed out: namely, that less than scrupulous entrepreneurs in the gastronomy sector who want to continue evading taxes could go as far as pouring illegally obtained alcohol into officially stamped bottles. Whether anyone will actually go through that kind of trouble to break the law remains an open question for now.

15-04-2004