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Germans, Czechs veto EU tax increase on beer, liquor

Germany and the Czech Republic vetoed a proposed increase in European taxes on beer, liquor and fortified wine, branding the levy unfair to brewers while wine goes untaxed in several countries.

Europe's top two beer-drinking countries led the opposition to the boost in minimum booze taxes, which would push up the price of a typical beer by 1 euro cent or less in Germany, the Czech Republic and five other countries. „Beer was one of the problems today,” Finnish Finance Minister Eero Heinaeluoma told reporters after failing to broker a compromise at a meeting of EU ministers in Brussels. Beermakers balked at the tax rise, saying it would slice profit margins and give wine a competitive edge. Beer generated €10.5 billion ($13 billion) in excise tax in 2005, according to an industry-sponsored study. The Czech Brewers Association says its countrymen lead the world in beer consumption, quaffing 156.5 liters (41 gallons) on average per person in 2005. By those figures, the average Czech would pay €3.29 additional excise tax each year. „We were quite happy” that the tax rise won't take effect, Czech Deputy Finance Minister Tomas Zidek said.

Germany, already set to raise the sales tax to 19% from 16% in January, fought against another unpopular tax increase that would have hit the national beverage. Germany ranks second behind the Czech Republic in the EU beer-drinking statistics, with the average German guzzling 115.9 liters in 2004, according to the Brewers of Europe. „We promised the German people that after the value-added tax increase there would be no more financial burdens,” German Deputy Finance Minister Thomas Mirow said. With Germany taking over the EU presidency in the H1 of 2007, the tax is unlikely to be back on the EU's agenda until July 2007 at the earliest. EU tax proposals need unanimity to pass. The EU set the minimum beer tax in 1992, and has never adjusted it for inflation. Two months ago, the European Commission proposed a catch-up raise of 31%, saying finance ministers unanimously called for such a move in May 2005.

The tax would go beyond an inflation adjustment, argues the Brewers of Europe group. It would force beermakers to raise prices still more to maintain profit margins, the Brussels-based trade group says. „We are in principle against the proposal,” said Rodolphe de Looz-Corswarem, secretary-general of the brewers group, in an interview before the meeting. Taxes shouldn't penalize „a sector that works well in Europe.” The change in excise would affect 11 of the 25 EU countries for at least one of three categories: beer, „intermediate products” such as sherry and port, and stronger spirits. Other countries wouldn't be affected as they already charge more than the proposed minimum. There is no floor for the tax on wine, and countries including Germany, the Czech Republic, Spain and Italy have opted not to charge any. Other countries including France levy less than the rate for other drinks. The commission in May 2004 called the wine exception „a very controversial and politically sensitive issue.” „We have to talk about wine,” if there is to be any increase in tax on beer, de Looz-Corswarem of the brewers' group said in a telephone interview last week.

With Latvia and Lithuania joining Germany and the Czech Republic in opposing higher taxes on beer, Finland floated a compromise that would exempt beer while raising taxes on other spirits. Seven other countries said no to that proposal. „I'm afraid when we have the third compromise there will be at least 20 countries who are against it,” Heinaeluoma said. Separately, the EU made no headway on a proposal to raise the duty-free allowance for travellers from outside the EU to €300 from €175. „The Finnish proposal was for €300, but it was not enough for all the member states” while some wanted „a little smaller sum,” Heinaeluoma said. Britain also pushed for the allowances to be converted into pounds at 1994 exchange rates, when the UK currency was weaker. France and the Netherlands blocked the UK exchange-rate plea, saying it would let UK-bound travellers bring in more tax-free goods than travellers to continental countries. Finance ministers will try again to agree on alcohol taxes and duty-free allowances at their next meeting on November 28. (Bloomberg)