KATHMANDU, MAY 25
Foreign alcohol brands smuggled into Nepal through the porous border continue to eat away at the market shares of similar brands imported legitimately into the country.
As a result of increased smuggling, the government is losing huge revenues in the form of customs and excise duties which would otherwise be imposed on foreign liquor imported through legitimate channels. Government sources told The Himalayan Times that the main reason for the phenomenal spurt in smuggling of imported liquor brands is the huge tax imposed currently in Nepal on such brands.
"The Nepali government's decision to keep raising taxes on alcohol to increase revenue has yielded unintended consequences.
High taxes have led to a surge in smuggling of imported alcohol brands into Nepal, resulting in significant revenue losses."
The extent of smuggling is such that availability of imported liquor brands rule the roost despite the import ban imposed by the government in the wake of depleting foreign exchange reserves. "All imported brands were freely available in the market while there were no official imports by authorised dealers for over a year" they said.
The sources pointed out that the government hoped higher taxes would discourage consumption, but lack of effective market regulation resulted in unforeseen outcomes such as black market activities, leading to revenue losses for government coffers.
Consequently, the market has witnessed a rise in the consumption of unregulated alcohol.
According to a recent report of Nepal Health Research Council and the World Health Organisation, the consumption of illicit liquor in Nepal surpasses that of alcoholic beverages produced by licensed firms. Unrecorded alcohol, including homebrewed spirits (Aila/Raksi), wines (Jaad), and smuggled alcohol, accounts for approximately 66.3 per cent of total alcohol consumed in the past seven days.
Experts in the industry assert that these measures squeeze the business of licensed establishments while promoting the production and sale of illicit liquor. This additionally poses a risk for consumers in terms of quality and safety.
Alcohol, being an inelastic commodity, exhibits limited responsiveness to tax hikes. As a result, increased taxes do not significantly reduce consumption.
Instead, consumers tend to shift towards cheaper local or foreign liquor brands or more often substitute with more affordable home-brewed alcohol.
The unintended consequences of tax hikes include the emergence of black market activities and illicit alcohol production, further undermining the government's revenue goals.
The negative impact of these measures extends to national liquor companies in Nepal. This calls for reevaluation of the approach.
To promote a thriving and competitive alcohol industry, it is essential to foster a free market economy. Nepal, being a tourism-focused country, should provide consumers with choices, including foreign alcohol brands. Market experts argue that consumers prefer foreign liquor due to its perceived quality and established brand reputation, making it an attractive choice.
By adopting a multifaceted approach, the government can effectively address the issue of excessive alcohol consumption while supporting the growth of the domestic alcohol industry. These measures will not only mitigate the negative effects of high duties but also promote responsible alcohol consumption and ensure a thriving and regulated market for domestic alcohol producers.
A version of this article appears in the print on May 26, 2023, of The Himalayan Times.
