Understanding the Drivers of Illicit Alcohol: An Analysis of Selected Country Case Studies

Abstract

In addition to depriving governments of revenue from legitimate economic actors, the illicit alcohol trade is a major threat to public health. The World Health Organization’s (WHO) 2017 guidance on alcohol taxation has been influential in driving policies on this subject, particularly in developing countries. However, their analysis and limited academic literature do not fully account for the distinction between the licit and illicit markets, even though the illicit market leads to serious public health risks. Complementary to the WHO’s concerns, this paper seeks to add an additional perspective by suggesting that high rates of tax cause diversion to the illicit market, and the analysis of that market should include the effects of taxation. Government policies on alcohol and taxation should therefore account for the illicit market and avoid diversion to it, to reduce harm to public health. The paper offers an analysis and recommendations for customs, tax, and public health officials to discourage the illicit market and avoid tax leakage, such as use of tax stamps, coordination with industry and more holistic enforcement measures. Several case studies, using data from an international consultancy that has researched the illicit market, illustrate the themes of the article. The authors call for additional research in the academic community to further define the causal relationship between tax, affordability, and the size of the illicit market and to tailor enforcement strategies that address specific aspects of the illicit market in particular countries. The serious health risks associated with illicit alcohol consumption make such research a necessary and complementary component of WHO efforts to advance public health.