Russian Excise Duty Hikes to Spur Contraband – Business

The rapid rise in alcohol and tobacco excise duties advocated by Russian presidential economic aide Arkady Dvorkovich is likely to increase the number of fake and surrogate products in Russia, alcohol and tobacco business figures polled by Prime news agency said on Wednesday.

In an interview with RIA Novosti on Wednesday, Dvorkovich called for increased alcohol and tobacco excise duties above the planned level.

Industry figures said, however, that the proposal was inexpedient.

Union of Alcohol Producers chairman Dmitry Dobrov said excise duties should be raised only when the market was free of fake alcohol products and surrogates.

“Consumer purchasing power has not changed radically. With a sharp growth in excise duties and, as a result, sharp growth in prices, the buyer will have an alternative: either to buy legal but very expensive or illegal and cheap products,” he said.

The higher the price of legal alcohol, the more money dealers will get from production and sale of illegal alcohol, he said.

His opinion was shared by Center of Federal and Regional Alcohol Market Studies director Vadim Drobiz.

“Even the existing level of alcohol prices, which is higher than in some European countries relative to minimum average wages, was the cause for up to 50 percent of fake products on the market, while the growth of excise duties in the past two to three years has pushed this figure up to 63 percent,” he said, adding the excise duty hikes would increase the proportion of fake and surrogate alcohol to 75 percent in 2014.

Drobiz said the Russian government should prioritize creating an alternative to strong alcoholic drinks by preferences to wine and low alcoholic beverages.

Maksim Korolyov, head of the Russian Tobacco news agency, said the share of fake tobacco on the Russian market was small at present, but this could change if the government failed to harmonize tobacco excise duties with member countries of the Customs Union comprising Russia, Belarus and Kazakhstan.

“We can already see the first signs when Belarusian cigarettes are sold in Russian border regions,” he said, adding that an average filtered cigarette pack cost a minimum of 20 rubles in Russia compared with 3-4 rubles in Belarus.

He was echoed by Anatoly Vereshchagin, Japan Tobacco International’s communications director in Russia. “Already today there is a considerable imbalance between tobacco price levels in Russia and the Customs Union countries.”

“Eventually, with the further increase in the excise duty burden and the lower affordability of cigarettes produced in Russia, the demand of Russian consumers for cheaper products made by Belarusian and Kazakh factories will only grow.”


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