Tobacco Companies Fear Influx of Illegal Goods due to Excise Tax Increase

Tobacco companies fear an influx of illegal products due to excise tax increase on tobacco, reported the representatives of the three largest tobacco companies in Russia.

Kudrin also said that Russia will work with other member countries of the Customs Union on the issue of raising excise taxes on tobacco. Moreover, he noted that if Russia boosts excise taxes on tobacco, it will create an advantage for tobacco products from neighboring countries, including from the member countries of the Customs Union and China.

The picture shows high tobacco tax

The picture shows high tobacco tax

“The proposed increase exceeds even the highest growth rates of tax burden of past years – excise tax increase amounted to about 40% in 2010, in 2011 – 44% “, said Lyutyi.

Aleksei Kim, director of the department of affiliate company corporate affairs of “Philip Morris International” in Russia, also said that the company welcomes the Russian government approved concept of public policy to fight against tobacco use in 2010-2015, including the provision offering “the uniform tax increase on all tobacco products, outstripping the rate of inflation, taking into account the purchasing power of consumers.”

“The sharp rise of retail prices and excise taxes in price due to the accelerated indexation of excise tax force consumers to buy either cheaper cigarettes or substandard products of illegal origin. These destructive effects are unlikely to contribute to achieving the goal of reducing tobacco consumption” – says Kim.

“Such sharp increase in the excise tax will significantly increase the difference between retail prices in Russia and bordering countries such as China, Belarus and Kazakhstan. As a consequence, this may result in the influx of cheaper cigarettes from these countries”, – said Lyutyi.

” Now, less than 0.1% of consumers decide to buy cigarettes with such price. Thus, producers and smugglers of illegal cigarettes may have a very promising market of 45 million smokers who will be looking for a cheaper product” – he said.

Due to excessive growth of excise taxes, average household expenditure on cigarettes in Russia will increase to 18% of their income that exceeds the figures of most European countries, where the rate is on average 4-8%.

“We can not imagine that the price of cigarettes will rise in five times soon. This will not simply lead to the appearance of illegal markets, but they will begin to dominate the legal from some point in time, “- said Vereshchagin.

According to Vereshchagin, 330 billion pieces of counterfeit and contraband tobacco products were sold all over the world in 2010. The major centers of the sale of such products are the countries where tax burden on tobacco has substantially increased during the past few years: Bulgaria, Romania, Turkey, Ukraine, Ireland, France, Finland, Germany, Austria, Poland, Britain and several others.

Losses from the illegal market comprise $ 30 billion of unpaid taxes.

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