A Tough Alcohol Policy Becomes Pointless
The Government of the Russian Federation considers the possibility of freezing or reducing the rates of excise duties on alcohol products fr om 2015.
So, the earlier planned serious growth in excises aimed according to assurances of the Government of the Russian Federation at ensuring higher revenues to the budget of the Russian Federation and limitation of consumption of alcohol products can be postponed or abandoned altogether. According to the latest version of excise rates approved on September 30 by the President of the Russian Federation, excise duties on alcohol products with the content of alcohol over 9% are to be increased up to Rb 500 per liter, Rb 600 per liter and Rb 660 per liter in 2014, 2015 and 2016, respectively.
Sharp growth in excise duties on strong spirits will inevitably result in expansion of the market of illegal spirits. In addition to the above, alcohol products of Russian producers will be replaced by more cheap analogs supplied from countries of the Customs Union and the CIS. Such a situation is justified to a great extent by low excise duties in neighboring countries. For example, in Kazakhstan the rate of an excise duty on the content of alcohol is four times lower than in Russia and amounts to Rb 105 per liter. As seen from the international experience, in the present-day conditions of openness of the global economy, improved logistics and changes in customs rules a tough alcohol policy becomes pointless as the state sustains losses due to expansion of the market of illegal spirits.
It is to be noted that active growth in excise duties on alcohol products will have a negative effect on the extent of collection of taxes which situation has been observed since 2010. Pressure is mounting on Russian producers on the part of illegal suppliers form neighboring countries. Such a situation may cause bankruptcy and closure of small enterprises within the frameworks of large holdings with all the social and economic consequences, such as growth in the rate of unemployment, a decrease in tax revenues and other involved.
In addition to the above, as seen from the international experience, growth in excise duties on alcohol products does not necessarily result in reduction of alcohol consumption. For example, in the countries of Nordic Europe instances were registered wh ere sharp growth in excise rates resulted in higher alcohol consumption due to substitution of legal alcohol products with illegal ones. So, growth in excise duties cannot be unambiguously interpreted as a criterion of an alcohol policy aimed at reduction of the extent of spirits consumption.
Proceeding from the above considerations, the government’s decision as regards a possible freeze/reduction of excise duties on alcohol products from 2015 is not without reason despite all the fiscal facts and is certainly appreciated by the professional community of producers of alcoholic drinks. According to the estimates of the Union of Producers of Alcohol Products, if the decision is not approved excise and other tax losses may amount to over Rb 150bn.
Also, a regulating function of the excise duty is to be remembered: it is important by means of forming a relevant correlation between excise rates on alcohol products to create price incentives in order to change the consumption pattern in favor of low-alcohol beverages. In our view, excise duties on strong spirits should be indexed at an advanced rate with indexation being accompanied by further toughening of administration so that expansion of the shadow sector is prevented.
N.S. Moguchev, Researcher of the Budget Policy Department
Sharp growth in excise duties on strong spirits will inevitably result in expansion of the market of illegal spirits. In addition to the above, alcohol products of Russian producers will be replaced by more cheap analogs supplied from countries of the Customs Union and the CIS. Such a situation is justified to a great extent by low excise duties in neighboring countries. For example, in Kazakhstan the rate of an excise duty on the content of alcohol is four times lower than in Russia and amounts to Rb 105 per liter. As seen from the international experience, in the present-day conditions of openness of the global economy, improved logistics and changes in customs rules a tough alcohol policy becomes pointless as the state sustains losses due to expansion of the market of illegal spirits.
It is to be noted that active growth in excise duties on alcohol products will have a negative effect on the extent of collection of taxes which situation has been observed since 2010. Pressure is mounting on Russian producers on the part of illegal suppliers form neighboring countries. Such a situation may cause bankruptcy and closure of small enterprises within the frameworks of large holdings with all the social and economic consequences, such as growth in the rate of unemployment, a decrease in tax revenues and other involved.
In addition to the above, as seen from the international experience, growth in excise duties on alcohol products does not necessarily result in reduction of alcohol consumption. For example, in the countries of Nordic Europe instances were registered wh ere sharp growth in excise rates resulted in higher alcohol consumption due to substitution of legal alcohol products with illegal ones. So, growth in excise duties cannot be unambiguously interpreted as a criterion of an alcohol policy aimed at reduction of the extent of spirits consumption.
Proceeding from the above considerations, the government’s decision as regards a possible freeze/reduction of excise duties on alcohol products from 2015 is not without reason despite all the fiscal facts and is certainly appreciated by the professional community of producers of alcoholic drinks. According to the estimates of the Union of Producers of Alcohol Products, if the decision is not approved excise and other tax losses may amount to over Rb 150bn.
Also, a regulating function of the excise duty is to be remembered: it is important by means of forming a relevant correlation between excise rates on alcohol products to create price incentives in order to change the consumption pattern in favor of low-alcohol beverages. In our view, excise duties on strong spirits should be indexed at an advanced rate with indexation being accompanied by further toughening of administration so that expansion of the shadow sector is prevented.
N.S. Moguchev, Researcher of the Budget Policy Department