Georgian Soft Drinks and Water to Become Excised and Expensive
27 December, 2012
Georgian Soft Drinks and Water to Become Excised and Expensive
To combat falsification of non-alcohol drinks, mineral and fresh water, Georgian government will excise the said product after the New Year. T he sector players find this anti-falsification measure irrelevant and expect only negative effects for business, consumers and the state budget alike: excessive taxation burden to business, price hike on the excised product to consumers, and decreased tax payments in the state budget as the taxes raised through excising goes not to the state budget but to a private company
providing the excising service.
Non-alcohol drinks as well as mineral and still water in sale of Georgian market can be considered as either luxury goods or goods that are harmful for health from New Year. At any rate they will become more expensive as the law on obligatory excising of the said product enters into effect on January 1st of 2013 based on which the excise charges one thousand bottles of non-alcohol drinks by EUR 5.5 equivalent in national currency [around GEL 12] and one thousand bottle of mineral and still water by EUR 4.63 [around GEL 10]. Ultimately the total sum per company involved in the non-alcohol and water business may exceed a million, the Sale Management Company worries. The Company owns the trade mark “Choose Georgian” and performs the sale management and marketing service to Georgian companies including Citro [producing non-alcohol drinks] and Bakhmaro [producing the cold tea drink] both operating in regions.
Irakli Lekvinadze, a spokesperson of the Sale Management Company, believes that the initiative to excise non-alcohol drinks and water approved by ex-government in April of this year in order to fight falsification in the sector is redundant as the market does not suffer of falsification as such, and may have only negative effects: the redundant financial burden will compel companies to increase prices on product that will affect sales and accordingly the revenues brought by the said companies in the state budget. Meantime the money levied by the excise tax will be channeled not in the state budget as other stamp-based excise does but to the Swiss based SICPA company hired by Ministry of Finances (MOF) as an exclusive operator performing electronic excising service to non-alcohol and water companies.
“Based on the general price formula once the product self-price will go up even by 1tetri it will immediately jack final price up on the product in sale by at least 5 tetri due to marketing and distribution chains since no product is sold for its self-price at markets and supermarkets. This means the price will grow by 5% while the 5% growth of price cuts sales figure down by 14%,” Lekvinadze said in the interview to Georgian Journal.
Lekvinadze worries that this expected 5 tetri growth in self-price will take bigger impact on small companies with limited financial resources and oriented on local market that will deteriorate competition at large.
The production price growth will affect Georgian export too as non-alcohol drinks and water makes significant part of it. The sales will decline at local and export markets equally. This means higher consumer prices, fewer revenues to companies and less Value Added Tax and customs payments in the state budget.
The only one who may enjoy profits of this recent excising initiative is the excise operating company SICPA that was chosen by ex-power without any tender, Nodar Chichinadze, Chairperson of Association of Young Financiers and Businessmen of Georgia, said. He calculated that as much as Georgia produces about 500 million liter non-alcohol drink and every 1000 bottles [liter] of which will be taxed by EUR 5 the excise operator company will take GEL 5-6 million for its service while it is supposed to have minimal expenses.
Besides, the essence of excise is to tax consumer goods that are either luxury [alcohol drinks or caviar for example] or harm to health like tobacco and cigarettes. Non-alcohol drinks and water cannot be ranked in either category. Therefore experts do not rule out a corruption deal was concluded with the operator company who takes impressive profits for the service aimed to combat falsification that is no problem for Georgian market at all.
According to Lekvinadze, the best world practice to fight falsification is either through court or self-regulation like attaching/stamping special quality and brand identification marks on the product. For example producers of famous Georgian mineral water Borjomi carve deer on each bottle.
“On the other hand, if Ministry of Finances doubts that certain company has unregistered product it has full right and tools to check the fact and introduction of redundant taxation burden is no solution to the falsification problem. The fiscal effect of this initiative to the state budget is zero and the entire excise service price will be paid to the Swiss operator company. This poses certain question marks,” Lekvinadze said.
Therefore, the Sales Management Company protests the non-alcohol and water product excising and appeal to Georgian Prime Minister, Parliament, ministries of finance and agriculture as well as the Chamber of Commerce and Industry of Georgia to halt the excising initiative.
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