BUSINESS
Excise Crusade against Tobacco
05 September, 2013
Excise tax increased by 25% on both imported and locally produced tobacco products starting from September 1 as a part of anti-tobacco campaign launched by the Georgian government aimed at the reduction of tobacco impact on health and social welfare. Sector pundits expect more fiscal rather than health-related benefits and increased contraband risks to come on the way as a result of the excise crusade against tobacco that envisages more growth of excise tax on the tobacco product within five-year
period.
The excise increased by 5 -15 tetri on September 1 from 15 to 20 tetri and from 60 to 75 tetri for non-filter and filter cigarettes respectively. However, some supermarkets increased prices on a pack of cigarettes by 20 tetri almost a week ahead of actual excise growth. Some still maintain old prices until the old cigarette supplies are expired; however, they look forward to price-hike and expect that tobacco importers and producers will increase their wholesale prices as a consequence of the higher excise. Economic analysts believe that under any circumstances prices on tobacco products will increase in proportion to the excise growth rate as far as higher excise means higher expenses to businessmen and they always reimburse losses on the expense of consumers.
“Businessmen never face losses; they fill any gap between incomes and outlays through the consumers’ pockets,” Irakli Lekvinadze, an economic analyst said. He believes excise-rise cannot be an effective anti-tobacco remedy without complex anti-tobacco campaign that is absent in Georgia as yet and expects only one positive effect – at average 20% growth of the excise taxes in the state coffer. Regarding presumed health and social care benefits, he speaks negatively.
“Cigarette is a non-elastic product which is impossible to be replaced; so I do not expect that the number of smokers will shrink as a consequence of this excise growth. In Europe, when the excise increases on cigarettes, it envisages the purchase power of a consumer who is well-off and those who smoke expensive cigarettes, can afford to maintain their habit, for their income is high, while in Georgia mainly poor and socially unprotected people are smokers. They will go on cheaper non-quality products rather than quit smoking that will have the reverse effect [on their health and social being],” - Lekvinadze elaborated.
Nevertheless, Georgian government assures the excise increased for entirely health-care reasons not to secure bigger revenues in the state budget and expects no price hike on tobacco. Ministry of Finances of Georgia (MOF) informed in its official statement released on September the 1st, 2013, the excise rise is not linked with the unconventional retail price hike but depends on the market trend.
“The excise increase on tobacco product is in line with the complex approach of the Ministry of Labor, Health and Social Care of Georgia aimed at creating a long-term strategy of tobacco control in the country and reduction the tobacco-induced impact on health and social welfare. Moreover, excise increase is one of the tools to get the country closer to the regulations envisaged by the stricter framework of the tobacco control convention,” - the MOF statement reads. As a part of the anti-tobacco program government plans to prohibit smoking at public places as well as to increase excise furthermore within five years gradually, however does not disclose the rates of the planned growth at the moment. Meantime the best world practice shows that it is crucial to tobacco producing and importing companies to know expected excise growth rates in a long-run of 7-8 years at average, Nika Mchedlishvili, a Corporate Affairs and Communication Director of Japan Tobacco International, said in the interview to Georgian Journal. He expects no drop in sales [or incomes] as a result of the excise rise because the increased demand on cheaper segment will offset the shrinking sales of expensive high-quality product. But he is wary of contraband risks.
“Government should take into account the prices on tobacco region-wide. We all remember how the contraband rate increased to almost 70-80% in 2005 when the excise on tobacco doubled and cheaper Russian product infested Georgian market [through Georgian breakaway republic of Abkhazia],” - he said. “At the moment cigarette is much more expensive in Russia but risks may come from Armenia where a pack of cigarette cost 96 cent while it cost USD 1. 20 in Georgia before the excise rise.”
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