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No Booze, No Smoking
As of 2010, Russians will be able to afford their bad habits paying more. The State Duma has approved a law which summarily increases excise on beer and tobacco products. It is not improbable that besides noble goals of pumping up the budget, the law will throw the beer industry over the bridge and stimulate growth of the “grey” market of tobacco articles.
At the session on Friday the State Duma approved in the third, final, reading the governmental bill which provides for accelerated increase in 2010-2012 of the excise rates on low alcohol and tobacco products. The law was approved because only the fraction “Yedinaya Rossiya” (United Russia) used the best endeavour to pump up the budget. It is suggested to index the excise on beer in 2010-2012 in average by 50%. Thus, excise on beer with a normative content of spirit exceeding 0.5% and up to 8.6% in 2010 will be increased by three times, and in subsequent years in average by 10%, on beer with content of spirit exceeding 8.6% in 2010 by 42.8%, in 2011 by 21.42%, in 2012 by 23.5%.
It is suggested to index excise rates on alcohol products with a mass content of spirit up to 9% inclusively, spirit content product and wine in 2010-2012 in average by 30%, as far as the mass content of spirit exceeding 9% is concerned, excise on this beer will not be changed in в 2010-2011. As far as 2012 is concerned it will be changed by 10%. The welcome of all these initiatives by the market of the foamy drink, mildly speaking, was less than enthusiastic. But arguments of brewers with regard to the fact that the industry will steadily cease to exist and the population will get addicted to surrogates did not stop the government or deputies.
According to Vyacheslav Mamontov, head of the executive committee of the Union of Russian Brewers, growth of rates of excise on beer by 3 (from RUR 3 per 1 liter today to RUR 9), may in the long run lead to growth of consumption of strong alcohol (excise on it have not been increased). потребления крепкого алкоголя (акцизы на него как раз и не подняли). It is not improbable that part of consumers will start consumption of a cheaper surrogate.
Earlier the head of the Union of Russian Brewers, Vice-President of “Baltika”, Daniil Briman, announced that the retail price on alcohol drinks as a result of increase of the excise rate in 2010 may increase by RUR 4.5-6 per bottle (0.5 liters).
Besides, Vyacheslav Mamontov says, the growth of the excise will produce a short-term effect. Increase of the excise will lead to reduction of beer production and will pass through. Examples are plentiful. In 2008 the excise rate was increased by 32.4% at a time, and, as a consequence, for the first time over the last ten years, the level of production in the industry in general showed negative dynamics: less 0.6% year-on-year. Winding down of activity in Russia of the Danish concern Carlsberg may become one of the first responses to the approval of the law. Carsberg controls “Baltika”, the largest brewing company in Russia.
Earlier the head of Carlsberg, Jorgen Buhl Rasmussen reported that the company may start closing its breweries in Russia if the abrupt excise increase on beer in 2010-2012 suggested by the Ministry of Finance is approved. It also was reported that several projects of SABMiller may also suffer, inclusive due to the approval of the law.
Besides problems may occur for industries adjacent to brewing. In particular, in agriculture and production of packaging for beer. The forecasted decline of production of beer in 2009 will reduce volumes of direct sales of brewing barley from agricultural producers for more than RUR 2 billion. Cumulative losses of the agricultural production complex of the country due to reduction of production of beer this year, in accordance with assessments of experts of the industry, will account about RUR 15 billion, Vyacheslav Mamontov is quoted as saying.
So now it is high time to pump up the budget. According to the forecast of the Ministry of Finance, increase of the amount of excise and Vat in 2010 upsides a 0.5 l bottle of beer will account for RUR 3.51 on the level of 2009. Now the brewers hope that the President of the country and the Council of Federation will support their position. Representatives of the Union of Brewers hope that in the course of further discussion of the bill senators and the president of the Russian Federation will provide an unprejudiced assessment of provisions contained in the bill. According to representatives of the Union of Russian Brewers, the three-fold increase of the excise on beer in 2010 in the Russian Federation will lead to severe social and economic consequences in the country.
It is noted in the press release of the Union as follows: “…representatives of the national brewing industry, adjacent industries of economics, experts and heads of several regions of the country have repeatedly stressed that the decision with regard to the three-fold increase of the excise rate on beer is unprecedented and its implementation will inevitably lead to severe social and economic consequences”.
It is reminded in the document that this decision is taken at the background of the decline in the brewing industry which, according to the information provided by Rosstat ((Russian Statistics Committee) over the nine months accounted for 8%. Yet hoc anno several brewing companies had to stop their production which led to reduction of the number of employment positions says the press release. – If a final decision is taken with regard to increase of the excise rate on beer about 100 thousand specialists in the brewing industry and the adjacent sectors will lose their employment positions”.
Besides the sector of small breweries in the Russian Federation in the nearest two or three years will almost cease to exist and it will lead to growth of unemployment, according to representatives of the Union. And due to reduction of profitability of brewing production payment of all basic types of taxes will considerably decrease.
It is stressed in the press release that coming into effect of the bill with regard to increase of the excise will boost growth of alcoholization. "At the background of the shocking increase of the excise rate on beer and indexation of the excise rate on strong alcohol will account only 10%, - it is reminded in the document. – Such non-proportionate increase of excises will lead to considerable reduction of the price gap between strong alcohol and beer and create economic stimuli for a shift of the consumer demand towards strong alcohol, illegal products and cheap surrogates".
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