Russia - tax on tobacco may be quadrupled..

State Duma Symbol..


December 20, 2009 - The State Duma (the Duma in the Russian Empire and Russian Federation corresponds to the lower house of the parliament) may consider quadrupling tobacco excise instead of the 40 percent increase approved earlier, which could lead to the price of a packet of cigarettes doubling, Fontanka.ru (online newspaper) reported.

The Duma deputies hope the planned move will make more people quit smoking.

Tobacco producers say the excise increase will only have a negative effect on the transparency of the market, and will not influence the health of the population.

Deputies from the United Russia party, whose leader Boris Gryzlov is to head a commission on the issue, believes such actions could have a positive effect on people’s health.

The State Duma is currently discussing two options for a gradual increase in the excise. One option is to increase excise by 300 percent, the other by 400 percent. Under the latter option, the price of a packet of cigarettes would double in 2010. Deputies hope that the number of smokers in the country would significantly decrease as a result.

At the same time, deputies expect that a 400 percent increase in tobacco excise rates would provide the state budget with about 70 billion rubles ($2.28 billion.) The previously planned raise of 40 percent would bring in about another 10 billion rubles ($325 million,) Fontanka reported.

Tobacco producers said a significant increase in cigarette prices would cause a wave of indignation among customers and force some producers to start selling on the black market.

Nevo-Tabak tobacco producer said an excise increase in the current situation would not be constructive, Fontanka reported.

The company said that it would accept an increase in the VAT. Such a measure would be fair and would enable cheap cigarettes brands, which see a 20 to 25 percent loss in demand every year, to remain on the market, it said.

Anatoly Vereshchagin, communications director at JTI, said that JTI supports the well-balanced policy of the Russian government regarding gradual excise increases.

“Increasing excises by multiple times would increase the probability of illegal trade,” said Vereshchagin.

Smokers displayed mixed reactions to the news.

“I’ve been wanting to quit smoking for a long time, but my attempts to do so are not very successful,” said Artyom Zaitsev, 34, a manager. “So maybe an increase in cigarette prices would at least stop me from smoking as many cigarettes.”

Igor Zhmurin, 24, a student who said he smokes nearly two packets of cigarettes a day, said he would feel very negative about an increase in cigarette prices.

“I think higher prices would not stop me from smoking, but obviously someone would be getting more money from my pocket again,” Zhmurin said.

In November, the State Duma signed amendments to the Tax Code to increase the excise on beer and tobacco from 2010.

Tobacco production in Russia is concentrated mainly around Moscow and St. Petersburg. In St. Petersburg, two companies produce cigarettes — Philip Morris Izhora, a daughter company of Philip Morris International that produces 25 billion cigarettes a year; and Petro, the biggest factory of JT International that can produce up to 60 billion cigarettes a year.

Reference: Tax on Tobacco May Be Quadrupled by Irina Titova, The St. Petersburg Times, 12/18/2009.

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