Russia Plans Another Booze Tax Hike

by Tatiana Smolenskaya, Tax-News.com, Moscow

11 June 2010

The Russian ministry of finance has recommended increasing the level of alcohol taxation in a renewed attempt to counter the ill effects of alcoholism, which remains widespread.

The ministry has suggested raising the minimum price of a half-litre bottle of vodka to RUB200 (USD6.35) and the excise tax on filtered cigarettes to RUB590 (USD18.80) per 1,000 units by 2013.

According to deputy finance minister Sergei Shatalov, the plans to more than triple taxes per litre over the next three years would bring the price of the cheapest vodka from the current RUB90 rubles to RUB120 in 2011, RUB160 in 2012 and RUB200 in 2013.

The Government estimates that the tax increases would lead to a halving of consumption.

Alcohol consumption has doubled in Russia since the 1990s, and at least two million people in Russia are officially classified as alcoholics.

The increase in taxes on beer last year, from RUB3 to RUB9 per liter, resulted in a 15% fall in Russian beer production in the first four months of this year, compared with the same period last year, according to official statistics.

Shatalov also said the excise tax on cigarettes could be increased by 30% per year over the next three years. This follows rises in the last four years that almost doubled cigarette prices. The Russian tobacco market is dominated by three global producers: Japan Tobacco, Philip Morris and British American Tobacco.

Russian drinks producers complain that the increases would drive hardened drinkers to the bootleg market and doubts have been raised as to whether the government can push through such drastic and unpopular measures, when elections are not far away in 2011 and 2012.

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