Cigarettes excised, smuggled
Can smoking be curbed without hurting the economy?
According to the Kyiv International Institute of Sociology, the number of adult smokers in Ukraine is steadily decreasing: 41 percent in 2005, 35 percent in November 2008, and 31 percent in May 2009, reports UNIAN
Тhis year tobacco companies have been a boon for the state budget. In July 2009, an average of 9.54 billion cigarettes were manufactured and sold in Ukraine, while the budget monthly receipts from cigarette excise duty were at UAH 985 million, according to the NGO Coalition “For smoke-free Ukraine.” The figures for July 2008 are, respectively, 9.55 billion cigarettes and UAH 228 million.
The government has found a promising source of filling the beleaguered state budget and is not going to stop exploiting it. In October government officials will try to have the Verkhovna Rada raise the excise ad valorem excise duty from 20 to 30 percent.
TOBACCO COMPANIES ARE READY TO SUE THE GOVERNMENT
The tobacco companies are tired, to say the least, of this constant attention from the government. They are on the verge of panic and even ready to take legal action. “If this tendency to raise excise duty persists, we are going to the court. We have ample grounds: as many as five laws have been violated,” said Yurii Kishko, Corporate Affairs Director with Imperial Tobacco Ukraine, at a recent debate on tobacco excise duty organized by the European Business Association.
The same view is shared by his colleague Andrii Kril of British American Tobacco Ukraine. He says the government has violated the procedure for raising excise duty: “For instance, there has been a violation of a law on the system of taxation, which stipulates that taxes cannot be changed more than once a year. If this law is complied with, the increase scheduled for October should not be applied before Jan. 1, 2011.”
WHAT’S BAD FOR SMOKERS IS GOOD FOR THE BUDGET
In May through August 2009, budget receipts from tobacco excise duty tripled, say opponents of the tobacco companies. During the crisis aggravated by a budget deficit, such ‘tobacco’ sacrifice is simply indispensable. “It’s true that in the past 13 months this will be the fourth excise duty increase, or even the fifth, considering adjustments for inflation. But all of them have been successful so far, and budget receipts have risen steadily.
“Moreover, we still need to further raise the excise duty, at least to Russia’s level. For 10 years we had stagnation with cigarette excise duty. Now it’s time to make up for what we have lost,” says Volodymyr Riaboshlyk, adviser to the First Vice Prime Minister of Ukraine. “We’re not talking bread or milk. We’re talking about a harmful product. There is no harm if it is going to be less affordable in Ukraine than even in the EU countries.”
Riaboshlyk is not alarmed by the extent of smuggling, regardless of the hue and cry raised by tobacco companies. He maintains that business have always tried to scare the government with a possibility of rampant contraband, claiming that budget receipts would drop. Instead, everything turned out to be just as the government had planned, he said joyfully.
“It’s clear that smuggling still exists. Goods are being smuggled both into and out of Ukraine. Our contraband cigarettes are burned at Polish power stations. But the fact that smuggling exists doesn’t mean a thing, because there has been no unbiased research into the situation.
“Conversely, interviews among smokers have shown that 20 percent of them are opting for cheaper brands of cigarettes, another 20 percent are trying to give up smoking, yet another 20 percent are cutting down on cigarettes, and the remaining 40 percent have shown no reaction so far,” he said emphasizing the socially important aspect of raising the excise duty.
Nevertheless, Riaboshlyk does recognize a collision of laws. The duty increases have indeed been made too often. However, he sees the solution in changing the Budget Code of Ukraine to give the government the right to raise excise duty at its discretion, rather than in stopping this odious (for the tobacco companies) process. “After all, it will improve both the nation’s health and the state budget,” he summed up.
