New tobacco initiatives: To lift and redistribute

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In the Ukrainian parliament "tobacco fights" approach new. After adoption of law about smoking restriction in public places which (without) nearly three years work, three deputies submitted the bill of serious increase in tax load of cigarettes. The official purpose of the bill No. 2272 - to reduce availability of tobacco products to Ukrainians. At the same time, experts consider this bill not as the thought-over strategy on smoking reduction in Ukraine, and it is rather as a chaotic set of the figures, capable to force part of smokers to change the price orientation, up to cheap smuggling.

As reported Details, a number of the Ukrainian experts already flayed to the "tobacco" bill. In particular, and many economists, and Scientifically - expert management of the Verkhovna Rada already scarified the bill for its discrepancy to the budgetary and tax legislation. After all, article 27 of the Budgetary code quite accurately says that similar bills can take effect only since the beginning of year. And that only if they are accepted till August 15 of year previous.

However, as the new report of the economist Sergey Staritsky who is engaged in the analysis of this perspective testifies, the submitted bill has problems and become serious.

Deceptive at least

"Proceeding from standards of the submitted bill, not decrease in consumption of tobacco products can be its real purpose, and attempt artificially to interfere with the competition in this market" - considers the economist.

The expert reasons the conclusion, first of all, that in the submitted bill the norm which assumes transition from the fixed minimum tax obligation to percentage (ad valorem) is provided.

The matter is that both in Europe, and in many countries of the world fixed component of an excise and the fixed minimum tax obligation provide higher prices of tobacco products, doing them inaccessible to children and teenagers. After all irrespective of the price the producer should deduct the fixed sum to the state.

In turn, the minimum tax obligation calculated as a percentage, is more favorable to producers of cheap production. Moreover, according to the estimates of the economist if the price of a pack of cigarettes lower than 4 hryvnias, at least, provided in the bill No. 2272, in general ceases to work. There is a question - for what fought?

"If the fixed minimum allows to establish a level below which the prices can't fall, percentage on the contrary raises the top bar. As the prices in the market grow unevenly, and the cost of expensive production is most of all raised, demand for it will decrease - consumers will simply switch over from expensive brands of cigarettes to cheaper. Therefore I don't see in this bill neither economic logic, nor logic from the point of view of protection of human health. After all the position of World Health Organization is just that fight against smoking needs to be begun from below - gradually tightening the bottom limit of the prices of cigarettes" - Sergey Staritsky considers.

Introduction of the percentage minimum tax obligation seems the good populist slogan "Let the Rich Pay More", but has no serious consequences for the budget as a 7-grivenny segment loved by authors of the bill by which the price will most strongly rise, occupies less than 3% of the Ukrainian market. For comparison, cheap production (less than 4 hryvnias for a pack) are about 85% of the market.

By the way, as Staritsky reminds, authors of the bill, raising excises on cigarettes, incidentally or purposefully forget to increase the tax pressure upon cheaper tobacco production - in particular, by tobacco for "roll-ups", for hookahs, by tobacco for smoking.

"Thanks to" such "forgetfulness" Ukraine can repeat negative experiment of Germany which in 2002 sharply increased excise rates on cigarettes, having forgotten to take a similar step by other cheaper types of tobacco production. Respectively, the tax pressure upon cigarettes became nearly 8 times higher, than, for example, on tobacco for "roll-ups".As a result, the population sharply passed to cheaper goods, first of all, on the tobacco which market size grew three times. Not to mention smuggling growth. Serious decrease in number of smokers didn't happen, as well as serious increase in receipts in the state budget. In April, 2006 Germany corrected the error, and now all prices of tobacco products count on a uniform formula and they are attached to the price of cigarettes of the most popular price category.

By the way, in all European Union the fixed minimum tax obligation - 64 euros for 1000 cigarettes also works. However, in some countries which relatively entered recently EU it slightly less. For example, in Romania it makes 39,5 euros.

The percentage minimum tax obligation offered by authors of the bill, will expand a difference in the prices between expensive and cheap cigarettes even more. If in the majority of the European Union countries this difference doesn't exceed 100%, in Ukraine now the cheapest cigarettes are cheaper than the most expensive approximately by 6 times. And, if now the difference makes 6 hryvnias, authors of the bill plan it to increase to 9 hryvnias. The logic of authors of the bill again - is unclear. They want to reduce availability of cigarettes or on the contrary to increase it, having expanded a price choice for the smoker? !

Hi, Russian smuggling? !

Supporters of adoption of the bill No. 2272 among the arguments declare that supposedly from - for low taxes Ukraine became the main European producer of tobacco smuggling which goes from us both to Russia, and to Evrooyuz's countries. The part of the truth in these words is. But authors of the bill suggest Ukraine to rush in other extreme - and from the producer of smuggling to turn into her largest consumer. The matter is that in case of adoption of the bill the tax pressure upon the Ukrainian cigarettes becomes by 3 times big, than in Russia and by 9 times big, than in Moldova.

And if to consider that in the Russian Federation annual overproduction of cigarettes makes 100 billions pieces. and also transparency of our borders with Russia and Transnistria, it isn't difficult to guess that essential illicit streams of cigarettes again, as well as in 1999-2000, will go to Ukraine. And also transit through our country in the European Union.

So was, a few years ago in Georgia where 60% of the market fell to the share illicit, generally Russian, production.And all the matter is that in Georgia taxes on tobacco production were several times higher, than in Russia, and borders are quite transparent. Respectively, cheaper production almost freely got on the Georgian market.

Proceeding from the mentioned risks, experts advise the bill No. 2272 not to accept. The Ministry of Finance adheres to a similar position also. As the deputy minister Denis Fudashkin declared, the Ministry of Finance gave a negative response on the mentioned bill.

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