Russia may double minimum vodka price

(Reuters) – Russia is considering doubling the minimum price of a bottle of vodka to 200 roubles ($6.30) and the excise tax on filtered cigarettes to 590 roubles ($18.67) per 1,000 units by 2013.

World | Russia

President Dmitry Medvedev last year ordered tough measures to curb alcohol abuse in a country where the average Russian drinks 18 liters (38 pints) of pure alcohol each year.

In January, Russia raised taxes on beer and introduced a minimum vodka price of 89 roubles per half liter, effectively doubling the cost of the cheapest bottle.

Now the Finance Ministry has proposed increasing the minimum price to 120 roubles in 2011, 160 roubles in 2012 and 200 roubles in 2013, local news agencies quoted deputy minister Sergei Shatalov as saying on Wednesday.

“Vodka should not be cheap, it is not a product of first necessity,” Shatalov said, according to Itar-Tass.

The Ministry also plans to increase the excise tax from current 250 roubles per 1,000 filtered cigarettes by 44 percent to 360 roubles in 2011, 460 roubles in 2012 and 590 roubles in 2013, said the draft amendment to the tax code, seen by Reuters.

The sharp increase in excise tax will force buyers to switch to cheaper tobacco and may increase the amount of bootleg in Russia’s tobacco market, corporate director at Philip Morris in Russia Aleksei Kim said.

“Excessive tax increase may add to inflation, especially at the time, where the buyers’ income drops,” he said.

The tax on the filtered cigarette is now 40 percent, according to Kim.

The Russian tobacco market is almost completely taken by three global players: Japan Tobacco, Philip Morris Int and British American Tobacco.

The tax on tobacco products has more than doubled in the past four years. During that period, prices on cheap cigarettes grew more than 80-85 percent from 8-9 roubles per pack in 2007 to 15-16 roubles in the middle of 2010, according to director of corporate relations of British American Tobacco Russia Alexander Lyutyi.


The extra cash would be useful as the government faces years of budget deficits after Russia weathered its worst recession in 15 years in 2009.

However, analysts at VTB Capital were skeptical about the proposal’s effectiveness and its chances to become reality.

“In our view, there is little threat for vodka producers of consumption declining since market consolidation would accelerate: minor regional players, which just about break even, would go out of business leaving a handful of strong and profitable companies,” they said.

“However, we believe that any sharp increase in the spirits tax would most probably result in a dramatic increase in the production of illegal alcohol and tax collections would fall.”

The proposal could face a tough slog to secure approval from the government and parliament, given the strength of Russia’s alcohol producers’ lobbying power, VTB Capital said.

With elections looming in 2011-2, that may increase the reluctance to adopt the potentially unpopular measure.

(Reporting by Maria Plis and Toni Vorobyova; writing by Nastassia Astrasheuskaya and Toni Vorobyova; Editing by Louise Heavens)

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