Make it your homepage |   E-mail: Subscribe Unsubscribe

£2.6 million investment in Harold Cohen Library

Thursday, April 24, 2014
News Making Money

Raising Tobacco Tax: Good or Bad?

Written by Mariam Papidze, The FINANCIAL

25/08/2013 20:00 (241 Day 10:24 minutes ago)


The FINANCIAL -- The price of tobacco in Georgia will be increased by 25-33 percent from September 2013, according to tobacco importers. The increased taxes on tobacco are aimed at reducing the number of smokers in Georgia, the authorities say. Conversely, industry representatives believe that the new taxes will encourage the development of smuggling in Georgia. “The real aim of their increasing excise tax is the collection of more money for the state budget,” they said.



Excise tax on tobacco will increase in Georgia from 1 September, Georgia’s Finance Minister Nodar Khaduri said. According to him the excise duty on non-filter cigarettes will rise by 5 tetri, and on filter cigarettes - by 15 tetri. Currently, the excise duty on non-filter cigarettes is 15 tetri and on filter cigarettes - 60 tetri.

“Every government has two reasons for increasing excise tax: to collect more money for the budget and to reduce the number of smokers in the country,” said Nikoloz Mchedlishvili, CA&C Director, and Caucasus Corporate Affairs at JTI Caucasus. “Cigarettes are an inelastic product in that a price increase does not reduce customer numbers. Smokers will simply start to buy less expensive cigarettes, which will cause more health problems as a result. This is called trading down,” he added.

“At first, the government intended to raise the excise tax to GEL 2, which would definitely have caused an inflow of cigarettes from Armenia. There was a risk of smuggling activities reappearing like in 2005 when the excise tax was 90 tetri and when 75 percent of the market was illegal. But after our involvement in the issue and explanation of the potentially dangerous outcomes, Nodar Khaduri, the Minister of Finance of Georgia, decided to increase the excise tax by just 5 tetri instead. This amount of money is more or less acceptable. Prices have been increased in Russia as well as in Azerbaijan. What is important now is what Armenia will do in the immediate future. If it does not increase its prices then we will face the danger of the widespread illegal import of cigarettes from Armenia once again,” Mchedlishvili said.

“Increased excise tax is the result of fiscal policy first of all,” said Soso Murgulia, Head of the Marketing Department at Best Tobacco. “It will not reduce the number of smokers. At first they will start buying less expensive cigarettes, but later on they will pay more and switch back to buying their favourite ones again. The price of cigarettes will not increase suddenly. It will increase gradually and after two months the prices will stabilize. I doubt that the products’ final prices will be increased by 20 tetri. Those companies which have lower prices will benefit from the increased excise tax. But for others it will be a problem,” he added.

If the increased excise tax does not reduce the number of smokers, then it means that this new regulation was aimed at increasing the budget’s income and to give the possibility of monopolizing the market, claims Giorgi Khmelidze, representative of the youth wing of the United National Movement. “The final goal of Nodar Khaduri is to monopolize the market. Raising the excise tax is the first step in this direction. His share will be 20-30 tetri per each block of cigarettes, which is no small amount of money. Later he will bring in less expensive, competitive cigarettes to the market meanwhile continuing to occupy the whole market,” declared Khmelidze.

In response to all of these doubts, officials of the Ministry of Finance of Georgia explained that an excise tax increase is consistent with the policy of the Ministry of Labour, Health and Social Affairs of Georgia. “This policy aims to toughen tobacco control in Georgia and reduce the country’s number of smokers. This is why the excise tax is being raised, not due to increasing budget revenues. The budget’s revenue will be increased by just GEL 40 million. As for smuggling activities, all the risks have been well analyzed and work on this direction is continuing,” the officials said.

“The previous government did not implement such regulations as they were actually getting money from the tobacco industry and it was not in their interest to disturb the industry’s income in any way,” said Giorgi Murgulia, Deputy Head of the Tobacco Control Alliance in Georgia. “The amount of money being brought to the budget by the tobacco industry is insignificant compared to the amount of money which is being spent on the treatment and rehabilitation of smokers. An increased price of tobacco will reduce the number of smokers in Georgia as many of the new generation will not be able to afford cigarettes and will therefore not have the opportunity or incentive to start smoking. This is looking at the situation in the long-term perspective. The tobacco industry is not supported in developed countries worldwide so why should it be in Georgia?” he added.

The tobacco industry paid GEL 600 million to the budget in 2012, according to JTI Caucasus. “When the state has a GEL 8 billion budget and the tobacco industry’s share in it is so large, the government should be very careful not to destroy the well-developed system and not to criminalize the business like what happened in 2005. If cigarettes are imported illegally in Georgia, the government and the distribution companies will lose their income. We will not be able to pay as large an amount of money to the budget as we are paying today,” said Nikoloz Mchedlishvili.

In Georgia 11,000 active and 3,000 passive smokers die every year as a result of exposure to tobacco smoke, according to the World Health Organization. 30 percent of the population is tobacco consumers; 55 percent of men and 5 percent of women are smokers. The Welfare Foundation (non-governmental organization) suspects that more women are smokers in Georgia than the report says.

3 billion units of cigarettes were imported in the first 6 months of 2013 in Georgia (with total value of USD 46,000), while almost 6 billion units of cigarettes were imported in 2012 (with total value of USD 90.5 million). The highest amount of cigarettes is imported from Ukraine , Bulgaria and Russia, according to the National Statistics Office of Georgia.

As for the export statistics, 18,000 units of cigarettes were exported in the first 6 months of 2013 (with a total value of USD 1,500) and 39,000 units of cigarettes were exported in 2012 (with a total value of USD 5,100). The highest amount of cigarettes is exported to the United Kingdom, Russia and Ukraine .

The main importers in Georgia are LTD Camel, LTD Philip Morris Georgia, British American Tobacco, LTD B&J, LTD P&L, LTD Best Tobacco, Geo Invest, Georgian Tobacco Manufacturing and others.



Make Your Comment

Add NewSearchRSS
Only registered users and facebook social network members can write comments!

This text is replaced by the Flash movie.
This text is replaced by the Flash movie.
“The former Yugoslav Republic of Macedonia”: presidential election and early parliamentary elections

23/04/2014 16:38 (13:46 minutes ago)

The FINANCIAL -- A 14-member delegation of the Parliamentary Assembly of the Council of Europe (PACE), led by Stefan Schennach (Austria, SOC), will travel to “the former Yugoslav Republic of Macedonia” from 25 to 28 April to observe the conduct of the presidential election (2nd round) and the early parliamentary elections, alongside observers from the OSCE’s Parliamentary Assembly and Office for Democratic Institutions and Human Rights (ODIHR), according to PACE.

American Express Reports First Quarter EPS of $1.33, Up 16 Percent from a Year Ago

19/04/2014 14:24 (4 Day 16:00 minutes ago)

The FINANCIAL -- American Express Company reported first-quarter net income of $1.4 billion, up from $1.3 billion a year ago. Diluted earnings per share rose 16 percent to $1.33, from $1.15 a year ago, according to the American Express Company.


World News
Helping Bulgarian farmers to become landowners

19/04/2014 11:39 (4 Day 18:45 minutes ago)

The FINANCIAL -- The EBRD is providing a €5 million to loan to Elana Agrocredit AD to co-finance the development of Bulgaria’s agricultural land market.

The World Bank Supports Small and Medium-sized Businesses in Tunisia

19/04/2014 10:29 (4 Day 19:55 minutes ago)

The FINANCIAL -- The World Bank approved an additional loan for US$100 million for Micro, Small and Medium Enterprises (MSMEs) in Tunisia.

EBRD loans to boost energy efficiency and support competitiveness of Macedonian companies

16/04/2014 16:42 (7 Day 13:42 minutes ago)

The FINANCIAL -- The EBRD has teamed up with Macedonian bank, NLB Tutunska banka, to increase the competitiveness of the Macedonian private sector and to promote energy efficiency in the country with a €6 million financing package, according to EBRD.      

EBRD helps modernise Baltic freight handling

16/04/2014 16:29 (7 Day 13:55 minutes ago)

The FINANCIAL -- A €32.5 million loan from the EBRD to Klaipedos Smelte, the company operating the container terminal at Klaipeda port in Lithuania, helped modernise its freight handling capacities and upgrade the whole Baltics region as a transit hub, according to EBRD.

Africans among the most morally opposed to contraception

19/04/2014 08:33 (4 Day 21:51 minutes ago)


The FINANCIAL -- Speaking to bishops from Tanzania last week, Pope Francis praised church workers in Africa “who strive diligently to educate people in the area of sexual responsibility and chastity” with the aim of preventing HIV and AIDS.


Major Cloud Service Providers Slash Prices; Threaten Smaller Players’ Existence: IDC Warns

19/04/2014 13:40 (4 Day 16:44 minutes ago)

The FINANCIAL -- In the last week of March, major Cloud Service Providers (CSPs) in Asia dropped their prices for core services dramatically and IDC believes that this will make it very difficult for smaller CSPs to remain in business if they continue to rely on provision of basic, undifferentiated services, according to International Data Corporation (IDC).

Philippines: Further reforms to strengthen growth, create more and better jobs

11/04/2014 12:00 (12 Day 18:24 minutes ago)

The FINANCIAL -- The Philippines is likely to remain as one of the fastest growing economies in the East Asia and Pacific region in the next two years.

Toyota Takes Out the Trash

23/04/2014 17:10 (13:14 minutes ago)

The FINANCIAL -- Imagine lugging more than 1.9 million trash cans to the curb on trash day. That’s what Toyota Motor Sales, U.S.A., Inc. (TMS) has avoided doing over the last four years. Since 2009, Toyota has reduced or avoided 1.9 million trash cans worth of waste at its sales and logistics facilities across the country, according to Toyota Motor Sales, U.S.A., Inc.

Zurich identifies seven cyber risks that threaten systemic shock

23/04/2014 17:00 (13:24 minutes ago)

The FINANCIAL -- The recently published Zurich Cyber Risk Report, created in collaboration with the international think tank Atlantic Council, argues that cyber-risk management professionals need to look beyond their internal information technology safeguards to interconnected risks which can build up relating to counterparties, outsourced suppliers, supply chains, disruptive technologies, upstream infrastructure and external shocks, according to Zurich Insurance Company.


Developed by Aleksandre Chiabrishvili

Design built by Creo Group