Antonina Levashenko, Head of the Gaidar Institute's International Best Practices Analysis Department, spoke to Expert journal about the alcohol market reform carried out by Sergei Witte, the Russian Empire's Minister of Finance, in the late 19th century. Antonina Levashenko explained why historical experience cannot be directly applied to modern tax regulations.
The publication examines how Sergei Witte sought to increase treasury revenues through state control over the alcohol trade. Antonina Levashenko noted that the reform was part of a longer history of alcohol market regulation: long before Witte, the state received a considerable share of revenue from the alcohol trade, and in 1863, wine tax farming was replaced by an excise tax system.
“Witte's reform cannot be considered the first large-scale cleanup of the alcohol market in Russia. State regulation and revenue generation from the vodka trade existed long before it. In the 19th century, revenues from alcohol production averaged about a third of state revenue,” explained Antonina Levashenko.
According to Antonina Levashenko, the claim that the state monopoly made it feasible to finance industrialization without increasing the tax burden is also incorrect. Although taxes on alcohol producers were not raised between 1883 and 1900, indirect taxes on other goods and customs duties increased, and the government raised foreign loans. Thus, the absence of tax increases in one sector did not mean a reduction in the overall burden on the economy.
Commenting on current market cleanup measures, Antonina Levashenko noted that digital labeling and traceability systems help improve tax collection, but require additional costs for businesses. For smaller companies, the costs of equipment, software and reporting can be significantly higher than for larger players.
“Effective whitewashing occurs when the transparency of turnover increases along with the tax base, and the tax obligations-related costs remain acceptable. So, it is important to assess not only additional budget revenues, but also changes in revenue, the number of receipts and the registration and closure of companies. Without comprehensive data being available, it is impossible to assert that the economy has reached a threshold beyond which the increasing tax burden begins to systematically reduce the legal tax base,” noted Antonina Levashenko.