Natalia Kornienko, Head of Tax System Development Department of the Gaidar Institute, told “RBC+” about current situation related to illegal production in Russia and methods of combatting it.

“We observe tobacco market since 2006, when tax reform took place in the tobacco industry. The last two years have clearly caused serious concern precisely due to a sharp increase in the share of the illegal cigarette market. Budget losses in terms of unpaid excise taxes and VAT reached RUB 135 billion in 2019. Moreover, consideration must be given to hidden losses in terms of costs for government fighting against illegal trade, in particular, the control functions of the customs authorities, Rospotrebnadzor, and the Ministry of Internal Affairs. It is not feasible to calculate these costs. We still do not know the cost of one inspection, or the amount to be paid in six months to tighten control, when the excise rate will increase.

We understand that incomes of the population plunged this year. In particular, according to Rosstat data, the average monthly income of Moscow residents was RUB 72,000 in 2019, and this year it dropped to RUB 67,000. In the Altai Krai, the same indicator fell from RUB 22,000 to 20,000. However, the monthly expenses of the smoking population increased from 10 to 11% on tobacco products. We have to understand that there are no mechanisms for increasing the population incomes, while smokers cannot give up their habits. Instead, they will look for cheaper products, while the market will offer them. “At the same time, frankly, it would be very unreasonable to sacrifice the Customs Union for the sake of

combating illegal traffic, because the benefits that our state can receive from this authority are much higher."