The RF Government approved the indexation of excise rates for the period of 2010 – 2012

On 23 September, the Government RF Government approved the indexation of the rates of excises on alcohol and tobacco products suggested by the RF Ministry of Finance.

Thus, according to the draft law, the excise rates for alcohol products with per cent volume of ethyl alcohol of up to 9 % and for alcohol-containing products and wines established for 2010 – 2012 will be increased, on the average, by 30%, and those for beer – by 50%. In the draft law it is also envisaged that the advalorem component of the excise rate on cigarettes (including cigarettes with cardboard mouthpieces) estimated in the basis of maximum retail prices is to be increased every year by 0.5%, while the specific component of the excise rate for filter-tipped cigarettes is to be raised on the average by 30%, and that for cigarettes without filter – by 50%.

In our opinion, this attempt to replenish the budget will result in no significant increase in revenues. It should be recognized that the expected rise of excise rates will be much more rapid than the previous indexations. However, in conditions of declining real incomes of the population and the worsening financial situation of the enterprises operating in this sector of the economy, any significant indexation can only create incentives for further growth of shadow business, which, in its turn, will reduce the overall tax revenues from this industry.

Besides, in the draft law it is envisaged that a single date for the payment of excises should be established. This measure is designed to improve tax administration and the collection of taxes.

E. Fomina – Research Fellow, Department for Budget Policy