Busting Booze: Easier Said Than Done

The crackdown on the alcohol market announced by President Boris Yeltsin is aimed at wresting money from a lucrative trade dominated by bootleggers, but industry players said Thursday the government will have its hands full putting the chaotic market back in the bottle.


A meeting of the government's temporary emergency tax commission, chaired by President Boris Yeltsin, announced Thursday new state controls on the alcohol industry aimed at bringing in 2 trillion rubles ($360 million) monthly the federal treasury estimates it loses at the hands of booze smugglers.


"The restoration of the state monopoly is not just a slogan but a political task that envisages tough state control at all stages, from production to wholesale and retail distribution," Kremlin chief of staff Anatoly Chubais said after Thursday's meeting.


Yeltsin, in one of his official functions after a six-month absence from public view with heart trouble, launched the crackdown in characteristic fashion, dismissing Alla Vdovenko, head of the state committee for alcohol inspection.


Measures discussed by the tax council include the introduction of stiff excise taxes, the posting of around-the-clock inspectors at Russia's 700 distilleries, new licensing fees for alcohol producers and design of forgery-proof labels for state-produced alcohol.


Yeltsin also announced he was intent on eliminating all tax breaks and privileges for the import of alcohol, previously enjoyed by various insider organizations such as the National Sports Fund and still retained by some charity groups.


Analysts said, however, that the proposed tough measures are likely to remain mere declarations unless the state demonstrates enough political will to fight the bootleg trade and corruption that surround the Russian alcohol market.


"When certain structures are capable of earning 2 trillion rubles a month from illegal trade, they are clearly very powerful," said Vladimir Kashin, deputy director of the Expert Institute under the Russian Union of Industrialists and Entrepreneurs.


"And in the case of Russia, the state is weak and the structures are strong. So, who's going to fight whom?" he said.


Previous state efforts at coming to grips with the unregulated alcohol trade have amounted to little.


One measure going into effect Jan. 1 is a decree imposing quotas on vodka and ethyl spirit imports from abroad, especially Ukraine and Belarus, which have flooded Russia with cheap alcohol. Officials said last week that alcohol imports might not be allowed in after Jan. 1 without new stamps, but the quota system for allocating the stamps has yet to be decided.


Yelena Tsvetkova, head of the State Customs Committee's indirect taxation department, said in an interview Thursday that import quotas will only apply to ethyl spirit and vodka, and not other alcohol products such as gin and whisky, which are not made in Russia.


According to the decree, Russia will only let in 100 million liters of vodka and 10 million liters of spirits next year, Tsvetkova said. She did not detail the vodka quotas, but said CIS countries were allocated one-fourth of the spirits quotas, including 1.5 million liters for Ukraine.


"Of course if we introduce quotas while Belarus does not, then any normal person would use this route for importing," she said.


The Finance Ministry puts losses to the budget from smuggling through neighboring Belarus alone at 7 trillion rubles, an amount almost equal to the state debt to social-sector workers such as teachers and doctors.


While Chubais said Russia and Belarus would continue developing integrated customs legislation, it will be virtually impossible to stop all smuggling because at least 40 percent of the border between the two countries is unguarded.


Registered Western alcohol importers say they could benefit from the quota system, since so much of the trade now is in the black market. A European dealer said the quota limit was about equivalent to legal imports in 1995, which he estimated at 10,000 truckloads.


A Moscow-based dealer for a major Western vodka brand said his company's sales could pick up if the Russian authorities drive fake and smuggled products from the market, which would eventually narrow the gap between prices for quality Western brands and officially produced domestic liquor.


Russia's statistics show that legal imports have been continuously shrinking this year, with trade down 41 percent to $784 million for the first 10 months of this year compared with the same period in 1995, Interfax reported.


Next year the government also plans to begin slapping the same excise tax rates on both domestically produced alcohol and imported Western brands.


Tamara Sofrina, a Finance Ministry expert on alcohol taxation issues, said that with new rules in place, a 40,000-ruble bottle of 40-proof vodka would include about 18,000 rubles in excise tax.


Nina Mitrofanova, economics director at the Moscow-based distillery Kristal, said domestic liquor production could pick up after the state steps, but only if enforcement is strict.


"It could turn out badly, but it could also turn out well for enterprises, so that the state revenue will eventually increase," Mitrofanova said.


? Beer brewers will no longer have to pay a drinks license and beer, bottled gin-and-tonic and sweets containing alcohol will be exempt from excise duties, the State Duma decided Wednesday, Agence France Presse reported. Deputies adopted a series of amendments exempting products with less than 6 percent pure alcohol from taxes.