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. Last Updated: 07/27/2016

State to Limit Alcohol Imports

COMBINED REPORTS


Russia plans to sober up its chaotic vodka industry -- potentially one of the state's biggest sources of revenue -- by getting a grip on production, sales and imports, government and industry officials said Monday.


Get-tough decrees and resolutions discussed by the cabinet over the weekend include a quota limiting imports to no more than 20 percent of the Russian market for alcoholic drinks -- down from 50 percent now -- as well as tobacco, Interfax reported.


The agency quoted a deputy economics minister, Yakov Urinson, as saying the quotas would be distributed by commodity exchanges on a contest basis.


Another measure would set minimum retail prices for alcoholic beverages to include excise taxes due the government.


Vladimir Yarmosh, head of the Rosalko vodka and an alcohol producers' association, said he expected prices to rise to 15,000 to 20,000 rubles ($3.20 to $4.20) per half-liter bottle from the current 8,000 to 10,000 rubles. Imported Ukrainian vodka costs about 6,000 to 7,000 rubles.


He said he expects the new law to come into force by the end of this year.


Urinson estimated the new measures could add as much as 2 trillion rubles (about $425 million) a month to the federal budget.


He complained that the market is flooded with alcoholic beverages priced too low to include any tax payment. "It is quite obvious that the goods are either contraband or were produced illegally," he said.


Yarmosh said the new rules should pose no problems for high-quality foreign brands, which account for 2 percent or 3 percent of consumption and are being imported in accordance with all laws. Once the vodka imports are decreased, he estimated that 80 percent of all imports will be wine and 20 percent would be spirits, including vodka.


"There will be enough room for everyone here," Yarmosh said.


But Ukraine and Belarus, which so far have enjoyed tax-free exports to Russia, will now face excise and import duties. Urinson said the bulk of current alcohol imports come from Ukraine, according to Interfax.


"The state, both pre-revolutionary Russia and the Soviet Union, used to receive up to one-third of its overall profits from vodka sales," Yarmosh said. "But this share has fallen to only 2 percent over the past few years."


Current discussions in the government center largely on how to implement a law regulating vodka production and sales that was approved in November, but requires additional resolutions to take effect.


"The state is helping producers but, in the first place, the state is helping itself to re-establish its monopoly on the market," Yarmosh said, adding that Russia's share of the domestic vodka market was currently less than 50 percent.


Russia can produce up to 2.6 to 2.7 billion liters of vodka a year but the industry is working at about 30 percent of capacity, Yarmosh said.


By some estimates, every day Russians consume the equivalent of a quarter liter of vodka per person.


From every bottle the state is supposed to get an 85 percent excise tax, a 20 percent value-added tax and several special taxes, which push the price of a bottle up six- or seven-fold from its production cost.


Yarmosh said the law also called for a clampdown down on vodka counterfeiting and smuggling. Licenses for alcohol trading would be re-registered, he said.


The Foreign Trade Ministry will distribute the new quotas among commodity exchanges which will allocate them to licensed importers on a contest basis, Interfax quoted Urinson as saying. The minister said such a measure would limit the scope for official corruption.


"The alcohol market is the same as the drugs market. You may get an uncontrollable flow of vodka and liquors. You get smuggling, illegal trade, counterfeit brands and crime. The state is losing money and people lose their health," Yarmosh said.


The economic slump of the past few years has made people buy cheap vodka regardless of quality.


"It is often made with technical alcohol. Normal people buy this vodka to wash their windshields in winter. It does not freeze but it may be dangerous to drink it," Yarmosh said. ()