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. Last Updated: 07/27/2016

Brewers Gear Up to Fight New Tax Law

Russian brewers Tuesday urged the government to scrap a new tax law that puts beer in the same league as vodka, contending that it could spell disaster for beer bottlers and drinkers alike.


"We are ready to fight this resolution till the end," Vladimir Ulanov, director of the 120-year-old Tryokhgorny brewery, told a news conference.


Brewery managers contended that complying with the law would force them to raise prices sharply at a time when Russian consumers are drinking less domestic brew and turning more to Western imports to satisfy their thirst.


The law, approved by the government in July, puts beer in the same category as vodka and other strong alcoholic beverages for tax purposes. Starting Jan. 1, brewers will be required to obtain special licenses and to put an excise-tax seal on each bottle they produce.


It is part of a widespread effort by the cash-strapped government to improve its notoriously poor tax collection and crack down on tax dodgers. The new licensing provision for producers of alcoholic-beverage makers could bring in an estimated 3.5 trillion rubles.


But brewers say the tax-seal requirement is unrealistic for a mass-produced product like beer and could undercut their fight for survival in an increasingly competitive market.


Ulanov said a bottle of Russian beer that now costs about 3,500 rubles will cost 6,000 to 7,000 rubles after the law takes effect, which would put it near the same price level as some of the cheaper Western imports.


"Our consumers simply cannot afford to pay twice the price for a beer," said Alexander Kochetkov, general director of the Ochakovsky brewery, one of Russia's largest.


"Normally the price of beer is about one-sixth of that of vodka," Ulanov said. "If the price of a bottle of beer starts to be about half of that of vodka, I know people would rather buy vodka."


The measure, affecting about 400 Russian brewers, could reduce beer production by 30 to 40 percent, said Vladimir Rebrikov, a consultant from the committee on economic policy in the State Duma, the parliament's lower house.


"The government creates resolutions that are not implementable," he said. "It wants to control the alcohol market, but instead it is destroying it."


Brewers already face tough times because of economic restructuring, foreign competition and a recent decline in domestic demand. Average per-capita consumption had fallen to 12 liters per year in 1995, about half the 1990 level, according to government statistics.


A main complaint among brewers is that they lack the means to mechanically add the required excise-tax seals to beer bottles.


"That new excise stamp is going to give us some serious headaches," said Nina Cherkina, chief accountant of the Moscow Beer Factory.


"Technically we are not prepared to do that, and neither would be any beer producer in the West. I don't think there exists any machine in the world capable of doing that," said Ulanov.


He said an "army of people" might have to be added to the production lines to attach the seals, driving up costs.


The new provisions apply to all products with more than 1.5 percent alcohol content.


Rebrikov suggested that the implications of the new law could be absurd.


"If that is the case then, maybe chocolates with rum will also have to bear that excise seal," he said.