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. Last Updated: 07/27/2016

Tobacco Import Licenses Introduced

Tobacco importers will have to obtain licenses to continue imports next year, the Russian Cabinet has decreed.

The licensing requirement is meant to reduce smuggling and tax evasion by hitting out at the gray market, where fly-by-night companies get registered one day, import a batch of cigarettes the next and close down immediately afterward.

Western tobacco companies welcomed the measure as a step toward making the market more orderly. But some officials said licensing can hardly be effective in an environment where tax evasion is a way of life.

Prime Minister Yevgeny Primakov signed an order Friday saying that starting Jan. 1, a license will be needed to import any tobacco products from any country, including CIS member-states. Regional divisions of the Trade Ministry will issue the licenses in accordance with the import and export licensing rules that have been in effect since 1996.

Excise stamps, which must be attached to every pack of cigarettes before they are sold, will be issued only to licensed importers.

"Licensing is a good move because for companies like Philip Morris, which is conducting a legal business, it will help to protect our business," said Andrew White, vice president of corporate affairs at Philip Morris. "We do think it will have a positive effect on reducing contraband."

White added that Western producers were "encouraged" by the fact that the Primakov government has not moved to raise import duties on cigarettes. He said imports now account for about 25 percent of the Russian cigarette market.

According to White, the licensing requirement will not affect cigarette prices.

"From what we have understood, it is a very nominal fee for the license," White said.

But agriculture analyst Leonid Kholod said cigarette prices could actually rise if licensing succeeds in reducing cheap gray imports. But the size of the possible hikes is hard to estimate now because no one knows how much of the cigarette market is taken up by illegal or semi-legal imports.

Kholod doubted that licensing will make it completely impossible for gray importers to continue plying their trade, but he said it would make their life more difficult.

"It will certainly make these people's business riskier," he said.

State Customs Committee officials see cigarette smuggling as one of the biggest problems for their service. At a recent news conference, customs chief Valery Draganov named cigarettes as the favorite item of smugglers, ranking them above vodka, cars, furniture and electronic goods.

A customs official, who spoke on condition of anonymity, said in an interview Monday that licensing can hardly eradicate contraband.

"This measure will only create additional problems for honest importers," the official said. "The smugglers will just keep doing their gray or black job like before. They will import tobacco as pasta or something else - exactly as they are doing now."

Meanwhile, legal importers may have something of a bureaucratic problem with following Primakov's licensing order. The 1996 export and import licensing rules give government bodies 25 days to issue a license. Even if tobacco importers get all the necessary paperwork together immediately, they may not be able to get their licenses by Jan. 1.