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. Last Updated: 07/27/2016

Duma Attacks Alcohol Tax Hike

State Duma deputies have joined domestic alcohol producers to attack a government proposal to raise the excise duty on alcohol in 2001.

Deputies on Tuesday supported a call by producers for a moratorium on the excise.

"Excise rates should be fixed for two years," said Gennady Kulik, deputy head of the State Duma budget and tax committee and Fatherland-All Russia party me mber, at a parliamentary session of an expert council on laws governing the alcohol industry.

However, Georgy Boos, head of the expert council and Fatherland-All Russia's deputy speaker, rejected the moratorium as too inflexible for a changing market.

The session brought together about 100 industry producers, analysts and representatives from the regional powers.

The council followed a news conference Monday when domestic producers spelled out the problems caused by a 40 percent excise hike was introduced early this year.

The pending hike would destabilize the industry and cause more deaths through poisoning from bootleg distillers avoiding the tax, they said, adding that alcohol-related deaths had doubled in the first two months of this year.

The producers also drew up a draft charter on their vision of ideal relations between producers and traders and executive and legislative powers.

The producers, supported by deputies, said this year's 40 percent hike had spawned more illegal alcohol production, which according to various reports is already 40 percent to 60 percent of the market.

Kulik said alcohol production in the first five months of 2000 was down by 16 percent.

"It is evident that as a result of that, industry is losing market share and giving a huge impetus to shadow producers, thus complicating the situation for the domestic producer who makes a quality product and [pays] taxes to the budget."

Kulik said tax policies should recognize market forces.

The producers' and deputies' remedies to the government's tax proposals include fixing the excise rate for two years to give the market the opportunity to edge out bootleggers and lifting obstacles to the free flow of alcohol products. They also urged that producers and wholesalers each pay half the excise duties

Producers now pay all of the excise, half of which goes to the federal budget and the rest is funneled to local administration's budgets.

Because regions receive nothing from dealers bringing product from elsewhere, the regions levy extra duties that vary across the country.

Kulik said that if the excise burden is shared, this practice will fade away.

In a string of sometimes emotional reports from producers that followed, Kulik got overwhelming support in his call for the government to support legal producers.

However, speaking on behalf of the government, Deputy Finance Minister Mikhail Motorin was adamant that the government is intent on introducing the 20 percent excise rise.

He said it would allow the government to keep the share of the tax take on vodka in line with the rate of inflation.

Motorin said the planned hike corresponds with the inflation rate planned for 2001 f 20 percent.

Neither would the government support the share of the excise burden between the producers and wholesale dealers.

The government also favors the creation of a network of accredited wholesale bases.