. Last Updated: 07/27/2016

Presidential Veto Outlaws Alcohol

Alcohol producers and wholesalers awoke with a serious hangover New Year's Day after President Vladimir Putin made them outlaws with a late-year veto that shocked the industry.

"All alcohol that is now being produced and sold on the territory of Russia is technically illegal," said National Alcohol Association head Pavel Shapkin. "Any store can now be shut for selling it."

The journey toward prohibition began in August when Putin signed into law four chapters of the second part of the Tax Code, which included strict new alcohol regulations that were slated to become operational Jan. 1.

Among other stipulations, the code calls for excise duties on alcohol to be split evenly between producers and wholesalers, whereas previously the producers bared the full burden. Instead of a single stamp from just the producers, a second, regional stamp from the wholesalers is now needed. As a result, the excise tax is now split evenly between federal and regional budgets.

In order to implement the new system, traders were to receive the status of "excise warehouses," where inspectors from the Tax Ministry, according to the plan, would ensure the orderly use of special regional excise stamps and help to rid the industry of its estimated 40 percent to 70 percent bootleg production.

The legislation even stipulated that special tenders be held to choose the companies that would make the stamps.

It all sounded good. But in November, realizing that virtually nothing had been accomplished to turn the legislation into reality, the State Duma voted to give the government more time and delay the operational date of the new system to June 1.

Meanwhile, Putin kept quiet and waited until less than three days before the weeklong holiday to inform Duma deputies in a letter that he had vetoed their extension and that they would have to face the consequences for slow work.

"The failure by the government to take necessary measures for the creation and realization of regional special excise stamps … and the mechanism of excise payments by excise warehouses … is no foundation for delaying [the implementation] of the second part of the Tax Code," Putin wrote.

Putin's veto shocked producers and dealers alike. With no system in place, after Jan. 1, all production and sales of alcohol became technically illegal.

Some producers stopped producing altogether out of fear. Many decided to continue business as usual and hope for the best.

Whatever the outcome, the effects are already taking their toll nationwide. And the volumes involved are staggering. In the first 10 months of 2000, Russia produced 950 million liters of alcohol, with preliminary forecasts for 2000 set at 1.2 billion liters, said Shapkin of the National Alcohol Association.

All 10 distilleries in the Kemerovo region have stopped selling, Shapkin said. Most wholesalers in Tomsk have done the same, as have some in Moscow.

"I am outraged with what happened," said Yelena Kondratyeva, chief accountant at Soyuzpromimpeks, a wholesaler with more than 1,500 retail clients. "We have been left to live as we choose, no one knows what to do, there are no explanations or instructions.

"We all are violating the law now, hoping not to be punished," Kondratyeva said.

Yury Molokin, deputy sales chief at the Moscow-based Topaz distillery, said one of his company's regional wholesale dealers had already suspended an order.

Alexei Yegarmin, deputy general director for Moscow's Serebryanoprudsky distillery, said his company wasn't altering its production. "We are working as before," he said.

Regardless of their different strategies for dealing with being in legal limbo, however, both producers and wholesalers wasted no time blaming the Tax Ministry for being slow with providing documents and instructions.

"By all means this is due to sluggishness of the Tax Ministry," said Yegarmin. "The required stamps have not been produced. The method for working with the excise warehouses are not worked out. With a later deadline they [the ministry] relaxed and was not prepared [for Putin's veto]," he said.

"Tax officials themselves say they know nothing," said Soyuzpromimpeks' Kondratyeva.

When contacted by telephone Wednesday, a Tax Ministry spokeswoman said the ministry wasn't prepared to comment. The spokeswoman said the ministry would hold a press conference on the issue at the end of the month.