The market of tobacco products in Belarus needs reforms

An international corporation JTI, a member of the Association of European Business, shared the information on current market trends of tobacco products in the world and Belarus with governmental authorities. The seminar took place on 22 July 2016 in the conference hall of the hotel Crowne Plaza Minsk.

An international expert Dmitry Redko noticed that the illegal cigarette trafficking is a very serious problem. Contraband and counterfeit occupy 9.8% of the European market, and the amount of tax losses makes 11.3 billion euro. Belarus is still the largest source of illicit cigarettes in Europe, amounting to 5.3 billion units in 2015. Smuggled cigarettes from Belarus are in increased demand in Poland, Germany and Great Britain - 2.3; 0.7 and 0.6 billion units in 2015, respectively.

Experts point out that the volume of cigarette production for the internal Belarusian market greatly exceeds the volume of domestic consumption, where the migration of consumer demand to cheaper cigarettes takes place, which is connected with a disproportionate excise duty increase and the increase of the gap between cigarette prices of the first (1.23 BYN per pack) and the third (over 1.78 BYN per pack) price groups. Such a situation doesn’t contribute to the growth of budget revenues and causes illegal flows of cheaper products across the border.

One solution of this situation could be a gradual increase in the rate of excise duty for cigarettes of lower price range (on the average, an increase of 21% will facilitate the harmonization of rates by 2021) and economically justified increase in the rate of the 3rd and 2nd groups (10% and 14%, respectively). Thus it will lead to a simplification of the current tax system and tax administration, as the mechanism for collecting the specific excise duty is simple and completely transparent. Tax services don’t need to determine the cost of each batch of tobacco products for calculating the amount of tax, it is enough to know only the quantity of cigarettes sold.

Participants discussed options for tobacco market reforms in Belarus with a view to find win-win solutions both for foreign investors and governmental authorities.