The Georgian government has decided to increase excise tax on tobacco products, and,as the business representatives say, this will lead to an immediate increase in the price of cigarettes.
Importers and manufacturers of cigarettes claim that the government’s decision was a complete surprise to them, they learned about it on television, because the government didn’t conduct consultations with them on this issue.
“If the excise tax increases, it will lead to an increase in the cost of a pack of cigarettes, but that’s not all – in this case the ad valorem tax automatically increases as well which is calculated based on the cost of cigarettes. Moreover, despite the low average inflation rate in Georgia, in recent period cigarettes and alcohol is constantly getting more expensive, and in this segment inflation is very high – 18%. Currently, we are trying to keep prices for the products, but starting January 1 they will grow due to inflation caused by the depreciation of the lari, and the growth of excise duties” – say representatives of the tobacco industry.
Currently the minimum price of cigarettes is GEL 1, 50-2, 00 per pack, but starting January 1 it this will rise to at least GEL 3. Georgian Finance Minister Dmitry Kumsishvili said that as a result of the rising cost of cigarettes, the number of smokers will decrease by approximately 10%. The tobacco industry objects to this approach. According to the head of the company JTI Caucasus Iva Khasia, the rise in prices is not the best means to combat smoking.
“In civilized countries there are much better methods to combat smoking, including educational programs. As for the rise in prices, moreover such a radical, it will lead to an increase in smuggling in the market,” – the businessman notes.
Khasia believes that a rise in prices does not mean an automatic reduction in consumption. In his words, one of the factors contributing to the growth of contraband is a much lower cost of cigarettes in neighboring Armenia. A former head of the Budget and Finance Committee of Parliament Nodar Ebanoidze opposes the government’s new initiative.
“The worst thing for importers is that it is becoming more difficult to plan business in Georgia. The government has no strategy that hinders long-term planning. It is possible that die this reason some major international players will have to leave the country,” – says ex-MP.
According to the expert Paata Sheshelidze, the government’s decision to impose such a high tobacco tax will have negative consequences.
“The excise tax increase is too high and we can expect an increase in smuggling on the market, rather than reduced consumption, as the Minister of Finance hopes. As a rule, the smokers don’t quit smoking due to cigarette price hikes. The increase of excises almost never leads to a decrease in consumption. Finally, smuggling will increase, the budget revenues will remain at the same level, but in terms of health, the situation will only worsen,” – the expert believes.