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GIPI Published Analytical Survey Findings on Increasing Beer Excise

Georgian Infrastructure Projects Initiative (GIPI) organized a presentation regarding analytical survey on increasing beer excise at Radisson Blue Iveria Hotel today.

Purpose of the analytical survey was to evaluate the effect of increased excise on beer producers and importers, as well as consumer behavior and Georgian beer business development. Irakli Leqvinadze and Levan Kalandze, the economic experts spoke about the survey findings.

“Excise growth with respect to beer contains high risk. Its increase negatively affects both beer production and consumption. Changes in beer consumers’ culture will definitely bring some losses for producers. Beer market, beer production and beer itself are very elastic and any tax change immediately gets reflected in the beer consumption volume, unlike cigarette, where change in price has a little impact on smokers’ behavior. First of all, negative results will affect us, the state, budget, and the business, which functions in Georgia and is successful. In the long-term perspective, the risk appears that the taxes paid by companies to the budget will decline,  as well as jobs generated by beer market and export-import beer balance may change in favor of foreign beer.” – said Levan Kalandadze.

“Increase in excise will have negative impact on Georgian companies. Growing product prices automatically entails product substitution and respectively it will make investments in this industry unprofitable. Unlike cigarettes and the other products, beer is an elastic one and price increase will diminish its sales dramatically. This will negatively affect the market. In my opinion, fiscal effect will disappear since there will be no expectation for receiving income byreducing production. Increasing excise will entail growth in product prices” – said Irakli Leqvinadze, one of the survey authors.

We remind you that the Ministry of Finance started consultations with beer producers in November 2014, after decision was already made on increasing the excise. However, as a result of consultations, it was decided to increase excise by 50% instead of initially planned 100%.  According to beer producers made decision was neither reasonable nor fair. It directly contradicts with the liabilities assumed under the Association Agreement of Georgia with the EU, not to change tax legislation without advance consultation and provision of reasonable time. After the planned increase, Georgia will be ahead of 19 EU member states and beer excise will equal the figure of those EU member states, where the similar tax is maximum (Great Britain, Finland).