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Nikoloz Khundzakishvili

Increased Excise Rate – Reduced Industry

What is the fate of the increased beer excise rate and will  the government revise it again, based on the current indicators?

“The government must stimulate the industry and revise the incorrect decisions”.

The enterprises assert that the government has taken an incorrect decision and the industry bears losses and smokers’ interests are also damaged. The government should promote the sector, not punish, they assert.

The increased beer excise rate has inspired multiple protests among enterprisers. Don’t Raise Beer Prices – the society objected to the 50% upturn in the rate under this motto. However, on March 1, 2015 the beer excise rate increased anyway. And today the enterprises complain about the decreased sales.

Nikoloz Khundzakishvili, the Natakhtari company director for corporate affairs, has named a specific figure to the IPress. Namely, the beer market has seen a 15% plunge in the industry, he said.

Initially, the Ministry of Finance of Georgia referred to the obligations before the EU. However, today the Government plans to revise the mentioned regulations.

Business Ombudsman Giorgi Gakharia told the IPress that increased beer excise rate may be revised. The current fiscal effect and sales indicators suggest that the beer excise rate may be revised again, he said.

“The beer excise rate issue remains open. After the season we will see sales and budget revenues. If we detect that the 50% growth in the excise rate has brought negative effects and declination in sales and budget revenues, I assure you that we will back the companies that demand for revising the excise rate again. We need specific figure. We should determine the effect on this business and budget. We have already received preliminarily indicators and I think we will have to take certain steps”, Giorgi Gakharia noted.

Nikoloz Khundzakishvili, the Natakhtari director for corporaet affairs:

« On March 1, 2015 the beer excise rate increased by 50%. I was saying that this decision would bring grave outcomes for the business and regretfully, we are seeing these negative effects. From March 1 to January 1, in 2015 the business declined by 17% compared to the same period of 2014, while total sales in 2015 declined by 15% compared to 2014. Besides excise rate, the GEL exchange rate has also affected our business, as well as restricted solvency and the complicated economic situation in general.

“The government should perform its role in this situation and stimulate the industry and revise the incorrect decision. I mean the fact that the budget revenues from the business were twice higher compared to Germany before the excise rate growth, while the revenues were even three times higher at the moment of increasing the rate”.

Moreover, Khundzakishvili asks the government to revise the decision and harmonize the excise structure with the EU association agreement:

“What is the excise harmonization? – according to the EU association agreement we must move to the European model starting September 1, 2017. This signifies the excise tax must be determined due to the alcohol level in beer and not due to the volume of liters.

This is one of the unique cases when the industry asks the government to enact the association agreement earlier than determined, for example on March 1, 2016, i.e. 18 months earlier.

What results we will have – in the event, along with the harmonization, the excise rate is also revised, we offer to set 0.10 GEL on every degree. This signifies the excise on standard beer will become 0.50 GEL, instead of 0.60 GEL. The excise rate will increase on beer with higher alcoholic content.

This signifies the excise tax will change in various directions. However, the standard beer occupies a major part on the market compared to nonstandard ones, or high-alcoholic beer, and this factor enables  the beer industry to enjoy preferences.

The preference is that we will return the market, that is, the 15% ratio we have lost after the excise growth. This is our demand to develop the industry and I reiterate this is the role of the Authorities to promote the sector in unfavorable economic conditions and not to set punitive measures.

As to the future steps, we have already offered the Prime Minister to revise the excise rate and put forward a specific proposal at the meeting with the Economy Minister: if the state budget revenues fall after the excise rate reduction in 2016 compared to the 2015 state budget revenues, we will assume the obligation of financing any business or social projects due to the difference amount.

We hope the excise tax will be revised and consequently, the business support strategy announced by the Prime Minister will be implemented in practical life”.