The scale of illegal tobacco products has reached alarming proportions: will an increase in excise tax help

Authorities are developing new tools to combat counterfeiting

The government continues to fight the shadow market of tobacco products. So from March 2023, excises on cigarettes and vape liquid will increase unscheduled. At the same time, the Ministry of Finance proposed to confiscate and destroy illegal tobacco. But will it help clear the counters of counterfeit goods? Today, Russian smokers are increasingly choosing a product not on the basis of the official manufacturer, but on the price. An increase in excise tax will inevitably lead to an increase in the price of legal cigarettes, which will become unaffordable for many poor consumers.

For Russia, the topic of illegal tobacco products is still relevant. It would seem that the country has mandatory labeling of cigarettes, excises are indexed annually, but still it is impossible to get rid of counterfeit products. The government does not leave attempts to whitewash the market. For example, in the coming March, there will be an unscheduled increase in the excise tax on cigarettes by 2%, on liquid for vapes – by 11%. The Ministry of Finance, in turn, proposed to allow “withdrawal from illegal circulation of tobacco products and raw materials with their subsequent destruction (utilization)”. It is possible that soon we will see colorful reports from landfills where fake goods are crushed by bulldozers or burned, as they did with sanctioned food.

Meanwhile, according to the department, due to counterfeit cigarettes, the budget receives less than 80-100 billion rubles. in the form of excises annually. Basically, counterfeit products are supplied from neighboring CIS countries – Belarus, Uzbekistan, Kazakhstan, etc. These products (after being detected at the border or when checking retail outlets) are sold through small shops. If such cigarettes continue to be destroyed, the proportion of counterfeit products may decrease, experts believe.

In principle, in Russia there is an effective tool to combat illegal trade – this is the labeling of tobacco and nicotine-containing products. With proper implementation of this measure, the level of illegal trade will tend to zero, says Viktor Zykov, a member of the Coordinating Council for Tobacco Control under the Ministry of Health.

According to the Ministry of Industry and Trade of Russia, after the introduction of labeling of tobacco products with identification tools, the share of illicit trafficking has decreased, according to expert estimates, from 15-16% in 2019 to 11-12% in 2021.

“The unscheduled increase in excise taxes on cigarettes and nicotine-containing liquids should of course be supported, although the increase is insignificant,” continues Zykov. – At the same time, the Ministry of Finance proposes to abandon the collection of excise taxes on electronic nicotine delivery systems (ENDS) and devices for heating tobacco. However, income from excises on ENDS (both produced in the Russian Federation and imported into its territory) in 2021 amounted to 1,604,025,037 rubles. At the same time, income from excise taxes on liquids for ENDS in 2021 amounted to 437,639,662.46 rubles. That is, in the face of a budget deficit, it is proposed to abandon one billion six hundred thousand rubles in return by increasing the excise tax on the liquids for ENDS by 11%, from which only more than 400 million are collected.

According to Viktor Zykov, the initiative of the Ministry of Finance to exclude vapes from taxation will increase their affordability and lead to further spread of nicotine addiction among children and adolescents.

If we talk about traditional cigarettes, as the average cost of a pack rises, there are more and more people who want to buy tobacco products cheaper, says Ivan Samoylenko, managing partner of the communications agency B&C Agency. And if there is a demand, then there will always be a supply. So, if the average cost of a pack of cigarettes today is 120-140 rubles, then counterfeit products are offered at a price two times lower – 60-70 rubles.

“Earlier, experts said that only an increase in excise taxes will not reduce the reduction in tobacco consumption in the country – comprehensive state actions are needed to stimulate a healthy lifestyle, to form a positive image of Russians as non-smokers and non-drinkers,” the expert emphasizes. – In a crisis situation, alas, the trends are reversed: people consume more alcohol and tobacco. So now it’s hard to say that the situation will fundamentally change after the increase in excise taxes.”

Samoylenko expressed the hope that the rise in the cost of a pack of cigarettes will force many to give up this bad habit. Meanwhile, the average smoker can save 40-50 thousand rubles a year if he stops smoking. Perhaps such motivation will reduce tobacco consumption nationwide, and the demand for counterfeit products will automatically decrease.