Last week deputy finance minister Sergei Shatalov proposed to increase taxes on vodka so as to more than double retail prices by 2013. Shatalov was quoted as saying that the strategy would increase the minimum price of a half-litre bottle of vodka from 89 rubles (€2.33) to 200 rubles over three years.
The minister said the tax would help ease the budget deficit facing Russia and combat its alcohol abuse problems.
However alcohol industry figures have warned that substantial tax hikes create incentives that often can often mean condemn such policies to failure from both a fiscal and public health point of view.
Illicit trade threat
Edmin Atkinson from The Gin and Vodka Association in the UK said: “Experience suggests that significant tax hikes result in an increase in the illicit trade.”
Russia has historically had major problems with illicit trade in vodka but the situation has improved thanks to better policing and controlled taxation.
Some suggest that the latest Russian proposals could put that progress into jeopardy. The Financial Times reported that Vadim Drobiz, director of the Centre for Federal and Regional Alcohol Markets Research, had even suggested that if the proposals are enforced then “the legal vodka market will virtually cease to exist”.
A significant increase in the illicit market or what is sometimes called the “white van trade” robs government and industry of revenue and exposes consumers to potentially dangerous products.
Gavin Partington from the Wine and Spirits Association added that high taxes rarely succeed in reducing overall consumption but instead encourage people to switch to either illegal products or drinks that are less highly taxed. For example, he said that an increase in tax on Ready-to-Drink alcohols in Australia only suceeded in switching consumption to ordinary spirits.