[Intl-tobacco] Russian Tobacco Makers Fuming (fwd)

[Robert Weissman]

Russian Tobacco Makers Fuming
by Vyacheslav Kuzmin
Source: Russia Today, Wednesday, 8/23/00

MOSCOW, Aug 23, 2000 -- (The Russia Journal) A group of leading tobacco
producers blasted the Russian government for what it claims are increasing
efforts to control the industry.

Vasily Terevtsov, director of Tabakprom, Russia=92s largest association of
tobacco producers, led a Moscow press conference to air companies=92
concerns alongside industry heavyweights including Peter Lidov of Philip
Morris and Vladimir Aksenov of British American Tobacco.

The firms say they are angry about a series of licensing procedures
imposed by the Tax Ministry on Aug. 1, only a month after the scheme was
first announced.  Representatives said they were not given enough time to
comply with the new rules.

>From the outset, the firms said they would need at least until October to
implement the complex new set of licensing requirements, which include
more than 50 specific conditions. It was only last week, after federal
agents shut down several companies, that an extension was granted =96 but
only until September. That was still not enough time, Tabakprom members
said.

"This month, 25 percent of domestic tobacco factory production remained in
the warehouses and did not hit the marketplace," said Terevtsov, adding
that the cause was the new requirements, and not a drop in consumption.

He said that the government decision to finally grant an extension came
from the realization that its measures had so debilitated the industry
that it would lose significant revenue in taxes. Twenty percent of the
businesses were either unable or unwilling to comply, Terevtsov said.

Victor Stefashin, a spokesman for Grandtabak, another tobacco industry
association, expressed similar sentiments. "The bureaucracy forced many
merchants to shut down," he said.

According to members of Tabakprom, two other factors make the pain of
these requirements especially acute: First, the industry=92s relative
success in an unrestricted environment; second, the fear that, in addition
to the licensing requirements, the government plans to increase excise
duties on cigarettes, which could price many Russian tobacco producers out
of the market.

The price of tobacco goods will likely rise over the next several years
because the government has a "strong intention" to hike prices for the
excise-duty labels that are stuck on cigarette boxes, said British
American Tobacco=92s Aksenov.

Although many Russian tobacco producers regard the hike in excise duties
as inevitable, they have definite ideas about how it should be
implemented.  According to Aksenov, the current excise duties on tobacco
products in Russia are relatively low =96 10-12 percent on a cigarette box
as compared to the European 30-40 percent of the selling price. Aksenov
said an increase "should be calm and orderly [without huge increases]."

Some observers say an abrupt hike in taxation and the new licensing
regulations would break the industry=92s steady upward momentum.

"Russia=92s tobacco industry has grown steadily for the past 10 years =96 a=
nd
it would go on if the government carries out fair policies," said Philip
Morris=92 Lidov.

He added that the federal budget would collect RUR 4 billion (about USD
145 million) in excise duties this year, up from 2.4 billion last year.

But Russian authorities argue that swift and strict regulation is required
to combat corruption and black-market trafficking of tobacco products.
They estimate that up to 50 percent of the tobacco products on the market
are sold illegally =96 a figure industry leaders strongly contest. ((c) 200=
0
The Russia Journal)