Paata Bairakhtari, analyst for Association of Young Financiers and Businessmen (AYFB), has held a briefing and appraised the Tobacco Control bill. He noted that the bill requires fundamental revision and also overviewed the state strategy in this respect.
This year the Tobacco Control bill was initiated at the Georgian Parliament. The bill calls for correcting the existing legislation and introducing various restrictions and licenses for sellers. The bill has caused tensed discussions upon submission to the Parliament. As a result, the bill authors have already extracted a number of planned changes, despite even the first hearing has not been held yet.
It should be noted that in 2013 the Government developed a tobacco control strategy with detailed description of steps to be taken annually to lower the smoking level in the country. The strategy set various restrictions, growth in excise tax rate and PR campaigns with educational accents. Regretfully, the fully approved bill was forgotten and since them only fragmented steps are taken.
For example, the current bill raises excise tax rate without substantiation, despite this mechanism brings no results. Almost every year, the price of cigarette grows. This year, even the new bill was initiated at the Parliament, but it entirely misses the strategy-determined objectives.
The restrictions embodied in the new tobacco control bill calls for full prohibition of smoking at public zones, full restriction of outdoor advertisements and prohibition of sales of tobacco and tobacco products and their accessories directly transport passengers.
All these restrictions will come into force on January 1, 2017. Everybody agrees that outdoor advertisement of tobacco products must be banned, but it is inadmissible to discuss the bill in autumn and introduce restrictions in a month. Even more so, we should take into account that the ratio of tobacco products in revenues of outdoor advertisement companies accounts for 55%. This signifies these companies should be given one-year period to complete the existing contracts and not to have to throw away the existing infrastructure.
As to tobacco stores nearby motorways, restrictions will just make them close and even this sector should be given a certain period to operate in liquidation regime and move to other places.
Thus, full enforcement of the bill regulations upon adoption will only damage the sector enterprises and many employees in the sector. Therefore, introduction of all regulations should be accompanied by a certain period for adaptation to new rules of games.
The same may be said on the bill-determined regulations for restaurants and hotels. According to the bill, restaurants and cafes are obliged to organize special isolated smoking zones of no less than 20% of total space. The isolated nonsmoking zones must have special windows outgoing to the street and air-conditioning system.
Naturally, creating similar infrastructure requires additional expenditures and entrepreneurs will have to raise these resources from consumers’ pocket. As a result, they will have to increase tariffs on various services and products and ordinary consumers will bear losses again. This signifies if we request a restaurant to remake the facility within a year, due to these regulations, it will have to increase service prices more than it would be necessary in case of two years. It should be also noted that, under the current legislation, all bars and restaurants are obliged to have 50% of total space for a nonsmoking place, but the practice shows that only one restaurant in every 100 ones protects this regulation.
This signifies another problem arises here – implementation of adopted regulations in life, because there is no mechanism who and how will control similar facilities and how this norm will be protected. Consequently, this norm is not fulfilled in practice. We will receive the same picture by expanding the mentioned space to 80% from 50%. The Government cannot ensure that restaurants organize 50% nonsmoking zones and how will it manage that restaurants expand this space to 80%? Nor the new bill determines mechanisms for enforcing this regulation.
Consequently, it is unclear for us what is the goal of introduction of regulations that will not be implemented in practical life?! If we allocate budget funds to establish a new control body, how will this mechanism work?! Will state officials go to restaurants and measure spaces whether nonsmoking zone makes up 80% of total space or 78%?!
Licensing and Restriction of Visibility
Introduction of licensing for tobacco sellers and restriction of tobacco product visibility are the most dangerous regulations, AYFB members said. These restrictions will bring both economic and social damages, they said.
According to the tobacco control bill, tobacco traders must be licensed, but the document does not determine the mechanism of licensing, what criteria must be satisfied and what is the objective of introducing this norm in the country. If the licensing requirements are heavy, this signifies that a majority of small entrepreneurs will not be able to satisfy them (small supermarkets and stores) and they will just go bankrupt.
As a result, only major entrepreneurs will take licenses and make profits of extreme reduction of market competition. In another case, if the licensing norms are genuinely satisfactory and everybody will be able to obtain it, what will be the effect of introducing similar regulations?! This will be extraction of money from consumer’s pockets because of useless license, even more so, the bill does not determine the objective of this regulation.
At the same time, according to economists, the licensing system is a main source of corruption in state structures. It is unclear why licenses should be imposed on tobacco sellers if it is not necessary. Is it required any special knowledge for tobacco sales or is it necessary to have special infrastructure to store tobacco products?!
Moreover, the new bill restricts visibility of tobacco and tobacco products and trade booths, stores and supermarkets will be obliged to use special closed boxes. When you represent the Government of Finland with 4 times higher GDP per capita, compared to Georgian GDP, you can implement these regulations painlessly, even more so when there is no street trades. But in case of Georgia, where street trades is an only source of revenues for a considerable part of our society, introduction of the mentioned regulations contains both economic and social hazards. To put simply, introduction of licensing system and restriction of visibility of tobacco products signifies that street traders who sell tobacco products will be fined. And this will cause much discontent in our society because it is inadmissible to make small and medium-sized enterprises go bankrupt and, on the contrary, strengthen major enterprises.
Over the past 3 years, starting September 1, 2013, excise tax rate rose four times on both filter and non-filter cigarettes. As a result, the cigarette retail price doubled. Despite this fact, the excise tax growth and higher tobacco product tariffs have not narrowed smoking level in the country. Over the past 3 years, excise tax rate on filter cigarette rose to 1.10 GEL from 0.60 GEL, while on non-filter cigarette the rate increased to 0.30 GEL from 0.15 GEL.
This signifies the existing excise tax rate has doubled and new proportional excise tax rate was added that totaled 10%. The objective of raising the excise tax is to tighten tobacco control mechanisms and to reduce the smoking level in the country and to adjust the Georgian legislation to the EU standards. However, if we analyze outcomes of excise tax growth, we will make sure that the policy carried out for reduction of smoking level has brought absolutely different results.
Regretfully, Georgia does not make annual statistics of quantity of smokers. However, the smoking level may be determined due to volume of sold cigarettes. Over the past years, Georgia’s tobacco imports grows on annual basis, while small declination was registered in 2015 compared to 2014. In January-June 2016, Georgia imported 55.5 million USD cigarettes, up 3.5 million USD compared to the same period of 2015. But if we compare the first half indicators to 2012 indicators, tobacco imports have increased by 15%. This signifies that over the past 3 years, the doubled excise tax has not reduced the smoking level, but increased.
International Experience proves that growth in cigarette taxes cannot lower smoking level in the country or measure this brings only minimum results. Economic experts know that cigarette is not relevant product in relation to prices, unlike other products. Smokers just prefer to buy lower-quality cigarettes to replace expensive products.
Removal of Tobacco Products from Free Trade Agreement
Lately, along with tobacco control bill, active discussions are underway on removing tobacco products from free trade agreement. It is unclear what is the objective of similar activities, because our country cannot receive any benefit from this mechanism.
Removal of tobacco products from the Free Trade Agreement will:
further increase tobacco product prices in case of imports. Georgia’s imports tax is 12%. As a result, the retail prices will increased by about 20%, because tobacco product prices risen by 12% will be added 10% proportional tax.
We have already noted above what results we have received from rising tobacco product prices and, instead of reduction of smoking level, we have opposite picture and the smoking level has increased. Consequently, this step will seriously damage the Georgian consumer; 2. in case of exports, Georgia will bear serious losses. Georgian manufacturers and Georgian exporters will lose interest in exports of tobacco products, because product prices will become uncompetitive because of imports taxes. As a result, tobacco exports will be ceased from Georgia, in practice. As a result, several tens of job places will disappear. Even more so, one of the domestic manufacturers has obtained an important financial assistance as part of Produce in Georgia state program for cigarette production in Georgia and then for its exports. It is unclear when the Government supports domestic production, on the one hand, and frustrates its development, on the other hand.
The AYFB believes that the bill submitted to the parliament should be fundamentally revised. First of all, a number of regulations should be entirely removed from the bill or they should not damage the interests of our citizens. At the same time, the bill lacks for financial analysis. Consequently, it is unclear what economic outcomes the country will receive by adopting the bill in the current edition.
The explored materials prove that the country will receive no economic benefits, however, the bill cannot determine what losses the country, budget or the whole country will have. At the same time, the tobacco control bill comprises many regulations that cannot be implemented in practice or the bill authors cannot provide efficient implementation mechanisms and this will create additional problems.
At the same time, we would like to note that educational policy should be enhanced if we genuinely want to reduce the smoking level in he country, like experience of other countries. Higher price cannot bring real results, nor unclear regulations, that are expected to only damage the public interests.