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Paata Bairakhtari
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AYFB About Expected Hazards after Growth in Tobacco Excise Tax

Association of Young Financiers and Businessmen (AYFB) talks about expected hazards that may arise as a result of growth in tobacco products excise tax in the announced volume.

«It is unclear when the Authorities refer to public health issues when discussing tobacco excise tax growth aspects. Everybody understands that it was inevitable to increase excise tax on tobacco and other products amid the 2017 state budget deficit. Therefore, a genuine reason for raising excise tax is to balance budget deficit.

Moreover, the world practice shows that growth in tobacco excise tax cannot bring direct affect for reducing the smoking level in the country. On the contrary, higher excise tax makes smokers smoke low-quality tobacco. The same global experience suggests that educational and information campaigns work much better for popularizing healthy lifestyle and for reducing smoking level.

As to fiscal aspects of growth in tobacco excise tax, the state budget may record more losses than benefits, because excise tax growth in this volume enlarges risks of inflow of smuggled tobacco, even more so, in the neighboring countries the price of a pack of cigarettes is about 1 GEL lower compared to the price of the same product in Georgia after excise tax growth.

The Government expects to reduce smoking level by 10% as a result of upturn in tobacco excise tax. Currently, there is no statistics on smokers in Georgia and the tobacco imports volume is an only mechanism to determine whether the smoking level grows or declines in Georgia.

The very tobacco imports enables us today to define whether smoking level has declined or increased year to year. Consequently, if smuggled cigarettes penetrate the market, smoking level may decline not by 10%, but on the contrary, increase because of illegal tobacco products. This scenario will damage the business sector, on the one hand, and bring negative fiscal effect, on the other hand. The country had similar experience in 2005, when the ratio of smuggled products made up 50% and legal market and business sector turned out on the verge of destruction.

Taking into account the above-mentioned risks, AYFB suggests that it is not reasonable to increase tobacco products excise tax in this volume. Prior to introduction of similar regulations, tight and pubic communication is required with market players and similar solutions must be announced and implemented after close consultation with them.