Tobacco Smuggling Grows – State Structures Supposed to Be Lobbying Illegal Imports
Several years ago Government under PM Zurab Noghaideli passed a resolution on raising cigarette excise tax to 90 Tetri from 40 Tetri. In that period tobacco products were imported from Russia through the occupied territories of Samachablo and Abkhazia. Experts assert that in that period Government realized scales of illegal trade and finally, lowered excise tax to 60 Tetri. As a result, the market went stable and till today illegal trade in tobacco products was not recorded, in practice.
Several days ago Revenue Service prevented two attempts of illegal imports of 40 940 pieces of undeclared cigarettes.
According to Revenue Service, at Sadakhlo checkpoint citizen of Armenia G. S. was found to have hidden 22 340 units of undeclared cigarettes in his own vehicle.
Another smuggling fact was recorded at Ninotsminda checkpoint, where citizen of Armenia K. M. was trying to take 18 600 pieces of undeclared cigarettes into the country.
Materials of both cases have been forwarded to Finance Ministry investigation service, Revenue Service officials noted.
The Caucasus Business Week (CBW) has inquired what factors have intensified tobacco smuggling over the past period and what we should expect in the near future.
Paata Bairakhtari, analyst for Association of Young Financiers and Businessmen (AYFB): This tendency is related to tobacco excise tax growth.
«I was warning the Government about this, when they unveiled scales of the planned growth. It is impossible to prevent smuggling risks, when a pack of cigarette in the neighboring country is far cheaper and the price difference is about 1 GEL. Regretfully, I expect similar facts to be repeated. Another issue is whether due structures will prevent these attempts. The fact is that this challenge has genuinely sharpened», Bairakhtari noted.
Georgia has huge experience in similar tendencies from the previous years, he added.
«I would recall the year of 2005, when tobacco smuggling was so intense that it could even destroy legal business. In that period the market ratio of smuggled tobacco products was about 40% and the black market was eradicated thanks to huge efforts», Bairakhtari said.
Smuggling risks will be maintained in the future, because this is not a simple problem, he added.
Paata Sheshelidze, Economic Expert:
These facts should be appraised as a natural result of the decisions taken by Georgian Government over the past years. I mean excise tax has increased several times. Those decisions have provoked current smuggling tendencies, economic expert Paata Sheshelidze noted.
«Illegal imports attempts will always remain. The higher tax, the larger smuggling is. As a result, more people will take risky decisions. The smuggling exists and this signifies some of state structures could lobby it. This is the issue of a bargain. Some groups lobby this process. If smuggling arises somewhere, we should identify lobbyists, because nobody would dare smuggling without lobbyists», Sheshelidze said.
Lasha Gotsiridze, Economist:
Smuggling arose in natural conditions, because there is far lower excise tax in our neighboring country, compared to Georgia. The price difference inspires many persons to buy cheaper and import tobacco here illegally and sell it at higher tariffs. The more difference between excise taxes, the higher smuggling probability, economist Lasha Gotsiridze said.
«In neighboring Armenia, under the current exchange rate, excise tax on a pack of cigarette is 70 Tetri, while in Georgia the excise tax is 1.80 GEL. The price difference is more than 1.10 GEL, jointly with AD Valorem tax. The price difference is so impressive that people, entrepreneurs are inspired to launch cigarette smuggling», Gotsiridze noted.
Supposedly, cigarette smuggling will grow in the near future, Gotsiridze added.
«Several days ago Ministry of Finance prevented cigarette smuggling attempts. The more we prevent, the better, but we do not know how many illegal cargo remain undiscovered. All this will be clarified at the end of the year, when we will learn how much state budget will collect from tobacco industry. If state budget revenues drop, or grow in disproportional way, this will be a sign that the smuggling ratio has considerably increased on tobacco market», Gotsiridze said.
Excise growth was foreseeable, but the growth scales turned out excessive, he added. Smuggling may damage business, on the one hand, and state budget, on the other hand. Consequently, state budget will have problems with financing planned projects, Gotsiridze said.
Tobacco illegal imports facts were recorded in 2016 too, but its tiny scales could not affect business, he added. As to influence of higher excise tax and illegal imports growth on business sector, companies abstained from making comments.