Increased Alcohol Excise Duties Hardly Affect Spirits Consumption in Russia

Russia Alcohol Production
Russia Alcohol Production
Russia Data Talk: For years now, the Russian government has faced the dilemma of fighting alcohol abuse or to bolster budget revenue through excise tax collection, in particular, a duty on alcohol. The production of strong alcohol (vodka and other similar liquor) and wine declined throughout the 1990s: vodka and liquor production decreased by almost 43% from to 87 million dal in 1998, while wine production decreased by 46% to 25.6 dal million over the same period. The general decline in production during the 1998 financial meltdown ended in 1999 when vodka and liquor production recovered to 134.4 dal million and remained fairly stable through to 2007 (131.5 dal million). However, the period from 2008 to 2011 was again characterized by a declining production trend, averaging a year-on-year loss of 8%, before picking up in 2012 with a 13.5% year-on-year production gain to 106.6 dal million. Wine production, on the contrary, followed a relatively consistent growth path during 1999-2010, increasing by 166% (or by a compound annualised growth rate of 9.31%) from to 79.1 dal million, before reverting to lower production levels of 64.4 dal million in 2012. Beer production increased 4.4 times in the 10-year period between 1997 and 2007 but declined by 16.8% during the past five years to a production of 954.9 dal million in 2012. Russia Alcohol Production Effective 2012, the government has increased excise duties on all types of alcohol to help reduce production and consumption of alcohol. Alcohol excise revenues, including excise duties on vodka and liquor, wine and beer, grew by 27.8% last year compared to 2011, mainly due to the 41.8% increase in the vodka and liquor excise tax. The rising excise tax serves a dual purpose of supplementing public revenue and as a “sin tax”, restricting alcohol consumption through a higher retail price. However, despite higher excise duties, retail sales volume of alcohol increased overall. Retail sales of vodka and liquor increased by 2.2% in 2012 while sales of cognac, sparkling wine and beer increased by 7.8%, 5.6% and 4.4% respectively, during the same period. Only fruit and grape wines suffered a 1.5% year-on-year decrease in retail sales in 2012. This puts doubt on the effectiveness of excise duties in reducing alcohol consumption. The consumption of vodka and liquor somewhat coincided with its corresponding production trend: the 27.6% decrease in retail sales for 2004-2012 , from 220.6 dal million to 159.8 dal million, is very similar to the production contraction of 21.2% for the comparable period. On the other hand, while production of beer declined by 3.9% year-on-year in 2012, its consumption increased by 4.4% year-on-year due to higher imports and the reduced demand for domestically produced beer. Further excise duty increases for all types of alcohol have been legislated for 2013 and 2014. While higher retail prices may help limit alcohol consumption, but there are fears that high duties would diminish revenues, as in 2009 when alcohol excise revenues fell by 5.3% (vodka and liquor excises fell by 9.6%, wine excises – by 2.1%). The government still has to find a balance between the appropriate levels of alcohol excise revenues and lower alcohol consumption. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
8th March 2013 Increased Alcohol Excise Duties Hardly Affect Spirits Consumption in Russia

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