How Russia earns hundreds of billions on smokers
Tobacco excise tax revenues to the federal budget has increased by almost 15% in 2020
As calculated by the analytical service of Realnoe Vremya, the Russian budget this year has received almost 400 billion rubles in the form of excise taxes on tobacco products. The tax is paid by cigarette manufacturers, shifting, of course, the costs on the shoulders of buyers. Obviously, the ministry of finance decided that it is smokers who should help patch budget holes in the conditions of the COVID-19 pandemic, as it planned to increase excise taxes by another 20%. How much the bad habit of Russians enriches the treasury, and from what regions “tobacco” money mainly comes — read in the material of Realnoe Vremya.
Smokers pay more
In the context of the COVID-19 pandemic, the Russian budget has incurred heavy expenses. To compensate for them, apparently, the government decided to use additional taxation of a number of goods. In September, the ministry of finance of the Russian Federation announced an increase in excise taxes on cigarettes, tobacco products and e-cigarettes by 20% from 2021.
The current rate of excise duty on cigarettes is 1,996 rubles for 1,000 pieces or 50 packs. That is, each pack of cigarettes gives a little less than 40 rubles of excise tax. In 2021, the rate will be 2,359 rubles per thousand cigarettes — or about 47 rubles per pack.
The analysts of Realnoe Vremya calculated how much money the excise taxes on cigarettes bring to the budget and from which regions they come the most.
Like any excise tax, tobacco one is a federal tax, so the funds received go to the federal budget, not to the regional one. Nevertheless, we can use statistics to find out from which region the revenues are coming. In most cases, this characterises the place of production (for example, in the case of Russian cigarettes) or the place of import (in the case of imported tobacco products).
Revenues from tobacco are declining
As of September 1, 2020, for 8 months the federal budget received about 372 billion rubles from tobacco products. This is the highest figure in recent years. For example, on the same date in 2018, revenues from tobacco excise taxes amounted to 362 billion rubles, and in 2019 the figure decreased to 325 billion rubles.
The reduction in the collected excise taxes on tobacco products is a unique phenomenon in Russia. But whether this means that people in our country have become less likely to smoke is not known for certain. The most likely option, according to experts, is to increase the share of the gray market.
It is interesting that in the case of excise duty rates not for 8 months but for a year, the indicator decreased not only last year, but also the year before. For example, in 2019, tobacco products brought to the state budget in the form of excise taxes about 557,6 billion rubles (or about 3,900 rubles per year on average for each resident of Russia), in 2018 the figure was 564,3 billion rubles, and in 2017 — 573,3 billion rubles.
There are also money from excise taxes on tobacco products imported into Russia, but this is a drop in the bucket. In January-August 2020, such excise taxes were collected for only 619,000 rubles, all of them accounted for Leningrad Oblast. A year earlier, the same figure was still half as much — 302,000, in 2018 — 265,000 (but 16,000 of them were not in Leningrad Oblast, but in Bashkortostan).
Saint Petersburg as the tobacco centre of Russia
In total, as of September 1, 2020, the Russian budget received funds from tobacco excise taxes from 31 regions. The absolute leader is Saint Petersburg, where 54% of all tobacco money in the country came from. Together with the neighbouring Leningrad Oblast, the figure generally reaches 71%. In St. Petersburg, 202,2 billion rubles were collected, and in Leningrad Oblast — 63,5 billion rubles.
To understand this level of revenues from St. Petersburg and Leningrad Oblast, it should be noted that the largest Russian factories of foreign companies are located here — such as Japan Tobacco International (among the brands — Camel and Winston), British American Tobacco (Kent, Lucky Strike, Dunhill, Vogue, Java) and Philip Morris International (Parliament, Marlboro, Bond, Chesterfield, L&M, as well as popular tobacco sticks in Russia HEETS, which, however, are subject to a different excise tax — for tobacco consumed by heating).
The rest of the top 5 regions in terms of tobacco excise taxes are located in the south of the country, and their indicators are significantly lower than in St. Petersburg and Leningrad Oblast. In the third Volgograd Oblast, the amount of excise taxes collected is 31,3 billion rubles. For example, Imperial Tobacco factory is located in the region — it owns the rights to the West, Davidoff, Jade, and P&S brands.
The fourth line is taken by Rostov Oblast with 30,1 billion rubles. Donskoy Tabak JSC, now also owned by Japan Tobacco International, is located here (Donskoy Tabak, Peter I, and Troika can be added to the company's international set of brands). However, there is also Rostov Tobacco Factory, which produces little-known brands of cigarettes at low prices (40-47 rubles per pack, with the “standard” price of international manufacturers in 110-170 rubles) — Drug, Stolichnye, Prima, RT, Western.
The fifth is Krasnodar Krai with 19,7 billion rubles. There is also a factory of the international company Philip Morris, there is no data about other major manufacturers.
The next five positions are occupied by regions, excise taxes from which were transferred in the amount of 1,6 billion to 8,4 billion rubles. These regions are mostly located in the centre of the country — for example, Saratov Oblast, Kaliningrad Oblast, Kaluga Oblast and Yaroslavl Oblast, and Crimea is also on this list.
Tatarstan: a modest figure, but a record-breaking leap
As for the Republic of Tatarstan, its indicators in the collection of tobacco excise taxes are small. This is not surprising, given that there are no large tobacco companies in the region after the closure of the Kazan Tobacco Factory (it stopped working in 2004).
Nevertheless, the republic is among the top five regions of Russia in terms of another indicator — the growth of excise payments a year. In the first 8 months of 2020, excise tax payments on tobacco products produced in Russia amounted to about 24 million rubles. A year earlier, the same indicator was 29 times less — only 812,000 rubles. Let us note that over the past 5 years, this figure is a record: in January-August 2018, for example, it was only 4,4 million rubles, a year earlier — 921,000, and in 2016 — 14,000 rubles.
In the general list of regions, Tatarstan ranks the 18th — between Moscow and Sverdlovsk Oblast, where there are also no major tobacco companies.
They couldn't find out what kind of enterprise provided Tatarstan with this growth. In general, there are only nine companies in the region whose activities include 'Production of Tobacco Products' or similar OKVED (All-Russian Classifier of Types of Economic Activity) codes. At the same time, many of these companies showed zero revenue at the end of last year, and only two had revenue of more than 1 million rubles: Smokishaft PLC, Kazan, with 110 million rubles and Puls PLC with 4,7 million rubles. Whether the growth is related to one of them, or whether a new player appeared on the market in 2020, it will become clear next year: probably, such a significant increase in excise payments should be shown in the reports of one of the Tatarstan companies. Nevertheless, the figures for excise taxes in the region are still small, so that now we can draw conclusions about the appearance of some large tobacco business here.
Yaroslavl Oblast 'took off' thanks to Arab investors
In terms of annual growth, Tatarstan has overtaken Samara Oblast with 12,2 million rubles of excise taxes (a year earlier it was only 1,000). Also, there is Yaroslavl Oblast ahead, whose last year's 10,7 million have increased as much as 147 times this year, to 1,58 billion; Sverdlovsk Oblast, which showed an increase of 52 times, from 410,000 to 21,5 million rubles. Besides, the indicators of Tomsk Oblast (albeit to a modest 1,18 million) and Vladimir Oblast (up to 520,000) increased from zero.
The most notable successes belonging to Yaroslavl Oblast, it seems, can be attributed to the commissioning of the plant of Gulbakhar Rus PLC in Rostov Veliky last October. The first stage of the plant, as media reported a year ago, consists of three lines and is designed to produce 300, 350 and 400 packs of cigarettes per hour. Gulbahar Rus produces cigarettes under the Milano and Cavallo brands. The “original” company Gulbahar — originally from the UAE, in addition to the listed brands, produces Mond and Momento cigarettes.
This is not the first experience of large-scale cigarette production in the region: until 2017 in Yaroslavl, there was the oldest Russian tobacco factory Balkanskaya Zvezda, founded in 1850, which produced the same name cigarettes, as well as products under the names Prima and Iskra. In 2004, the factory was sold to Spanish Altadis, which 3 years later passed to Imperial Tobacco. In 2017, the factory was closed due to a drop in the cigarette market and an increase in excise taxes.