The increase of excise duty on tobacco and alcohol in 2017
Excise is a form of state tax (duty) on certain products of mass demand (excisable goods), which is levied on manufacturers or sellers of goods. Excise is included in the price of good and paid by the consumer. The sum of excise goes to state or local budget.
Excisable products
According to Article 215.1. of the Tax Code of Ukraine, excisable products are:
- ethyl alcohol and other alcoholic distillates, alcoholic drinks, beer;
- tobacco products, tobacco and manufactured tobacco substitutes;
- fuel;
- cars, car bodyworks, trailers and semi-trailers, motorcycles, vehicles for transporting 10 or more persons, vehicles for transporting goods;
- electric energy.
The rate of excise duty these products is defined in the Tax Code of Ukraine, but it’s not constant and is reviewed annually.
The increase of the excise duty in 2017
On the 20th of December, 2016 the Verkhovna Rada of Ukraine adopted the Law (registration number of the bill - №5132 from 09.15.2016) «On Amendments to the Tax Code of Ukraine on balancing budget revenues in 2017». The law provides the increase in excise duty rates on tobacco and alcohol, as well as on certain types of fuel. This law was adopted in order to balance budget revenues as part of the annual revision of tax rates. In addition, there will be growth in the minimum wage to 3200 UAH. Therefore it was necessary to change some of the provisions of the Tax Code that are bound to the minimum wage.
«The increase in excise rates will balance the revenue part of the budget and adapt it to the European law» - is stated in an explanatory note to the bill.
In accordance with the Law, the excise duty on alcohol and alcoholic beverages increases by 20%, on fortified and sparkling wines by 12%. Rate on dry wines remains unchanged, and on tobacco products increases by 40%.
The increase of price for excisable products
Prices for tobacco and alcohol products increase annually in Ukraine. Increasing of excise duty is one of the effective ways to replenish the state budget and reduce consumption of these products.
From the 1st of January, 2017 tax rate for 100% alcohol is 126,96 UAH/liter, for beer – 2,98 UAH/liter, for fortified wines and vermouth – 8,02 UAH/liter, for sparkling wines – 11,65 UAH/liter.
Experts state that because of increase of excise duty each bottle of vodka will cost at least 5 UAH more. In addition, producers will raise the price themselves. Therefore, vodka will be about 10 UAH more expensive next year.
As for tobacco products, the excise duty for 1000 filter cigarettes will be 413 UAH, as opposed to the previous duty of 318 UAH. Manufacturers say that in this case, the retail price of one pack of filtered cigarettes will grow up to 5 UAH. That means the price for cheap brands of cigarettes will rise up to 20 UAH per pack, and the «premium» cigarettes will cost up to 50 UAH.
In its turn the Ministry of Finance is considering the possibility of more serious increase in excise duties on cigarettes. It refers to the Association Agreement with the EU, according to which Ukraine has to increase the excise duty to the European level of 90 euro per 1000 pieces.
The impact of raising excise duty
The consequence of new increase in excise duties will be a rise in prices. Nevertheless, it should not exclude black market and contraband products growth. There is also a possibility that the producers of cigarettes and alcohol will try to reduce the cost of production by decreasing its quality. This increase in black market will cause a decrease in the state budget.
After the adoption of the Law «On Amendments to the Tax Code of Ukraine on balancing budget revenue in 2017», the Ministry of Finance is discussing a further increase in the excise duty rate on tobacco and alcohol products in 2017.
