The ministry is set to raise current duties by 30 per cent in 2007 and increase them by 20 per cent more in the ensuing two years. It is of note that the dues will be levied from the retail price that producers will have to indicate on the pack, but not from the sale price. Some experts predict prices on cigarettes to grow at least 10 per cent.
 
Finance Ministry spokesman Sergey Shatalov reported the coming change to Russian newspaper Kommersant saying the ministry is set to reorganise the duties system for tobacco products in 2007 as a part of the comprehensive tax reform. The Finance Ministry suggests that the dues be increased by 30 per cent in 2007 and 20 per cent more in 2008 and 2009. The move is expected to bring 4.8 billion rubles of taxes to the state in 2007 and 7.4 billion rubles in the following two years. In 2005, cigarette producers paid 30 billion rubles of dues.

The mixed system of the duties collection is currently in force in Russia. 65 rubles is levied on each 1,000 cigarettes with filters plus 8 per cent on the sale price of the factory, 28 rubles on 1,000 items plus 8 per cent are levied on non-filter cigarettes. The Finance Ministry is determined to preserve the current structure of the duties. But the payment will be calculated basing on the top retail price that a tobacco company will claim.

The change that copies the duty system in the EU and Ukraine is designed to cut down revenues of distributors and retailers who enjoy “exorbitant profits” getting some 65 per cent over the product’s sale price, according to Sergey Shatalov. The Finance Ministry suspects that a part of the distribution network is affiliated with tobacco companies, so the new scheme will help tackle the problem of transfer pricing in the industry. (pi)