Regulation Gets Ratcheted Up on Russian Tobacco

Deputy Head of the Russian Ministry of Health Oleg Salagai (far right) has been one of the most hostile Russian leaders in relation to tobacco.

RUSSIA

Regulation Gets Ratcheted Up on Russian Tobacco

Eventual goal: elimination of tobacco products after 2050.

By Eugene Gerden, TI Russian Correspondent

The Russian government is tightening pressure on the domestic tobacco business by way of the introduction of new restrictions on smoking and tobacco.

In the recently prepared State Concept for the fight with tobacco consumption in Russia during the period 2019–2035, producers and some senior experts in the field of tobacco business in Russia brought their opinions to the attention of the public.

The new State Concept will be also part of the recently announced plans of the Russian Ministry of Health to completely withdraw tobacco products from the Russian market after 2050.

By 2030, the share of consumption of tobacco products among the Russian population should fall to five percent and to zero percent by 2050, according to recent statements of the deputy head of the Ministry of Health Oleg Salagai.

As part of the new Concept, the government plans to extend the ban on smoking in public places, to increase minimal prices for cigarettes and to equate electronic cigarettes with ordinary ones.

So far, all the economic measures to combat smoking in Russia have led only to an increase of the illegal sector of the market.

The government believes the planned restrictive measures could be efficient as those contained in the previous anti-tobacco Concept, which came into force at the beginning of 2010s and resulted in the decline of the share of smokers in Russia from 39.4 percent to 30.9 percent. At the same time, in the case teenagers aged of 13–15 years, these figures fell by two times.

Measures implemented To date, some of the proposed measures have already been implemented. For example, on March 1, 2019, mandatory digital labeling of tobacco products officially came into force in Russia. The main purpose was to raise the transparency of the Russian tobacco market and reduce the share of counterfeit.

The new labeling scheme involves putting digitally generated code (electronic two-dimensional dot code in Data Matrix format) on a pack of cigarettes, using special tools. The new code will allow tracing the path of the pack from the manufacturer to the consumer. That will help regulators get an access to information about producers and their products.

At present, the high share of counterfeit continues to be one of the major problems of the Russian tobacco market. According to Nielsen data, during the period from 2015 to 2018 the share of the illegal segment grew by eight times and is currently estimated at 10 percent of the overall structure of the market.

As a rule, most counterfeit tobacco comes to Russia from the countries of the former-Soviet-Union, primarily Belarus.

Experts question

In the meantime, implementation of such ambitious plans as those which were announced by the state in the proposed State Concept have already been questioned by some leading Russian experts in the field of tobacco business.

Maxim Korolev, editor-in-chief of the Russian Tobacco magazine, believes implementation of similar plans were impossible even for those countries, which started the fight against smoking 30–35 years ago.

“The examples of such an active anti-tobacco fight are Australia and Canada, which began to implement such policy during the 1980s,” Korolev comments.

The achievement of the declared state goals seems to be very problematic even in the long term for the country.

Now, 35 years later, both countries have found out that smoking cannot be reduced below 12-14 percent of the adult population. Implementation of even the strictest measures and the rise of prices resulted in the growth of smuggling in these countries. In the case of Russia prior to 2000s the majority of the local market [was] accounted for [by] non-filter cigarettes. At present there is a big gap between Russia and Western countries in regard to the tobacco business, which means the achievement of the declared state goals seems to be very problematic even in the long term for the country.”

Experts also said that so far, all the economic measures to combat smoking in Russia have led only to an increase of the illegal sector of the market.

This is also confirmed in the latest report of the Russian Ministry of Health, according to which the number of smokers in the country is estimated at 40 percent of the entire population.

In the meantime, according to global tobacco majors operating in the country, in addition to the ever-accelerating state efforts to combat with smoking in the country, another threat to their local business is associated with the growth of excise taxes.

The impact of taxes

Starting January 1 of the current year, the VAT rate in Russia grew 18 percent to 20 percent, which resulted in the growth of prices for the average pack of cigarettes grew by RUB 10 (US$0.154). Moreover, the Russian Ministry of Health, from its side, plans to further lobby the increase of excise rate for tobacco products in Russia, up to 70 percent, in accordance with the recommendations of the World Health Organization and tax practice in European countries.

Now, the excise rate on cigarettes in Russia is 2,568 rubles per 1000 units (51.36 rubles per pack) and, it is planned that it will continue to grow in years to come.

According to experts of the Ministry of Health, the increase in excise taxes on each pack of cigarettes can bring more than RUB 500 billion (US$8 billion) to the Russian federal budget.

Finally, state control of the segment of vapes and electronic tobacco heating systems in Russia will be also significantly tightened. Currently this segment experiences a lack of legal regulation, which is reflected by the lack of any restrictions on the consumption of these products in Russia. However, this situation may change shortly.