JTI: Manifold growth in excise rates will reduce legal market and soar illegal tobacco share

Baku. 15 November. REPORT.AZ/ A manifold increase in excise rates may lead to negative consequences; it may decrease legal market volume and increase share of illegal tobacco due to inevitable price increases. Report was told in JTI's Baku office, as a result, expected revenues for the government will decrease and consumers will switch to cheaper illegal tobacco of lower quality and unknown origin.

For the Azerbaijan tobacco market it is important to have medium-term predictability, to be able to avoid tax and price shocks, create grounds for sustainable business growth and decrease the possible threat of illegal trade in tobacco products. The share of illegal tobacco was 13,9% in July 2017, according to Nielsen research in Azerbaijan.

Georgia’s bad experience from 2005, as well as experience of other countries, shows that excessive tax increases have negative effect on legal consumption and tax revenues. For example, steep tax increases in Germany in 2002-2006 resulted in a fall in tax revenue as legal cigarette consumption declined and non-domestic duty paid consumption exploded to over 20% of cigarette consumption. In 2007-2009, faced with a failed policy, the government implemented a tax freeze which successfully halted further illicit growth.