The Southern Federal District has become the leader in the share of the shadow market of tobacco products in Russia. Despite the fact that the volume of illegal trafficking in the region is decreasing annually, the damage to the federal budget remains significant — almost 5 billion rubles in the first quarter of 2024. Experts believe that in order to solve the problem of the illegal tobacco market, it is necessary to redistribute part of tobacco excise taxes to the budgets of the regions. This and other proposals were discussed by the participants of the round table "Combating illegal trafficking of tobacco products in the Krasnodar Territory: the current situation and prospects for countering". The event was held by Kommersant — Kuban-Black Sea Region.
The Southern Federal District has become the absolute leader in Russia in terms of the share of illicit tobacco trafficking, which amounted to 17.1% in the second quarter of 2024. This is evidenced by the results of a study conducted by the Ministry of Industry and Trade of the Russian Federation in cooperation with the National Scientific Competence Center in the Field of combating Illicit Trafficking in Industrial Products (NNCC).
According to analytical data, the second place was shared by the Central and Northwestern districts (14.1% each). The North Caucasus Federal District moved from the first to the third place in comparison with last year (13.9%), which demonstrated the sharpest reduction in illicit trafficking in tobacco products. For comparison, in the third quarter of 2023, this figure reached 22.3%.
A decrease in the shadow tobacco turnover was demonstrated to varying degrees by all districts except the North-Western One, which led to a corresponding dynamics in Russia as a whole. "If in 2019 the share of illicit tobacco trafficking in Russia was 15.6%, at the end of 2023 it was 12.6%, then according to the results of the 1st half of 2024 it decreased to 11.3%," said Andrey Meshkov, Deputy Director of the Department of digital labeling of goods and legalization of product turnover of the Ministry of Industry and Trade of Russia. However, this is not a small matter and the problem of the illegal tobacco market remains relevant, the representative of the ministry stressed.
Roman Troshkin, Manager for Work with government authorities at JTI Russia, agreed with Andrey Meshkov. The expert clarified that if such volumes of illicit tobacco trafficking are maintained, the minimum losses of the federal budget in 2024 may amount to about 120 billion rubles. "The tobacco market accounts for about 3% of the total revenue of the Russian federal budget. This is the second largest source of tax revenue after the oil and gas sector," said Mr. Troshkin.
Irina Bushina, director of the ANO National Scientific Center of Competencies in the field of countering Illicit Trafficking in Industrial Products, added that in the first quarter of 2024, the minimum losses of the federal budget due to the shadow market of tobacco products reached almost 25 billion rubles, while more than half of the damage, according to the expert, was due to illegal tobacco trafficking in The Central and Southern Federal Districts.
According to the Doctor of Economics, Professor Alexander Polidi, all market participants are interested in reducing the shadow tobacco turnover. "Customers want to be sure that they are consuming a quality product. Regulators are concerned that the treasury should be replenished with tax deductions so that the market is understandable and economically efficient. From a business point of view, illegal trafficking distorts the competitive environment and displaces the products of legal manufacturers from the market," Alexander Polidi noted.
Dmitry Yushkin, Deputy Head of the Department of Consumer Sphere and Alcohol Market Regulation of the Krasnodar Territory, stressed that the uncontrolled turnover of tobacco products poses a threat to Russia's economic interests. "The growth of illegal trade leads to a reduction in budget revenues at all levels of the budget system, a blow to law-abiding manufacturers and retailers, saturation of the market with products of questionable quality and origin and, most worryingly, access to cigarettes by minors",— Dmitry Yushkin noted.
According to the NSCC study, the federal budget losses from illicit tobacco trafficking in the Southern Federal District in the first quarter of 2024 exceeded 4.8 billion rubles. Including the minimum damage from shadow trade in the Krasnodar Territory amounted to 1.6 billion rubles, in the Rostov region — 1.2 billion rubles, in the Crimea — about 900 million rubles, in Adygea — about 1 billion rubles.
"Almost 87% of cigarettes illegally sold in Russia and imported from the member countries of the Eurasian Economic Union (EAEU) come from packs of Belarusian brands. They do not have Russian excise stamps, but 95% of them have Belarusian excise duty or traces of glue from a torn excise stamp. The share of cigarettes illegally imported from Armenia decreased by 2.4% (to 11.2%), while the share of Belarusian packs increased. Illegal imports from Kyrgyzstan and Kazakhstan still account for no more than 2%," Irina Bushina said.
Roman Troshkin named disparity in excise tax rates between cigarettes in the EAEU and the Russian Federation among the main reasons for the formation of the illegal cigarette market, which leads, according to the expert, to a difference in final prices for consumers. "Cheap products illegally imported from the EAEU countries are becoming more and more attractive to consumers. In addition, the share of cigarette costs in the disposable income of Russian consumers is growing faster than inflation and disposable incomes themselves, as a result of which the consumer begins to look for cheaper alternatives in the illegal market," the expert stated.
Andrey Meshkov said that, according to a joint study by the Ministry of Industry and Trade of the Russian Federation and the National Research Center, in the second quarter of 2024, the share of the shadow tobacco market in the Southern Federal District decreased by four percentage points to 17.1%. In the Krasnodar Territory, the share of illegal trafficking in the same period amounted to 9.4%, which is 5% less than a year ago. Year—on—year, the share of illicit tobacco trafficking in Adygea decreased from 17.9 to 10.3%, the Rostov region from 28.1 to 21.5%, Crimea from 21.8 to 15.1%, Sevastopol from 23.6 to 14.9%. At the same time, the shadow tobacco market in the Volgograd region showed significant growth: from 13.4 to 19.6%. According to the study, Kalmykia remains the leader of anti-rating in the Southern Federal District, where the share of the uncontrolled tobacco market for the second year is 23.8%.
All participants of the event agreed that the adopted legislative changes and novelties play an important role in whitewashing the market.
Roman Troshkin is confident that the law on state regulation of the industry, which came into force in 2024, will help bring order to the market. "Since March 1, 2024, the norms of the law on mandatory licensing of the production and import of tobacco products and raw materials, registration of equipment for the production of tobacco products, traceability of raw materials and finished products have begun to work," the expert said. Rosalkogoltabakcontrol was entrusted with control functions for compliance with the new requirements provided for by 203-FZ.
Saida Parfenova, Head of the Department for control over legality and compliance with conditions and requirements in the tobacco market of the Federal State Budgetary Institution Rosalkogoltabakkontrol for the Southern Federal District, said that in the Krasnodar Territory, three manufacturers, two importers, and one organization purchasing products carry out activities in the field of production and turnover of tobacco products, tobacco and nicotine-containing products, as well as raw materials for their production for the sale of duty-free goods (duty-free), and about 232 wholesale organizations (according to the State monitoring system of goods "Honest Sign").
The expert said that in July 2024, the order of the Ministry of Finance of the Russian Federation "On approval of the list of indicators of the risk of violation of mandatory requirements in the implementation of federal state control (supervision) in the field of production and turnover of tobacco products, nicotine-containing products and raw materials for their production" came into force. "This regulatory legal act allows us to fully carry out work on conducting control and supervisory activities, both with and without interaction with controlled persons. In this case, the so-called risk-based approach works. That is, if a risk indicator is identified for a business, this may become a reason for an unscheduled inspection in 2024, despite the current moratorium," Saida Parfenova explained.
Alice Andreeva, Corporate Affairs Manager of the Philip Morris International affiliated companies in Russia, believes that such a decision is quite justified, since unscrupulous sellers have time to prepare for inspections. At the same time, the expert expressed the wish that the focus of attention of the supervisory authorities should be focused exclusively on violators of the law and would not create unnecessary pressure for law-abiding businesses.
"The legislative changes that have been adopted have largely contributed to the fact that there is a trend towards reducing the illegal turnover of tobacco products. The main thing is that this downward trend becomes sustainable, and it is important to note here that, no matter how perfect the legislation is, success in combating illegal trafficking in tobacco products depends primarily on the active actions of regulatory and law enforcement agencies in each individual region," Roman Troshkin stressed.
According to the press service of the Ministry of Internal Affairs of Russia for the Krasnodar Territory, as a result of operational search measures carried out by the police in 2024, the number of detected crimes in the field of illegal trafficking of unmarked tobacco products increased by a third. About 2.6 million packs of unmarked tobacco products were seized, which is 41.5% more than in the same period last year. "The positive dynamics is due to the intensification of the work of operational units aimed at identifying and suppressing the facts of illegal storage and sale of unmarked tobacco products," the police explained.
A significant burden on the suppression of the illegal import of tobacco products falls on the Sochi checkpoints of the Krasnodar customs. Oksana Demina, head of the Department of Control over the import and turnover of goods at Krasnodar Customs, said that since the beginning of 2024, 823 cases of administrative offenses related to illicit trafficking in tobacco products have been opened in the resort city.
"Experts seized over 50 thousand packs of cigarettes and 53 kg of sucking tobacco. The amount of penalties imposed amounted to about 4 million rubles (an administrative fine of 580 thousand rubles and confiscation of 4.3 million rubles). For the same period last year, experts recorded 724 administrative offenses. 40 thousand packs of cigarettes were seized. The amount of administrative penalties exceeded 8 million rubles. The largest number of violations was recorded at the customs office in Adler," the expert said. Oksana Demina clarified that the largest share of illegal tobacco products was made up of goods from Abkhazia.
Andrey Bagrentsev, Head of the Department of control over the import and turnover of goods of the Customs Control Service after the release of goods of the Novorossiysk Customs, said that in 2024, Novorossiysk Customs together with the Ministry of Internal Affairs of Russia for Novorossiysk, the Ministry of Internal Affairs of Russia for Anapa and Gelendzhik, officials of the Novorossiysk Transport Prosecutor's Office, the Federal Security Service of Russia for the Krasnodar Territory conducted 18 customs inspections of premises in the domestic market of the Russian Federation and territories of trade in tobacco and nicotine-containing products on the domestic market. Violations were revealed during 15 of them. 25.2 thousand were withdrawn from civil circulation. unmarked, exciseless tobacco (nicotine-containing) products.
"At the same time, the existing set of tools cannot fully stop the flow of illegal products entering the Russian Federation from the EAEU member states, since the existing gap in the levels of excise taxes on tobacco products pushes unscrupulous entrepreneurs to earn on counterfeit tobacco products," Dmitry Yushkin noted.
Alexander Polidi recalled that in September, deputies of the Legislative Assembly of the Rostov region appealed to the State Duma with a proposal to transfer part of the income (10-15%) from tobacco excise taxes to the regions. A positive decision would provide additional revenues to regional budgets. In particular, the Krasnodar Territory, according to expert estimates, could account for about 1 billion rubles of additional revenue annually.
According to Roman Troshkin, in order to cleanse the market, it is also necessary to introduce a rule on the extrajudicial blocking of Internet resources offering tobacco and nicotine-containing products for retail sale remotely, which is directly prohibited by current legislation.
"Such a tool works effectively with alcohol, it is necessary to introduce it into the tobacco sector," the expert stressed.
Roman Troshkin was supported by Alice Andreeva. She noted that it is necessary to further strengthen the effectiveness of law enforcement in the field of combating illegal trafficking in tobacco and nicotine-containing products, the supervisory authority (Rospotrebnadzor) should be able to carry out inspections of retail outlets without the approval of the prosecutor's office when risk indicators are triggered. Also, according to the expert, it is necessary to introduce responsibility for the transportation of illegal products by companies and carriers. "It is necessary to suspend the activities of retail outlets that have repeatedly been seen selling tobacco and nicotine-containing products to minors, and introduce criminal liability for this",— the expert concluded.
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