The clandestine production of cigarettes and vapes leads to jail

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Since September 1, 2023, equipment for the production of tobacco and nicotine-containing products has been proposed to be registered in a special register. It`s also planned to introduce mandatory licensing of the production, storage and supply of cigarettes, tobacco and vapes from March 2024. Administrative fines will be imposed for violating technological requirements, and for trafficking without a license, the maximum penalty will be criminal liability of up to five years in prison. The State Duma adopted such a package of four bills in the first reading on April 12.

The requirements for equipment and supplies will become stricter

The first draft law (No. 310882-8) introduces state regulation of the production and turnover of tobacco and nicotine-containing products and raw materials for their production. We are talking about both conventional cigarettes and electronic nicotine delivery systems — icos and vapes. The project defines them and sets requirements for the main technological equipment — it must be registered in the state register, said Deputy Finance Minister Alexei Sazanov.

According to the document, the production, storage and supply of tobacco and nicotine products are subject to licensing. The license will become mandatory from March 1, 2024. Retail sale of cigarettes is not going to be licensed yet. If tobacco growers do not have a production license, suspended or revoked, then the equipment must be mothballed.

It is planned to monitor the production and turnover of tobacco and nicotine-containing products through an information monitoring system based, among other things, on the "Chestny Znak" mark. The turnover of products will be possible only if there is an electronic universal document confirming its legality.

The second bill (No. 310820-8) brings certain legislative acts in line with the first. The new regulations will make it possible to combat counterfeiting more effectively and protect consumers from counterfeit cigarettes and smoking devices. As noted in the explanatory note to the projects, illegal production and turnover of tobacco products has increased in Russia in recent years. According to experts, if measures are not taken and everything is left as it is, the budget in 2024 will lose 34 billion rubles of unpaid excise taxes by clandestine tobacco workers, in 2026 — 50 billion, in 2028 — 74 billion rubles.

"Now budgets of different levels are receiving about 100 billion rubles less due to the fact that a system for tracking products on the tobacco market has not yet been put into effect by analogy with the regulation of the alcohol market," said Maxim Topilin, head of the State Duma Committee on Economic Policy. He noted that the document had been prepared and approved by the Government for a long time. By the second reading, the new norms will be brought into line with the law on vaping, adopted by the State Duma at the plenary session on April 11.

What will be the penalties

It`s discussed to introduce a separate article 14.67 into the Code of Administrative Offenses with responsibility for those who do not comply with the requirements for equipment and licensing in the tobacco market. According to the bill (No. 310899-8), from September 1, 2023, officials will have to pay 150-300 thousand rubles for the production of cigarettes and vapes without a license, and companies — from 300 thousand to 1 million rubles. At the same time, products, equipment and raw materials will be confiscated, and the company's activities may be suspended for three months.

The use of technological equipment not registered in the state register will result in a fine for citizens of 3-5 thousand rubles, for officials — 20-50 thousand, for companies — 100-150 thousand.

If people produce or sell tobacco or nicotine products illegally, they are offered to be fined 30-50 thousand rubles.

"It was proposed to establish criminal liability for the unlicensed production and turnover of tobacco and tobacco products when the offense is committed on a large scale. It also suggests increased responsibility for the commission of these acts by an organized group or on a particularly large scale," said Nikolai Brykin, a member of the State Duma Committee on State Construction and Legislation. Another draft law (No. 310855-8), developed in the Cabinet of Ministers, introduces the corresponding amendments to Article 171.3. The maximum penalty will be a fine of 3-4 million rubles, five years of forced labor or imprisonment. Now this article provides for penalties for illegal production.

Retail will not be licensed

The majority of deputies supported the package of bills, as the new rules will increase budget revenues and protect people from counterfeit cigarettes and vapes. Commenting on the document, the first deputy chairman of the State Duma Committee on Education, Yana Lantratova, noted that experts and public figures advocate the introduction of licensing of the retail sale of tobacco and nicotine devices. "Licensing of production does not exclude the possibility of selling illegal products at retail," she said. But the Ministry of Finance considers it superfluous. "There are a lot of retail stores, and many of them are small and medium—sized businesses. The introduction of licensing in retail is a significant increase in the administrative burden on business," said Alexey Sazanov.

The Deputy Head of the Ministry of Finance recalled that since December 2022, marking of all nicotine-containing and tobacco products has been fully launched, and this allows tracking its turnover. Now the Government is working to prohibit the sale of products that are not labeled at the checkout. Together, these measures will make it possible to suspend the trade in counterfeit goods without licensing, the Cabinet of Ministers is confident.