Will the growth of illegal tobacco in St.Ptersburg stop?

#industry news

According to the deputy director of the  the National Scientific Center of Competencies in the Field of combating Illicit Trafficking in Industrial Products (NCCR)Baysolt Khamzatov, according to the latest research of the organization, the share of illegal tobacco turnover in Russia as a whole is estimated at 12.1%. This indicator has not changed since last year, but the situation varies from region to region.

Petersburgers have once again become one of the most smoking Russians. Just in six months of this year, more than 1 million packs of cigarettes were seized from illegal circulation in the city. At the same time, North-Western Federal District got into the "three" regions-anti-leaders in counterfeiting.

According to experts of the National System of Digital Marking "Chestny ZNAK", St. Petersburg took the "honorable" eighth place in the top 10 most "smoking" regions of Russia in the third quarter of this year. So, one citizen "bought" 8.4 packs of cigarettes a month. And over 1 million packs of cigarettes were withdrawn from illegal circulation in the Northern Capital in six months. Analysts assure that despite the pessimistic forecasts against the background of the deterioration of the financial situation of Russians, the volume of illegal tobacco products in the country is still being restrained or it is not increasing at such a galloping pace as initially expected.

In general, the share of counterfeit goods in the Russian Federation is estimated at 12.1%. But in St. Petersburg, this figure increased in 2022 and is 18.8%, and in the Leningrad region - 18.9%. Meanwhile, unlike the vast majority of goods in the existing economic realities, buyers of cigarettes and vapes themselves are interested in finding cheap counterfeit. This is facilitated by the current ban on unscheduled inspections by Rospotrebnadzor of small and medium-sized businesses, and without revolutionary changes in legislation, the trend cannot be changed, such conclusions were reached by the participants of the round table "Illegal turnover of tobacco products and its impact on the economy of Russia and the North-Western Federal District."

200 times more

Vladislav Zaslavsky, Deputy director of the Department of digital marking of goods and legalization of product turnover of the Ministry of Industry and Trade of Russia, recalled that the ban on unscheduled inspections by Rospotrebnadzor of small and medium-sized businesses continues to operate in the Russian Federation. The number of control measures and purchases has decreased significantly because of this. At the same time, the volume of seizures of illegal products has grown significantly.

For example, in the North-Western Federal District (NWFD) as a whole, almost 4 million packs of cigarettes were seized in the first half of 2022. This is more than five times compared to the same period last year.

- In the Leningrad region in the first half of 2022, 1.8 million packs of cigarettes were seized from illegal circulation, and this is much more, 200 times more than in 2021. In the first half of 2021, only 9 000 packs were seized in the 47th region," Vladislav Zaslavsky said.

According to him, St. Petersburg in this regard "managed" to overcome the bar of 1 million packs. This is also five times more than in the six months of 2021.

- At the same time, only 17 illegal points of sale have been identified in North-Western Federal District. This is a surprisingly small figure. This is 47 times less than in the same period of 2021," Vladislav Zaslavsky added.

From region to region

According to the deputy director of the  National Scientific Center of Competencies in the Field of combating Illicit Trafficking in Industrial Products (NCCR)Baysolt Khamzatov, according to the latest research of the organization, the share of illegal tobacco turnover in Russia as a whole is estimated at 12.1%. This indicator has not changed since last year, but the situation varies from region to region.

So, in St. Petersburg, this figure is currently 18.8%. It grew by 4.3% from 14.5% in 2021. That is, now it is about every fifth pack. In the Leningrad region, on the contrary, the share decreased from 20.4% in 2021 to 18.9% this year. Meanwhile, the Novgorod Region has achieved an absolute "anti-record" for Russian regions.

— The share of illegal trafficking in the Novgorod region is 43.6%, and this is the first place in quotes in Russia. Every second pack sold in the subject is illegal," Vladislav Zaslavsky explained.

Apparently, this led to the fact that in the "anti-rating" of the federal districts of the Northwestern Federal District came in third place with an average of 14.4%. The Southern Federal District topped the bad list with 17%. "Silver" turned out to be in the North Caucasus Federal District with 15%.

Meanwhile, as Dmitry Prozherin, Deputy Chairman of the Smolny Committee on Industrial Policy, Innovation and Trade, said, three large tobacco manufacturers work in St. Petersburg and the Leningrad Region. These are Japanese JTI, British American Tobacco and American Philip Morris. In general, in Russia, the factories of these brands provide up to 80% of sales volumes. Let`s remember these names.

"The difference is obvious"

According to Baysolt Khamzatov, the largest contribution to the Russian illegal market is made by cigarettes illegally imported from the member countries of the Eurasian Economic Union (EAEU). Here 92% of deliveries are to Belarus. The presence of Kyrgyz and Armenian producers is also growing.

As Roman Troshkin explained, manager for work with state authorities of JTI Russia, it is not difficult to understand their interest. The EAEU has different excise rates and different minimum prices for cigarettes. In Russia, they are the highest of all the countries of the Union, and the buyer always vote in rubles and "now he is looking for and craves counterfeit."

For example, in the Russian Federation, the minimum price of cigarettes is set by law at 112 rubles per pack, in Kyrgyzstan according to a similar scheme — 65, in Kazakhstan — 71. In Belarus and Armenia, the minimum cost is not legally prescribed, but it is 30 and 57 rubles, respectively.

- For example, for these 30 rubles you can buy Belarusian Fest Compact 7. They are very popular with Russians, and the difference in price is obvious. And it is clear that in conditions of declining incomes, illegal products become extremely attractive," Roman Troshkin explained.

Cunning schemes of false export

As Roman Troshkin once again emphasized, Russia also has the largest excise taxes on the EAEU. The countries of the Eurasian Union theoretically agreed that they will introduce only in 2024 a single rate of 35 euros per 1,000 cigarettes with a marginal deviation of plus or minus 20%. That is, we are talking about an amount of 2,135 rubles, taking into account the current euro exchange rate at a price of 61 rubles.

- We have the minimum excise tax rate in the Russian Federation for 1000 cigarettes is already 3333 rubles. Even if we allow a 20% increase in the total excise tax for the union to 42 euros, it will still be 2562 rubles," Roman Troshin shared the incident and added that all this encourages illegal immigrants operating mainly under the scheme of false export.

Within its framework, it is declared that goods from one EAEU member state will go to another with transit through the border territories of the Russian Federation. Domestic excise taxes are not paid, but then the products illegally settle in Russia.

Now let's go back, for example, to JTI, which produces, among other things, the popular Winston, Camel and LD. As market participants explain, it has factories not only in Russia, but also in Kazakhstan and Belarus. Taking into account the presence of such excise taxes in Russia and the minimum value of the goods established by law, it turns out that the same Belarusian Winston will be cheaper than St. Petersburg.

- So we have a situation where on the Internet you can easily find ads for the sale of cigarettes for two times cheaper than the legal cost. And in the conditional store itself, legal products will be on the shelves, and counterfeit products are offered from under the counter," the interlocutors share.

Billions of losses

As Vladislav Zaslavsky notes, the income to the budget of the Russian Federation from the tobacco business is about 700 billion rubles a year, and losses from illegal immigrants are estimated at 75-100 billion.

Meanwhile, the State Duma is pulling with considering a long overdue bill that could significantly improve the situation in the industry. This document provides for licensing of tobacco production, its turnover, a clear accounting of equipment, the possibility of its pre-trial seizure in the absence or incorrect registration. The bill also proposes to redistribute part of the excise taxes currently going to the federals in favor of regional budgets. We are talking about 10-15% of the amount of such fees. Taking into account the amount of 700 billion, the regions may get 7-10 billion.

- Approximately the same was done in 2016 with regard to producers of alcoholic beverages, when the subjects received powers to control market participants and became interested in making their money. As a result, it was possible to restore order in the alcohol market. It is important that in the case of tobacco producers, the regions also received powers, — says Vladislav Zaslavsky.

Igor Cherkassky, head of the department for combating illegal trade of the BAT Russia group of companies, recalls that they wanted to consider the bill back in September, but the document is still in the government of the Russian Federation. At the same time, the same Ministry of Industry and Trade has long threatened to add tobacco products to the list of strategic goods and resources. This would allow for tougher penalties for illegal immigrants. It was assumed that the measure would work from January 1 next year, but in early October the deadline was pushed back to April 1, 2023.