On 28 November 2014, Deputy Minister of Finance of Georgia, Giorgi Kakauridze, presented the Parliament with an amendment bill to the Tax Code of Georgia. He also elaborated upon the amount of excise tax on tobacco. According to him, the yearly increase of the excise tax on tobacco is due to the Association Agreement between Georgia and the EU and the State Strategy on Tobacco Control.

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took interest in Mr Kakauridze’s statement and verified its accuracy.

The excise tax on tobacco is to be increased from 1 January 2015. According to the Tax Code of Georgia, the excise tax on tobacco has increased once since 1 September 2013. It should be noted that the excise tax on one package of imported filtered cigarettes (20 cigarettes in each) increased from 60 tetri to 75 tetri in 2013 whilst the tax on non-filtered cigarettes increased from 15 tetri to 20 tetri.

The overall price of cigarettes also increased due to the growth of the excise tax.

With the initiative of the Government of Georgia, the Ministry of Finance of Georgia prepared a bill according to which the excise tax on one package of filtered cigarettes will be increased by 15 tetri and by five tetri

on non-filtered cigarettes. In addition, according to the bill, the so-called mixed system will be enacted from 1 July 2015. According to this new mechanism, the excise duty on one package of filtered or non-filtered cigarettes (20 cigarettes in each) will be the sum of the excise tax as determined by the Tax Code of Georgia and 5% of the retail price.

On 30 June 2013, the Government of Georgia ratified the State Strategy on Tobacco Control. The main aim of the Strategy is to reduce the overall level of consumption of tobacco in the country. The foreword of the Strategy says: “By ratifying the framework convention on tobacco control of the World Health Organisation, Georgia, along with 178 other countries, committed itself to implementing various steps for tobacco control. With this, Georgia indicated that tobacco control is one of the priorities of the country. However, only a small portion of our commitments have been implemented in reality.” Article Six of the Framework Convention on Tobacco Control of the World Health Organisation

does indeed talk about increasing the prices of tobacco; however, the exact number of the price increase for the signatories is not specified.

According to the State Strategy on Tobacco Control, one of the measures for reducing demand on tobacco is to gradually increase the price; however, international conventions and the interests of the country must be taken into account during the process. According to the 29 November 2013 Directive No. 304 of the Government of Georgia, the 2013-2018 changes package, aiming to decrease the consumption of tobacco, includes, among other things, the increase of excise tax on tobacco.

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also looked into the commitments of Georgia in terms of the Association Agreement with the European Union.

The Association Agreement with the European Union also refers to the issue of excise tax on tobacco. Article 283 of the Agreement states: “The parties of the agreement shall strengthen their cooperation and harmonise their policies in order to avoid fraud and contraband connected with the excise goods. The aforementioned cooperation includes the gradual harmonisation of excise tariffs on tobacco, taking into account the possibilities in the regional context and based upon the Framework Convention on Tobacco Control of the World Health Organisation. In order to reach this goal, the parties of the agreement shall try to strengthen their cooperation in the regional context.” Annex No. 22 of the Agreement also determines which directives and in what time they must be fulfilled by Georgia. One of the directives is the 21 June 2011 Directive

No. 2011/64/EU of the Council of the European Union on the Structure, Rate and Amount of the Excise Tax on Produced Tobacco. The regulations of the aforementioned Directive must be fulfilled within five years from the enactment of the Association Agreement, with the exception of the following Articles: 7 (2), 8, 9, 10, 11, 12, 14 (1), 14 (2), 14 (4), 18 and 19.

On 21 June 2011, the Council of the European Union adopted a Directive on the Structure, Rate and Amount of the Excise Tax on Produced Tobacco. The Directive created the general principles of taxation for different types of tobacco. Specifically, the minimum excise tax on one package of tobacco constitutes 57% of its average price. In addition, the Directive sets a minimum amount of excise tax (EUR 64 per 1,000 cigarettes).

According to Section One of Article 7 of the text, cigarettes produced in the EU or imported from the third countries are subject to excise tax proportional to their price (ad valorem).

It is calculated based upon the maximum commercial price which includes the customs duty and a special excise tax calculated for each unit of the product.

Section Three of the same Article also states that on the final level of structure harmonisation, the ratio of the special excise tax to ad valorem

excise tax and the circulation tax in each member state must be equalised in the manner that the range of the market prices adequately reflects the delivery price of the manufacturer. In addition, according to Section Four, the European Union allows the member state, in the case of absolute necessity, to impose a minimal excise tax.

It should be noted that Chapter Ten of the Directives, adopted by the Council of the European Union, also talks about certain member states which were allowed, due to internal market necessities, to gradually enact new regulations by 31 December 2017.

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also looked into the excise taxes of the neighbouring states of Georgia. For comparison, the excise tax on 1,000 imported filtered cigarettes is GEL 34 in Armenia whilst the tax on the same amount of cigarettes of local production is GEL 29. The excise tax on 1,000 imported filtered cigarettes in Russia will reach GEL 37 from 2015. The excise tax on 1,000 cigarettes is GEL 109 whilst according to the Tax Code of Azerbaijan, all types of tobacco are subject to taxation by 12.5% of their average price. At this point, Georgia has the lowest excise tax on tobacco, amounting to GEL 37.5 per 1,000 cigarettes. This amount will increase to GEL 45 from 1 January 2015 whilst from 1 July, after the so-called mixed system is enacted, this will cause a further growth of the excise tax on tobacco and hence of the overall price.

As we can see, given the growth of the excise tax on tobacco, the price of tobacco will be increased significantly as compared to the neighbouring countries (except Turkey) which raises the risk of smuggling.

Conclusion FactCheck’s

study found that the Framework Convention on Tobacco Control of the World Health Organisation and the five-year Strategy of the Government of Georgia on Tobacco Control do indeed include the growth of the excise tax on tobacco; however, none of the aforementioned documents call for the increase of the excise tax every year. The Association Agreement with the European Union provides for the gradual harmonisation of the structure and rate of the excise tax on tobacco, in the five-year period, following the enactment of the Agreement. It does not call for the annual growth of the excise tax as stated by the Deputy Minister.

It should be noted that the Directives concerning the growth of the excise tax on tobacco are not obligatory for Georgia at this stage. The European Union does not demand an instant fulfilment of the obligations provided for by the Association Agreement. For these purposes, the EU gives Georgia five years and calls for the creation of a special plan for the excise tax. Hence, the growth of the excise tax on tobacco from 1 January 2015 and 1 July 2015 is not a demand of the European Union.

Based upon the aforementioned facts, FactCheck concludes that Giorgi Kakauridze’s statement is MOSTLY FALSE.