“They announced the growth of pensions by GEL 10. However, at the expense of what? Tobacco excise.”
ex-President of Georgia, Mikheil Saakashvili, stated that the Government of Georgia manages to increase pensions at the expense of increased tobacco excise.
FactCheckverified Mr Saakashvili’s statement.
Excise duty is an inland indirect tax that is paid during consumption of an excise product. The price of the product includes excise duty which is paid by the customer during the purchase. Throughout the world, excise duties mainly apply to mass consumption products such as tobacco, alcoholic beverages, fuel, gambling and means of transportation. These kinds of products and services are considered hazardous for human health and the environment.
Recently, the Government of Georgia came out with an initiative to increase excise on cigarettes and alcoholic beverages. Deputy Minister of Finance, Giorgi Kakauridze, presented a Bill on the Amendments in the Tax Code of Georgia during a meeting of the Financial and Budget Committee. According to the planned amendments, the rules for paying excise duty will be changed from 1 July 2015. The fee for the excise taxation, import and export of the excise product will be determined according to the quantity/weight and the selling price. The excise tax will be changed from 1 January 2015 as follows.
As of today, the excise duties on cigarettes and alcoholic beverages are:
| Beer (1 litre) | GEL 0.40 |
| Ethyl Spirit and Alcoholic Beverages | GEL 2.5-5 |
| Cigarettes: 1 pack, filtered | GEL 0.75 |
| Cigarettes: 1 pack, unfiltered | GEL 0.20 |
After the increase in the excise tax:
| Malt Beer, Ethyl Spirit and Alcoholic Beverages | Excise duty increases by 50% (Beer by GEL 0.60, Alcoholic Beverages by GEL 3-7) |
| Cigarettes: 1 pack, filtered | Excise duty increases by GEL 0.15 (GEL 0.90) |
| Cigarettes: 1 pack, unfiltered | Excise duty increases by GEL 0.05 (GEL 0.25) |
According to the draft 2015 State Budget of Georgia, the planned revenue from excise to the budget is GEL 947 million. According to the 2014 plan, the planned revenue from excise duty is defined at GEL 739 million. It turns out that the revenue from excise duty should rise by GEL 208 million in 2015. Approximately GEL 40 million will result from the increase in excise duty. As for the completion of the 2014 plan, the state budget received GEL 672 million as of 1 November, indicating that the 2014 plan has been successfully completed (most likely, even with a surplus).
Revenues Received/to be Received in the State Budget from Excise:
| 2013 Actual | 2014 Plan | 2015 Plan |
| GEL 722 million | GEL 739 million | GEL 947 million |
Of note is that the revenues of the 2015 budget increase not only owing to excise duty. In total, tax revenues grew by GEL 780 million from 2014 to 2015.
Tax Revenues of the State Budget of Georgia (in GEL million):
| Taxes | 2014 Plan | 2015 Plan | Difference |
| Sum | 6,820 | 7,600 | +780 |
| Income Tax | 1,770 | 2,085 | +315 |
| Profit Tax | 912 | 900 | -12 |
| Value Added Tax | 3,274 | 3,529 | +255 |
| Excise | 739 | 947 | +208 |
| Import Tax | 100 | 114 | +14 |
| Other Taxes | 25 | 25 | 0 |
Tax revenue data show that not only the estimated revenue of excise duty is increasing. Significant increases are expected in the estimated revenues of the income tax and the value added tax as well (a GEL 570 million increase in total).
On 11 November 2014, after the meeting of the Parliamentary Minority, the Minister of Finance of Georgia stated that the pensions would grow by GEL 10 for all categories. According to Head of the Financial and Budget Committee, Davit Onoprishvili, this issue will be discussed in the third version of the budget to be presented to the Parliament of Georgia in December. Of note is that GEL 64 million more has been allocated for pension aid in the 2015 plan as compared to the 2014 plan.
| Pension Aid – Expenditures | |
| 2014 Plan | 2015 Plan |
| GEL 1,326 million | GEL 1,390 million |
According to the data of October 2014, there are approximately 696 thousand pensioners in the country. According to the Ministry of Labour, Health and Social Affairs of Georgia, in 2015, 52,892 people will be granted the right to receive pension because of reaching the legal pension age. It should be considered that increasing pensions is planned from September 2015. Therefore, the expenditures envisaged in the draft budget should be sufficient for the issuance of the increased pension within the last four months of the year (September, October, November, December). FactCheck has already written
on this topic.
According to Georgia’s rule for creating its budgetary system, particular expenditures are not bound to the revenues received from any particular taxes. For example, it is impossible to say precisely that pensions will be increased by means of the funds obtained from increased excise. Research revealed that funding the increased pension expenditures (GEL 64 million) is also possible by revenues received from other types of taxes (GEL 570 million).
Conclusion
Mikheil Saakashvili’s statement is true from the perspective that the increase in pensions and excise has indeed been announced. Excise duty will increase on 1 January 2015 whilst increasing pensions by GEL 10 is scheduled to start from 1 September 2015.
Nevertheless, saying that the increased pension will be financed from the revenues received from excise is inaccurate. GEL 208 million (the share of cigarettes in the increase will be up to GEL 40 million) more will flow into the budget from excise duty in 2015 than in 2014. However, increasing pensions by GEL 10 will require GEL 64 million more than is being spent in 2014 on pension aid.
In 2015, the estimated revenues from income tax (GEL 315 million) and value added tax (GEL 255 million) will increase more than excise duty. The increase in the revenues from these taxes is expected from the economic increase (5%); therefore, an increase in the rates of taxes should not be anticipated.
According to Georgia’s rule for creating its budgetary system, particular expenditures are not bound to the revenues received from any particular taxes which means that it is impossible to say what kind of tax covers any given expenditure.
FactCheck concludes that Mr Saakashvili’s statement: “They announced the growth of pensions by GEL 10. However, at the expense of what? Tobacco excise,” is HALF TRUE.
