The Minister of Finance of Georgia, Nodar Khaduri, made a statement concerning labelling of non-alcoholic beverages: "Our decision will not affect production prices which is why the Revenue Service of the Ministry of Finance of Georgia will fund the implementation of the system itself and so businesses will not have to pay for labelling. It is important for us that financial accountability is in place, production does not become more expensive and that businesses do not face any additional barriers."

FactCheck

took interest in the accuracy of this statement.

According to the 24 April 2012 Directive No. 129, amendments were made to Directive No. 996 of the Minister of Finance of Georgia on the administration of taxes determining the mandatory labelling rules for non-excise goods. According to these rules, non-alcoholic beverages including mineral water and still water were subject to labelling. The contractor responsible for supervising the labelling process’s implementation would be chosen by the Revenue Service whilst the manufacturer would be responsible for paying the service fees. SICPA Security Solutions Georgia Ltd, which is a subsidiary company of the Swiss SICPA Holding, was chosen as the contractor. A total of EUR 4.63 per 1,000 units was determined to be the nominal fee for obligatory labelling for mineral water and still water. The nominal labelling price for other non-alcoholic beverages was set at EUR 5.5.

According to the initial version of the directive, the changes would be enacted beginning from 1 January 2013; however, given the opposition from specific manufacturers and the Association of Non-Alcoholic Beverage Manufacturers, the date of the directive’s enactment changed several times and was finally enacted on 1 November 2015. The changes concerned the directive’s content as well as an exemption from mandatory labelling of goods for export as well as those sold in free trade zones with the Revenue Service, and not the manufacturers, being tasked with paying the service fees (until 1 January 2016).

According to the Ministry of Finance of Georgia’s position, this decision will prevent the flow of falsified products into the market and make for greater financial accountability. In addition, due to receiving information in real time, the frequency of tax checks will decrease. Hence, the pressure of tax checks upon businesses will drop with the Revenue Service being able to perform effective tax control using less time and less human resources. In addition, according to Nodar Khaduri’s statement, businesses will not be required to make additional payments as the Revenue Service will take the responsibility for the costs of labelling and cover them from its own income.

The Association of Non-Alcoholic Beverage Manufacturers of Georgia comprises Coca Cola Bottlers Georgia Ltd, IDS Borjomi Georgia Ltd, Excise Society Iberia Refreshments, Aqua Geo Ltd and Excise Society Tskali Margebeli. According to their assessment, combatting product falsification is not a relevant priority at this moment as no large-scale falsification of production has of late been observed in the sector.

The manufacturers also underscored the non-constitutionality of the changes. They are of the position that the mandatory labelling of non-excise production provided for by the Excise chapter of the Tax Code of Georgia represents a new tax and, therefore, contradicts the Constitution of Georgia. However, the aforementioned constitutional guarantees do not include the excise tax (Article 94/4 of the Constitution of Georgia) and the changes were made precisely to the Excise chapter. On the other hand, the company pays the labelling fees to a commercial entity and this money does not go to the state budget. According to the Tax Code of Georgia, tax is determined as an "obligatory unconditional contribution to the budget."

According to the assessment of Pepsi’s Commercial Director, Levan Kasradze, additional equipment in the production line create the risk for a production stoppage. However, Zedazeni’s Director, Kakha Paichadze, has a different position. He indicated that his company has been complying with the labelling obligation for a long time and sees no problem in including it in the production process if the state is willing to pay the expenses.

According to Point 13 of Article 112 of Directive No. 996 of the Minister of Finance of Georgia, the Revenue Service is tasked with only a temporary paying of labelling until 1 January 2016 whilst Point 1 of Article 79 of the directive obliges the manufacturer to pay the labelling service fee. Hence, the responsibility for paying for this service stays with the manufacturer and has only been temporarily transferred to the Revenue Service.

According to the position of the Association of Non-Alcoholic Beverage Manufacturers, no developing or developed country (there are only a few exceptions) uses such a system with regard to non-alcoholic beverages. It should be pointed out that such instances are indeed very rare. On the other hand, it is the authority of the state, given that it can provide appropriate arguments, to determine those products under special control. SICPA cooperates with state supervisory structures in California, Massachusetts (USA), Australia, Canada, Albania, Brazil and Turkey concerning the production and flow of different kinds of production. The products subject to this type of control include:  tobacco, alcoholic beverages, medications and, in some cases, non-alcoholic beverages as well (Link 1, Link 2). According to the Georgian legislation, the taxation regime for non-alcoholic beverages is not different from the taxation regimes for other non-excise goods (construction materials, meat products, confectionery, canned products and so on) and cannot be deemed as a field with a high risk for tax dodging. Hence, it is unclear why this segment of goods ended up in the category of products under special control. In addition, it should be pointed out that this decision puts part of the burden of tax administration upon the manufacturer. Naturally, without having the financial data of specific companies it would be impossible to assess what kind of influence these changes will have upon production prices. The labelling fee for mineral water and still water varies from 1.2 to 1.4 tetri

per unit. Hence, if manufacturers are forced to pay the labelling fee, we cannot exclude that their production will become slightly more expensive.

Conclusion

The legislative changes that made the labelling of non-alcoholic beverages obligatory were adopted in 2012 and enacted on 1 November 2015. According to the legislation, paying the fees for labelling services remains the manufacturer’s responsibility with the Revenue Service tasked with paying the fees only until 1 January 2016. Hence, the tax administration burden will be transferred to businesses in the future.

At this point, given the information available to us, it is impossible to determine the influence of these changes upon the prices of products; however, if manufacturers are forced to pay for the labelling services, a slight increase in prices is possible.

FactCheck concludes that Nodar Khaduri’s statement is MOSTLY FALSE.