On 5 February 2015, on air on the Maestro channel, the Director of Corporate Issues at the Natakhtari Company, Nikoloz Khundzakishvili, elaborated upon the increase of excise tax on beer in Georgia alongside the related current practices in the European Union. He believes that the Association Agreement with the European Union does not require Georgia to increase excise tax on beer. FactCheck took interest in whether or not the Association Agreement requires the increase of excise tax on beer in Georgia. A law initiated by the Ministry of Finance of Georgia and requiring the increase of excise tax on tobacco products, malt beer, spirits and other alcoholic beverages was enacted on 1 January 2015. The excise tax on tobacco has already increased since 1 January (FactCheck wrote about the issue earlier as well) whilst the regulation on malt beer, spirits and other alcoholic beverages will be enacted on 1 March 2015. Before the changes to the Tax Code of Georgia, excise tax on beer was 40 tetri per litre. It should be pointed out that according to the previous version of the bill, excise tax on malt beer and other alcoholic beverages was to be doubled. However, the Ministry of Finance of Georgia later increased excise tax by only 50%. Hence, the amount of excise tax on one litre of beer will be 60 tetri after 1 March 2015. The bill’s explanatory note states that one of the aims of the bill is the harmonisation with European Union standards. Annex 22 of the Association Agreement with the European Union provides for the gradual and non-urgent harmonisation of EU and Georgian taxation policies. According to the Association Agreement, the harmonisation of systems of excise tax and rates on alcoholic beverages must be based upon the 19 October 1992 Directive No. 83 of the European Council. The European Union allocates three years after the enactment of the Association Agreement in order to harmonise the legislation. In addition, the EU allows the Government of Georgia to remove the excise tax obligations imposed by the Association Agreement upon individuals producing alcohol in small quantities as well as for personal use. The 1992 Directive 92/83/EEC on the harmonisation of the structures of excise tax on alcohol and alcoholic beverages:

• Determines the different categories of alcoholic beverages (beer, wine, fermented drinks apart from beer and wine, by-products and ethyl alcohol)
• Determines the structure of the calculation of the excise tax
• Provides for low taxes for small breweries, small distilling factories and certain types of beverages
• Introduces special provisions for certain Spanish regions
• Provides an exception for "black" beer and Angostura in the United Kingdom
• Provides special exceptions for alcohol which is not used for drinking

Directive 92/84/EEC of the European Council on the harmonisation of excise tax on alcohol and alcoholic beverages determined the excise tax rate on malt beer in the following manner: for beer – EUR 0.748 Plato^[1] hectolitre^[2] and EUR 1.87 on alcohol quality hectolitre. The amount of excise tax on malt beer on the market of the European Union is regulated by the aforementioned two Directives. Hence, the amount of excise tax on standard beer is about EUR 7.4 per 100 litres. It should be noted that the directive enables the member states of the European Union to decrease excise tax based upon their needs but not by more than 50% of the imposed minimum. For comparison, the amount of excise tax per litre of beer by current regulations in Georgia is 40 tetri which is GEL 40 per 100 litres and is about two times more than that in the European Union. The amount of excise tax per 100 litres of beer will reach GEL 60 after 1 March 2015. As we can see, the regulation of the European Union does not require Georgia to increase the amount of excise tax. Furthermore, in certain cases (including the case of Georgia) the regulation provides for the possibility of an excise tax rate decrease. During our study we also contacted Nikoloz Khundzakishvili at the Natakhtari Company. According to him, the bill was created without any consultations with production companies and negotiations took place only after its presentation. In spite of the subsequent negotiations, however, the Ministry of Finance of Georgia did not take into account a single proposition made by the companies. Mr Khundzakishvili believes that the growth of excise tax on beer will seriously hurt local companies and even reduce the demand on beer. The growth of excise tax will also cause the VAT to increase. He also stated a decrease in the size of the beer market may be among the possible risks. In addition, beer’s export potential, which was created after signing the Deep and Comprehensive Free Trade Agreement with the European Union and abolishing import tax, will be significantly decreased. Mr Khundzakishvili further commented that the overall value of Georgia’s beer market grew from GEL 70 million to GEL 100 million in the period from 2006 to 2009. The previous government increased excise tax from 20 tetri to 40 tetri in 2010 which caused the beer market to shrink by 12% in 2010 and 2011. However, it grew again to GEL 100 million after 2011. He believes that a further increase in excise tax on beer will seriously damage the perspectives for developing the beer market as Georgian beer consumption consists of 97% local production. He added that the government can still limit the damage inflicted by the increase in excise tax and cover the expenses of excise stamps as well as start negotiating with Azerbaijan on fully enacting the 1996 free trade agreement which will significantly reduce the import tax on Georgian beer.   Conclusion The Association Agreement between Georgia and the European Union does, indeed, include the harmonisation of legislation in the field of taxation; however, it designates a reasonable period from three to five years for the full harmonisation. The Association Agreement also obligates Georgia to harmonise the structures of excise tax on alcohol and alcoholic beverages; however, again not immediately, but in three years after the enactment of the agreement. None of the directives of the European Council requires Georgia to increase excise tax on beer as the current excise tax on beer in Georgia is already two times more than it is in the European Union. Hence, the agreement does not require Georgia to increase excise tax on beer but, based upon the Directive of the European Council, harmonise the structure of excise tax on alcohol and alcoholic beverages with that of the European Union. FactCheck concludes that Nikoloz Khundzakishvili’s statement: "The Association Agreement with the European Union does not require Georgia to increase excise tax on beer," is TRUE.