As More Countries Scramble To Fill Revenue Holes, Ukraine Plans To Triple Beer Tax

KIEV, Ukraine -- Hold on to your Carlsberg - it’s about to get a lot more expensive to drink a pint in the Ukraine.

As More Countries Scramble To Fill Revenue Holes, Ukraine Plans To Triple Beer Tax.

Ukraine, which is the largest country wholly in Europe, borders Russia and Poland.

At the turn of the 19th century, the country was poor and largely ignored by its bordering countries.

Conflicts within Europe following World War I consumed Ukraine and it was eventually swallowed up by the Soviet Union.

Ukraine remained a part of the Soviet Union for nearly 80 years; it won independence after the Soviet Union dissolved in 2001.

Unfortunately, Ukraine didn’t see an immediate economic benefit after the dissolution.

The country, which had held the distinction of the second largest economy in the Soviet Union, fell into a nearly decade-long recession.

After a short period of growth, the economy slowed in the second half of 2012 landing the country in another recession.

One sector of the economy that has managed to stay afloat is the beer industry: proceeds from beer sales of Ukrainian producers are about 5 times bigger than their Russian counterparts who turned out 3.3 times more products.

Internally, sales and imports are up, appealing statistics for beer producers.

The combination of imports, exports and increased sales also makes appealing statistics for tax purposes: in an effort to boost revenues, Ukraine plans to almost triple the excise tax on beer.

Ukraine, which is seeking a bailout from the International Monetary Fund (IMF) needs to demonstrate that it can increase revenues: increasing the tax on beer appears to their answer.

Today, the leading breweries in Ukraine include Carlsberg A/S (which now markets the centuries old regional brew, Lvivske), Obolon CJSC and Anheuser-Busch InBev (which does market local brews Chernihivske and Rohan, in addition to what you’d expect).

If you’re not familiar with Ukrainian beers, the most popular styles of beer in the country tend to be similar to Czech beers. Breweries and beer marketers clearly oppose the planned hike which will initially boost tax to 2.43 hryvnia ($.30 US) per liter; according to UkrPivo, that will boost the price of each bottle of beer by 3 hryvnia ($.37 US).

The number could grow even higher depending on the initial reaction to the tax.

Revenues from the tax are expected to hit 4 billion hryvnia ($494 million US).

Beer has traditionally not been taxed heavily in the country. It’s treated not so much like an alcoholic drink but like a soft drink.

They’re cheap to buy and can be purchased at kiosks.

Even more surprising?

While you have to be 18 to grab a vodka in Ukraine, there is no minimum age to buy beer.

Anti-drinking forces in the country believe that the lax laws and low taxes are contributing to alcoholism inside the country.

Tax increases could, they believe, slow that trend.

The worry is, of course, that the tax increase may cause the beer market to shrink.

Analysts have suggested the decrease could be as much as 10% to 25% which would result in an overall decline in taxes received.

That’s a real worry, of course.

Excise taxes, like those on alcohol, are sometimes referred to as luxury taxes or sin taxes, since the taxes are often on products that taxpayers don’t “need” in the conventional sense.

The choice to boost those taxes results in a dilemma.

In theory, the higher the tax, the less likely the taxpayer is to engage in the behavior.

But if the tax “works” – that is, the behavior that it’s intended to tax actually slows or is eliminated – the revenue stream potentially disappears.

Source: Forbes