According to the new budget, the cost of a yearly license for selling alcoholic beverages and tobacco products has increased 2 to 5 times. Licenses for manufacturing these goods are now 5 to 62.5 times more expensive, but the excise tax has grown only slightly, by 5-7%.
The director of the National Trade and Service Development Association, Andriy Blyzniuk, predicts that food prices in Ukraine will increase by 4-5% as of May 1. The government wants to control places where alcoholic beverages are sold. To achieve this, it has decided to increase the license fee for the alcohol retail trade from 4,000 to 8,000 hryvnias. In addition, the budget law for 2005 requires that such licenses must be purchased for every cash register, not just one for the whole shop, as in the past.
This decision will especially hurt supermarkets that have 10 to 30 cash registers. Each supermarket will now be paying for a liquor license that is 20 to 60 times more expensive than before.
According to A. Blyzniuk, the government chose the wrong tack from the very beginning: supermarket chains are easier to control; they pay high taxes and are potentially reliable partners in the government’s fight against the adulteration of alcohol.
The director of development of the Velyka Kyshenya supermarket chain, Roman Shteinas, notes that the government is forcing supermarket owners to choose between paying for all licenses and then increasing their prices for all food products or destroying the very idea of a self-service store and setting up a separate cash register for alcoholic beverages. The latter option is unattractive for storeowners because it would involve reconstructing trading halls and would worsen the quality of service. The only way to resolve the problems that are being created by the government is to hit customers in the wallet, which will promote inflation. Not everybody is happy with this choice. For example, financial director of the Billa-Ukraina Company Ruslan Lavrynenko claims that his company is not going to increase prices or negotiate with liquor suppliers. But such examples are rare.
A likelier scenario is that the country should be prepared for an increase in food prices. This can be avoided only in the event that the government changes its decision by the end of April. To achieve this, Ukrainian retail trading chains have written to the president, the prime minister, and the parliamentary speaker, asking them to review the licensing rules governing alcoholic beverages. They want to make liquor excisable, i.e., shift taxation from the point of sale to the manufacturing or importation site. Otherwise pensioners, who buy milk and cereals, will also be obliged by the government to pay partly for vodka and wine that they cannot afford for themselves. In addition, the increase in the cost of licenses and the need to license each cash register will lead to the growth of the shadow alcohol market, which Blyzniuk estimates may soon occupy 40% of the whole market. This will lead to a situation similar to the one that existed in the USSR during “prohibition,” when many people, mostly in rural areas, began making moonshine.
According to the president of the Lviv Region Employers’ Association, Zinoviy Bermes, many small businessmen, who survive only by selling vodka, will be forced out of the market. Instead of creating millions of workplaces, the food service industry will lose about 90% of small and medium businesses.
Professor Oleksiy Plotnykov of the Institute of World Economics and International Relations at the Ukrainian Academy of Sciences disagrees: “These changes cannot be perceived as an attack against alcohol traders. It is only an additional possibility for the government to increase budgetary revenues. I can see it only this way. A lot of things are being done in the country at this moment only to fill the budget and implement social programs. The government cannot ignore the upcoming elections. However, I haven’t ruled out the possibility that many small traders’ businesses will become unprofitable and they will disappear from the market, leaving the liquor trade to major operators.”
