Georgia Parliament Considers Halving Tobacco Consumption Tax Rate

According to a report from the Russian news agency Sputnik on March 6th, the Georgian parliament is considering reducing the consumption tax on tobacco products by half in order to stimulate the tobacco industry, increase competitiveness, and decrease the import of illegal tobacco.

According to the revised Taxation Law proposed by the parliament, this tax adjustment covers a wide range of tobacco products, including tobacco raw materials, tobacco waste, hookah tobacco, homogenized or reconstituted tobacco, chewing tobacco, or nasal snuff.

According to the revision, the consumption tax on tobacco products may be reduced from 60 lari to 30 lari (22.64 US dollars - 11.32 US dollars). The proponents of the revision come from the parliamentary majority, emphasizing that reducing the tax burden is a necessary means to stimulate industry development, increase competitiveness, and reduce illegal cigarette imports. The proposal notes that Georgia mainly grows tobacco in high mountain areas. According to data from 2020, only the Adjara region planted 140 hectares of tobacco with a yield of 314 tons, with approximately one thousand families dedicated to tobacco cultivation.

However, the tobacco industry's development also faces difficulties and challenges, including complex and high-cost processing technology, a lack of skilled talent and laboratories, and the increasing prevalence of smuggled tobacco. The price of smuggled cigarettes is equal to that of packaged tobacco, making the latter unable to compete in the market.

The revised proposal also points out that since the implementation of the 2019 amendment to the Tax Law, which equalized the excise tax prices for filtered and unfiltered cigarettes, the illegal tobacco imports have been increasing, leading to annual losses in tax revenue for the country's budget.

According to information provided by proponents of the revision, such as the reduction of the consumption tax, it is estimated that annual tax revenue will decrease by approximately 25 million lari (9.43 million USD). In Georgia, consumption taxes are required for the import of cigarettes and other tobacco products. During Georgia's anti-tobacco campaign, the consumption tax was raised, resulting in a large influx of untaxed cigarettes into Georgia, which were popular due to their low prices.

Since January 2017, Georgia has increased the consumption tax on each pack of filtered cigarettes by 0.6 lari, reaching 1.7 lari (approximately 0.6 US dollars). Two years later in 2019, the consumption tax on both filtered and unfiltered cigarettes reached the same level. The increase in tobacco product consumption tax is part of an agreement that Georgia signed with the European Union.

Originally, Georgia promised to achieve this goal by 2022, but the agreement has since extended the deadline to 2026. Due to an increase in consumption taxes, cigarette prices in Georgia have nearly doubled. In just 2019, prices rose twice, an average of 1 lari each time, while the average price of cigarettes is 5-10 lari.