Tobacco Industry

Economics of Tobacco Taxation in Russia

Draft for Review

Nov 2007

Table of Contents

I. Introduction 6

II. Data and Methods 8

III. Demand for tobacco products and tobacco tax policy 10

a. Tobacco use prevalence and intensity, type of tobacco products consumed 10

b. Prices of cigarettes, their affordability, and price elasticity 16

c. Expenditures on tobacco products and costs of smoking 21

d. Tobacco tax level, tobacco tax structure and tax collection mechanism 24

IV. Supply of tobacco products and industry regulations 28

a. Production, import, export 28

b. Structure of the tobacco market 33

c. Tobacco tax revenue and its relative importance for the state budget 36

d. Regulations of the tobacco industry, political power and image of tobacco industry 38

V. Tobacco tax policy options and their impact 41

a. Impact on Consumption and Prevalence 42

b. Impact on Government revenue 43

VI. Other implications of tobacco tax policy 44

a. Smuggling and product substitution 44

b. Employment and poverty 45

c. Economic growth, trade and foreign exchange 46

VII. Discussion 48

VIII. Appendices 51

IX. References 55

Executive Summary

Russia has about 44 million smokers and one of the highest rates of male smoking prevalence in the world. More than 60% of adult males consume tobacco primarily in the form of cigarettes. Female smoking prevalence had traditionally been lower, but started to increase following the collapse of the Former Soviet Union. Just between 1992 and 2004, female smoking rates more than doubled from 6.9% to 15%. Youth smoking prevalence is also alarmingly high with 47% of young adult males and 36% of young adult females consuming cigarettes. There are very few quitters among the population, an indication of underdeveloped tobacco control measures. Tobacco related...