Yerevan/Mediamax/. There is practically no illegal turnover of cigarettes in Armenia, Director of Corporate Issues and Communications of Japan Tobacco International (JTI) Export Markets Alexander Avazashbili stated.

Mediamax reports that, presenting the activity of the company in the markets of the South Caucasus during the press tour of Armenian and Georgian journalists in the head office of JTI in Geneva, Alexander Avazashvili stated that this is mainly conditioned by the level of taxation of tobacco production and competent price policy in Armenia and Georgia, which is comparable with neighboring counties (aiming at ruling out mutual contraband flows of cigarettes).

Alexander Avazashvili welcomed the decision of the Armenian government and the corresponding legislative changes on gradual balancing of tobacco production taxation for the local and foreign products, at that noting that the conditions of the free trade agreement with Ukraine continue to be violated from the part of Armenia.

Besides, Avazashvili stated that thoughtless increase of excise tax rates can increase the risks of transborder purchases and contraband.

Alexander Avazashvili brought the Georgian example, where after increase of the excise tax 2.5 times since January 1, 2005, illegal turnover made 65% of the aggregate volumes of cigarettes’ sales in the territory of the country.

 “They managed to regulate the situation due to an efficient dialogue between the government and the industry, after which the excise was lowered, and as of today the volume of illegally sold cigarette production in the Georgian market makes 1-2%”, Alexander Avazashvili stated.

He noted that a dialogue of cigarettes’ producers and, in particular, JTI has been established also with the government of Armenia, “which is a very important circumstance for the company”. “It is important for JTI to have the chance to express its opinion concerning regulative issues, the legislative process and the quality of the legislation”, Alexander Avazashvili stated.

As one of the most vulnerable points in the Armenian legislation and the legislation of other CIS countries as to regulation of tobacco production turnover, Alexander Avazashvili noted the absence of a limit for unregulated export of cigarettes from the country, which creates risks of illegal transborder flows, which may become worse if the Armenian-Turkish border is opened. “The matter is that in Turkey the prices for cigarettes are three times higher than in Armenia and as a result of the opening of the border, contraband of cigarettes from Armenia to Turkey is likely to happen”, Alexander Avazashvili stated, noting that illegal flow of cigarettes to Turkey was already observed in the second half of last year from neighboring Georgia.

JTI Tax Analysis and Modeling Manager Aktolkin Kurmanbayeva said that close cooperation between the government and the industry in exchange of information and leading experience in the sphere of tobacco taxation is necessary for struggle against illegal tobacco trade. “A key condition for successful tobacco taxation policy is the limitation of stimuli for contraband, which leads to loss of the state’s incomes, hinders achievement of healthcare goals and the activity of legal producers and retail trade”, Aktolkin Kurmanbayeva stated.

According to her, in conditions of continuation of excise rates’ growth, the governments of the countries should implement a system of three-year planning and long-term strategic planning of taxation; keep the tax rate at a balanced level with the solvency of the consumers for the demand of illegal production to be minimized; carry out register of rates in neighboring countries and inside free trade zones aiming at ruling out stimuli for transborder purchases and contraband; as well as simplify the administration in order to minimize bureaucratic barriers and expenses for observation of tax requirements.