Russian Smoking Ban Takes Effect Amid Dispute Over Higher Taxes

A Russian anti-smoking law that came into force two days ago needs to be supported by a higher tax on tobacco in order to “radically” reduce smoking, a top government official said.

The law bans smoking in public areas including workplaces, stairwells of apartment buildings and near schools and hospitals. It also sets minimum prices for cigarettes and allows for higher tobacco taxes.

“The health ministry will be pushing for faster excise-tax growth,” Deputy Prime Minister Olga Golodets said in an e-mailed answer to questions from Bloomberg. “Our goal is a radical reduction of smoking. That could be reached by economic measures.”

Russia is the world’s second-largest market for cigarette makers after China. Almost 40 percent of Russians are regular smokers, according to the World Health Organization. About 400,000 Russians, or 0.3 percent of the population, die each year from smoking-related diseases, Prime Minister Dmitry Medvedev said in October.

The Health Ministry proposed raising the tax to 4,000 rubles ($125) per 1,000 cigarettes by the end of 2015, from 510 rubles, according to a letter dated Sept. 22 from Health Minister Veronika Skvortsova to Golodets obtained by Bloomberg News.

The Government approved a Finance Ministry proposal last week with a tax as high as 1,250 rubles in 2015.

Cigarette prices in Belarus and Kazakhstan are 30 percent lower than in Russia and illicit imports will cost the Russian budget 4.6 billion rubles in lost revenue in 2015, according to Alexander Lioutyi, corporate affairs director at BAT Russia.

Philip Morris International Inc. (PM), British American Tobacco Plc (BATS), Japan Tobacco Inc. (2914) and Imperial Tobacco Group Plc (IMT) control 93 percent of the $19.5 billion Russian market.

‘Key Change’

The ban on public smoking will be extended to restaurants and hotels and train stations from June 1, 2014, and sales will be banned in street kiosks small enough for clients to enter.

“It’s too early to evaluate how the law will influence the market,” Lioutyi said by e-mail. “We will follow every part of it, although we have our doubts as to the effectiveness of some of the measures.”

Russia’s police cannot yet issue tickets for violations of the law now as amendments setting fines for public smoking aren’t due to be approved by lawmakers until next month, Oleg Kulikov, a member of the Communist Party and deputy head of parliament’s health committee, said by phone from Moscow today.

The Health Ministry says smoking levels may be cut in half as a result of the anti-tobacco law and tax increases for cigarettes in Russia, where a pack of Marlboros sells for about $2.

To contact the reporter on this story: Stepan Kravchenko in Moscow at skravchenko@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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