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Ukraine Plans to Triple Tax on Beer to Boost Budget Revenue

Ukraine plans to almost triple the excise tax on beer in a bid to boost annual budget revenue by as much as 1.7 billion hryvnia ($209 million).

The tax will rise to 2.43 hryvnia per liter from 0.87 hryvnia, according to a draft law published on the Revenue and Fees Ministry’s website today. The government is in talks with producers about increasing the tax and plans to submit the proposal to parliament this autumn, Revenue and Fees Minister Oleksandr Klymenko said June 7.

“As of today, in Ukraine, beer is not an alcoholic drink and that’s why its production and distribution are not subject to licensing,” the ministry said. “Lack of control of beer production and sales, which is accompanied by low taxes, led to low beer prices, while the price of water, milk or juice is much higher.”

Ukraine, which is in talks with the International Monetary Fund over a third bailout in four years, had a budget deficit of 5.1 percent of gross domestic product in the year through April, Dragon Capital said June 3.

Carlsberg A/S, Anadolu Efes Biracilik Malt Sanayi AS and Sun Interbrew Plc are among the biggest beermakers in the eastern European nation. Beer production fell 1.5 percent in Ukraine last year after a 1.3 percent drop in 2011, according to the country’s statistics office.

“This is a very strong blow for beer producers,” said Valentin Boinitsky, the head of corporate relations for Efes-Ukraine, in a phone interview. “We entered Ukraine as investor last year only and have either not reached the profitability levels or recovered our initial investments. We are now calculating what to do.”

Analysts anticipate that the tax increase may cause the beer market to contract by as much as 25 percent and lead to an overall decline in taxes paid by the industry, he said.

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