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Beluga Vodka Maker Synergy Sees Respite as Russia Halts Tax Hike

June 9 (Bloomberg) -- Synergy Group, the Russian producer of Beluga vodka, said a government decision to halt a proposed increase in alcohol excise tax will provide some respite for the industry in the wake of a surge in illegal production.

“Freezing the tax will help to stabilize the market,” Synergy spokesman Prokhor Malyutin said by phone. While excise taxes in Russia are close to the same level as the rest of Europe, purchasing power is “substantially lower,” he said.

Russia had planned to increase the tax by 20 percent next year to 600 rubles ($17.47) per liter of ethyl alcohol, after doubling the levy since 2012 in an effort to boost government revenue and fight excessive drinking.

The rising tax has led to an increase in illegally produced and imported alcohol, which now accounts for about half of the country’s sales compared with about 25 percent in 2012, according to Russia’s Alcohol Producers Union.

Synergy was among producers that had lobbied for a reduction in the tax. The distiller’s shares fell 7.8 percent to 545 rubles in Moscow today.

“Investors realize that the Russian alcohol market is set to decline this year, and freezing the tax doesn’t largely improve the sentiment,” said Ksenia Arutyunova, an analyst at Rye, Man & Gor Securities. “Russia banned smoking in restaurants and public places from June, which also signals that the government is serious about fighting bad habits.”

Synergy shipments fell 9 percent in the first quarter, while the Russian alcohol market contracted by 17 percent, the Moscow-based company said in April.

To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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