Mongolian producers resist tax increase on local alcohol

There are plans in the draft of the 2005 state budget to double the excise tax on Mongolian-made vodka and to impose a new tax of US$0.20 per liter on locally produced beer. It is anticipated that the measures would increase the income for the state budget by Tg10.3billion.

Domestic producers of vodka and beer have viewed the proposals as reducing support for local industry, in favor of supporting imported products. Domestic producers and organizations such as the Food Association, APU, SAPU, Spirt Bal Buram, Chinggis, Old Czech and the Mongolian National Chamber of Commerce and Industry organized a press conference last week.

Zuunii Medee newspaper reported that it was said in the conference that domestic beer supplied 10 percent of domestic consumption in 2000 and this has now increased to 35 percent in 2004. 65 percent of the market is therefore still supplied by imports. They argued that it would be acceptable to increase the excise tax at a later date, once domestic products supplied 80-90 percent of local demand.

They also said that if excise tax on imported beer, not local beer, was raised to 35 percent, then Tg10.3 billion could still be raised for the state budget.The Ministry of Finance calculated that the proposal would reduce consumption of vodka and beer by 35 percent. Producers and organizations argued in their press conference that alcohol usage will not be reduced, but instead production and consumption of poor-quality alcohol products will increase.

Vodka made by around 170 small producers covers 50 percent of the vodka market, medium-sized producers cover 10 percent and APU and Spirt Bal Buram together cover 40 percent at present, according to research by the National Statistics Office. Joint research done by APU and Spirt Bal Buram claims that 80 percent of excise tax paid by vodka producers to the state comes from their two companies. They claim that small and medium producers only pay 20 percent of the total excise revenue due to lack of regulation in the industry. Their research is said to indicate that if excise duty were to double as proposed, the big two producers’ market share would slip to 20-30 percent.

They said that if the tax is increased, the price of their products in the shops would be Tg4,500-5,000. However they claimed that the price of small and medium producers’ products would not increase due to the lack of control over taxation, and that the number of people drinking lower-quality vodka will increase.They said that tax revenue will drop due to the number companies evading taxes.

They went on to say that tax revenue to the state could in fact drop by several billion togrog, and not rise as the government hopes. They argued that if the Ministry of Finance and the General Taxation Board were to improve control over taxation payments from small and medium producers, more than Tg10 billion could be collected for the state budget without the need to raise excise tax. In fact they claimed that revenue could be increased by Tg31.5 billion in this way.