World News

Russia considers doubling minimum vodka price

MOSCOW (Reuters) - Russia is considering doubling the minimum price of vodka to 200 roubles ($6.30) by 2013, a deputy finance minister said Wednesday, a move which could boost budget revenues and may help fight alcohol abuse.

A Russian paratrooper kisses an unidentified woman after toasting with vodka in Moscow's Gorky park August 2, 2000. REUTERS/Alexander Natruskin

President Dmitry Medvedev last year ordered tough measures to curb alcohol abuse in a country where the average Russian drinks 18 liters (38 pints) of pure alcohol each year.

In January, Russia raised taxes on beer and introduced a minimum vodka price of 89 roubles per half liter, effectively doubling the cost of the cheapest bottle.

Now the Finance Ministry has proposed increasing the minimum price to 120 roubles in 2011, 160 roubles in 2012 and 200 roubles in 2013, local news agencies quoted deputy minister Sergei Shatalov as saying Wednesday.

“Vodka should not be cheap, it is not a product of first necessity,” Shatalov said, according to Itar-Tass.

The extra cash would be useful as the government faces years of budget deficits after Russia weathered its worst recession in 15 years in 2009.

However, analysts at VTB Capital were skeptical about the proposal’s effectiveness and its chances to become reality.

“In our view, there is little threat for vodka producers of consumption declining since market consolidation would accelerate: minor regional players, which just about break even, would go out of business leaving a handful of strong and profitable companies,” they said.

“However, we believe that any sharp increase in the spirits tax would most probably result in a dramatic increase in the production of illegal alcohol and tax collections would fall.”

The proposal could face a tough slog to secure approval from the government and parliament, given the strength of Russia’s alcohol producers’ lobbying power, VTB Capital said.

With elections looming in 2011-2, that may increase the reluctance to adopt the potentially unpopular measure.

Shatalov also said that excise duty on cigarettes could be increased by 30 percent a year over the next three years.

Reporting by Toni Vorobyova; Editing by Susan Fenton