Business opposes the introduction of the approach to bottle accounting for alcohol similar to the Russian one

12/ 01/ 2023

Today, on January 12, the Verkhovna Rada adopted in the first reading a range of draft laws that can significantly change the regulation of the alcohol and tobacco markets. These are draft laws No. 8286 and 8287 on ensuring electronic traceability of alcoholic beverages and tobacco products, liquids used in electronic cigarettes. The EBA Wine and Spirits Committee experts consistently do not support the introduction of any tools aimed at accounting for each individual bottle of alcoholic beverage at all stages of the goods movement. This position of the business is based on the peculiarities of the imported alcoholic beverages market, because companies work with batches of goods, not individual bottles. Therefore, tracking each bottle in the supply chain will require significant additional resources – both human and financial ones. This approach to accounting is also not fully justified, given the current system of advance payment of excise tax on excisable goods in Ukraine. Besides, business is convinced that the Ukrainian electronic system of control over the sales of excisable goods should be guided by the practices implemented in the European Excise Movement and Control System, and not borrow elements and approaches of the Russian Unified State Automated Information System, which by its nature is extremely burdensome in financial, operational, and technical terms. Additionally, bottle accounting will require the re-equipment of technical facilities at the companies. According to preliminary calculations of the respective EBA Committee members, additional minimum costs for importers of alcoholic beverages from the introduction of bottle accounting will be from 3 to 4 UAH per bottle, which in terms of annual costs for the EBA companies alone will amount to about 260 million UAH. Besides, warehouse costs will potentially increase by 8 times, as well as the time of receiving goods by 60 times. According to business estimates, the cost of upgrading the software necessary for the transition of the warehouse to work with bottles will amount to hundreds of thousands of dollars for one company. In addition, a significant financial burden is also projected for retailers. Thus, the proposed amendments will create a significant financial, operational and logistical burden on legal market operators at a time when companies are already suffering from the consequences of the war in Ukraine and are trying to ensure uninterrupted operation in the absence of electricity supply, reduced consumer demand, lack of staff. The requirements of bottle accounting may lead to an increase in the cost of products and, as a result, to a decrease in the turnover of such companies and their tax payments to the budget. In addition, the increase in prices for products of legal market operators, in fact, will only increase the gap between the price of legal and illegal products, which will facilitate the sales of illegal alcohol in Ukraine. In the long term, business supports the idea of abolishing excise tax stamps for alcoholic beverages as they are now, as well as simplifying or transferring reporting on excise tax stamps to electronic form. However, the current initiative, set out in draft laws No. 8286 and 8287, needs to be thoroughly revised to harmonize it with the EU policy on counteracting and combating fraud of excisable goods. In the current version, these draft laws do not consider the interests of business in the fight against illegal alcohol products, but only create an unreasonable significant financial and operational burden on legal operators of the alcoholic beverage market, as well as excessive regulation of the circulation of excisable goods by regulatory authorities, which creates additional risks for abuse of powers. Therefore, the European Business Association appeals to the authors of the draft laws to involve representatives of the alcoholic beverage market in the finalization of the relevant draft laws in order to develop and implement an effective mechanism that would contribute to solving current problems in the market and not create unreasonable burdens and difficulties for producers and importers of alcoholic beverages.

The EBA Wine and Spirits Committee experts consistently do not support the introduction of any tools aimed at accounting for each individual bottle of alcoholic beverage at all stages of the goods movement. This position of the business is based on the peculiarities of the imported alcoholic beverages market, because companies work with batches of goods, not individual bottles. Therefore, tracking each bottle in the supply chain will require significant additional resources – both human and financial ones.

This approach to accounting is also not fully justified, given the current system of advance payment of excise tax on excisable goods in Ukraine.

Besides, business is convinced that the Ukrainian electronic system of control over the sales of excisable goods should be guided by the practices implemented in the European Excise Movement and Control System, and not borrow elements and approaches of the Russian Unified State Automated Information System, which by its nature is extremely burdensome in financial, operational, and technical terms.

Additionally, bottle accounting will require the re-equipment of technical facilities at the companies. According to preliminary calculations of the respective EBA Committee members, additional minimum costs for importers of alcoholic beverages from the introduction of bottle accounting will be from 3 to 4 UAH per bottle, which in terms of annual costs for the EBA companies alone will amount to about 260 million UAH.

Besides, warehouse costs will potentially increase by 8 times, as well as the time of receiving goods by 60 times. According to business estimates, the cost of upgrading the software necessary for the transition of the warehouse to work with bottles will amount to hundreds of thousands of dollars for one company. In addition, a significant financial burden is also projected for retailers.

Thus, the proposed amendments will create a significant financial, operational and logistical burden on legal market operators at a time when companies are already suffering from the consequences of the war in Ukraine and are trying to ensure uninterrupted operation in the absence of electricity supply, reduced consumer demand, lack of staff.

The requirements of bottle accounting may lead to an increase in the cost of products and, as a result, to a decrease in the turnover of such companies and their tax payments to the budget. In addition, the increase in prices for products of legal market operators, in fact, will only increase the gap between the price of legal and illegal products, which will facilitate the sales of illegal alcohol in Ukraine.

In the long term, business supports the idea of abolishing excise tax stamps for alcoholic beverages as they are now, as well as simplifying or transferring reporting on excise tax stamps to electronic form. However, the current initiative, set out in draft laws No. 8286 and 8287, needs to be thoroughly revised to harmonize it with the EU policy on counteracting and combating fraud of excisable goods. In the current version, these draft laws do not consider the interests of business in the fight against illegal alcohol products, but only create an unreasonable significant financial and operational burden on legal operators of the alcoholic beverage market, as well as excessive regulation of the circulation of excisable goods by regulatory authorities, which creates additional risks for abuse of powers.

Therefore, the European Business Association appeals to the authors of the draft laws to involve representatives of the alcoholic beverage market in the finalization of the relevant draft laws in order to develop and implement an effective mechanism that would contribute to solving current problems in the market and not create unreasonable burdens and difficulties for producers and importers of alcoholic beverages.