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Business warns against the idea of withdrawing old-style excise stamps from circulation

31/ 01/ 2024
  As it became known to the business, on January 29, a meeting of the working group under the Verkhovna Rada Committee on Finance, Taxation, and Customs Policy discussed a proposal to amend the draft Law No. 9662, which would oblige manufacturers and importers of excisable goods to withdraw old excise tax stamps from circulation. The EBA experts note that due to this requirement, legal producers, importers, and retailers will suffer significant losses, and this will not affect the fight against counterfeit excise stamps. According to preliminary estimates, business losses could reach tens of billions of hryvnias. The current legislation stipulates that in case of a change in the design of excise tax stamps, the stamps of the previous design that have already been purchased are used in the production of alcoholic beverages and tobacco products until they are fully used, and the products labeled with them are in circulation until they are fully sold within the shelf life. Therefore, businesses rely on this provision when putting excisable products into circulation, which ensures the predictability of their business activities. The requirement to withdraw old-style excise stamps will cause unjustified losses to market participants due to the loss of products since the proposal to withdraw the stamps does not provide for reimbursement by the state of the costs incurred by businesses for the manufacture and sale of excisable goods. In particular, companies may face the following difficulties. First, producers and importers of legally produced, high-quality products on which all taxes have been paid will be forced to return and destroy them, as it is impossible to re-label them with new stamps for technological reasons. Each stamp is glued in such a way that it cannot be removed without damaging the packaging, and foreign-made products are generally labeled exclusively by foreign companies abroad. In addition, the products withdrawn from retail sales are not recyclable in practice, as their storage conditions are not controlled by the manufacturers. Secondly, not all products that are in the retail sale can be returned due to excessive logistics costs. Thirdly, the warehouse space of legal market operators is not designed to return such a volume of excisable products, and they do not have sufficient technical and human resources to ensure prompt acceptance and transfer for disposal of such a quantity of goods in such a short time. At the same time, such steps are unlikely to affect the volume of illegal production and trade in products with counterfeit excise stamps. According to the business, shadow market players have had access to the new stamps since September 2023 and are currently setting up the production of counterfeit stamps. According to the EBA experts, this initiative will not stop the circulation of manufactured products labeled with counterfeit excise stamps. Counterfeit goods may continue to be sold illegally in dubious retail outlets and online. Moreover, there is a possibility of shortages of certain goods during the transition period, which will be covered by the supply of illegal trade. Given this, the European Business Association categorically does not support any initiatives or proposals to withdraw from circulation the old-style excise tax stamps received by manufacturers and importers of excisable goods, including those that have already been used to mark excisable goods. The EBA appeals to the Chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, Danylo Hetmantsev, to propose to the Committee to reject this amendment to the draft Law No. 9662. We hope the Committee will pay attention to the business concerns on this issue!

As it became known to the business, on January 29, a meeting of the working group under the Verkhovna Rada Committee on Finance, Taxation, and Customs Policy discussed a proposal to amend the draft Law No. 9662, which would oblige manufacturers and importers of excisable goods to withdraw old excise tax stamps from circulation.

The EBA experts note that due to this requirement, legal producers, importers, and retailers will suffer significant losses, and this will not affect the fight against counterfeit excise stamps. According to preliminary estimates, business losses could reach tens of billions of hryvnias.

The current legislation stipulates that in case of a change in the design of excise tax stamps, the stamps of the previous design that have already been purchased are used in the production of alcoholic beverages and tobacco products until they are fully used, and the products labeled with them are in circulation until they are fully sold within the shelf life. Therefore, businesses rely on this provision when putting excisable products into circulation, which ensures the predictability of their business activities.

The requirement to withdraw old-style excise stamps will cause unjustified losses to market participants due to the loss of products since the proposal to withdraw the stamps does not provide for reimbursement by the state of the costs incurred by businesses for the manufacture and sale of excisable goods. In particular, companies may face the following difficulties.

First, producers and importers of legally produced, high-quality products on which all taxes have been paid will be forced to return and destroy them, as it is impossible to re-label them with new stamps for technological reasons. Each stamp is glued in such a way that it cannot be removed without damaging the packaging, and foreign-made products are generally labeled exclusively by foreign companies abroad. In addition, the products withdrawn from retail sales are not recyclable in practice, as their storage conditions are not controlled by the manufacturers.

Secondly, not all products that are in the retail sale can be returned due to excessive logistics costs.

Thirdly, the warehouse space of legal market operators is not designed to return such a volume of excisable products, and they do not have sufficient technical and human resources to ensure prompt acceptance and transfer for disposal of such a quantity of goods in such a short time.

At the same time, such steps are unlikely to affect the volume of illegal production and trade in products with counterfeit excise stamps. According to the business, shadow market players have had access to the new stamps since September 2023 and are currently setting up the production of counterfeit stamps.

According to the EBA experts, this initiative will not stop the circulation of manufactured products labeled with counterfeit excise stamps. Counterfeit goods may continue to be sold illegally in dubious retail outlets and online. Moreover, there is a possibility of shortages of certain goods during the transition period, which will be covered by the supply of illegal trade.

Given this, the European Business Association categorically does not support any initiatives or proposals to withdraw from circulation the old-style excise tax stamps received by manufacturers and importers of excisable goods, including those that have already been used to mark excisable goods. The EBA appeals to the Chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, Danylo Hetmantsev, to propose to the Committee to reject this amendment to the draft Law No. 9662.

We hope the Committee will pay attention to the business concerns on this issue!

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