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Law on excisable goods: many business proposals have been taken into account, but some have been overlooked

05/ 07/ 2024
  On June 18, the Verkhovna Rada adopted Draft Law No. 10346 On State Regulation of the Production and Circulation of Ethyl Alcohol, Alcohol Distillates, Bioethanol, Alcoholic Beverages, Tobacco Products, Tobacco Raw Materials, Liquids Used in Electronic Cigarettes, and Fuel. It is worth noting that from the very beginning of the development of this document, experts from the European Business Association were involved in this process, had the opportunity to provide proposals and comments on the text. Thus, a large part of what the community proposed was included in the text of the final adopted document. In particular, these are the following norms: simplification of the procedure for obtaining licenses, transition to electronic licenses, introduction of indefinite licenses; digitalization of the process of registration of storage places; cancellation of the right of local authorities to set restrictions on the time of sale of low-alcohol and alcoholic beverages; introduction of a mechanism for blocking websites through which illegal trade in excisable goods is carried out (however, this mechanism needs to be improved in order to prevent abuse by regulatory authorities and ensure guarantees for the restoration of violated rights of business entities); creation of prerequisites for combating illegal production and trade of tobacco products. The EBA welcomes these norms and is grateful to the relevant Verkhovna Rada Committee on Finance, Tax and Customs Policy for taking into account some of the business proposals in the draft law, as these ideas are really important and innovative for the industry. At the same time, some proposals were not taken into account. In particular, businesses are concerned about certain provisions of the document, in particular, the grounds for revoking a license. Companies are concerned that the inclusion of such grounds as the sale of alcohol by a licensee with a damaged or missing excise stamp even on 1 bottle, the establishment by the regulatory authorities of the fact that the licensee is absent from the location, and not allowing them to be inspected, can potentially be used to pressure legal market operators. It should be noted that the presence of 45 grounds for termination of a license in the law is already a risk factor and gives tax authorities quite broad powers, and in combination with the norms regarding the proposed mechanism for appealing decisions to terminate a license (more precisely, the absence of such a mechanism), timely restoration of the violated right and avoiding multimillion-dollar losses for business entities, in fact, does not seem possible. In the opinion of the business, this can become a tool for excessive pressure from the state and give tax authorities excessively broad powers without providing guarantees to protect market participants from abuse of such powers, since appealing the actions of tax authorities to the court does not stop their decision to revoke the license and leads to excessive costs for enterprises. In addition, the business has a number of concerns about the innovations in connection with the functions and implementation of tasks by the representative of the regulatory authority at the checkpoint at the production of tobacco raw materials, tobacco products and liquids used in electronic cigarettes. In particular, the provisions of Art. 20 of the Law introduces the implementation of control by a representative of the regulatory authority for the receipt of tobacco raw materials, its release, storage, processing, compliance with consumption norms; accounting, storage and use of excise stamps and product labeling; receipt of raw materials; compilation of electronic documents in the Electronic system; and other tasks proposed in this article. At the same time, the absence of clearly defined powers and actions of the representative of the regulatory authority by the Law may have a negative impact on direct production processes and creates conditions for abuse of power by the representative of the regulatory authority. Interference in established production processes will lead to unplanned production stoppages, a decrease in the volume of finished products and, accordingly, tax revenues. From the very beginning, the EBAs experts warned about possible abuses when including such norms in the draft law (especially in the context of the fact that the corporate culture of tax authorities has not yet undergone changes). Nevertheless, the norms were reflected in the adopted document, so the community will keep abreast of the work of the regulatory authorities in this context and will inform in case of abuse.

On June 18, the Verkhovna Rada adopted Draft Law No. 10346 “On State Regulation of the Production and Circulation of Ethyl Alcohol, Alcohol Distillates, Bioethanol, Alcoholic Beverages, Tobacco Products, Tobacco Raw Materials, Liquids Used in Electronic Cigarettes, and Fuel.”

It is worth noting that from the very beginning of the development of this document, experts from the European Business Association were involved in this process, had the opportunity to provide proposals and comments on the text.

Thus, a large part of what the community proposed was included in the text of the final adopted document. In particular, these are the following norms:

  • simplification of the procedure for obtaining licenses, transition to electronic licenses, introduction of indefinite licenses;
  • digitalization of the process of registration of storage places;
  • cancellation of the right of local authorities to set restrictions on the time of sale of low-alcohol and alcoholic beverages;
  • introduction of a mechanism for blocking websites through which illegal trade in excisable goods is carried out (however, this mechanism needs to be improved in order to prevent abuse by regulatory authorities and ensure guarantees for the restoration of violated rights of business entities);
  • creation of prerequisites for combating illegal production and trade of tobacco products.

The EBA welcomes these norms and is grateful to the relevant Verkhovna Rada Committee on Finance, Tax and Customs Policy for taking into account some of the business proposals in the draft law, as these ideas are really important and innovative for the industry.

At the same time, some proposals were not taken into account.

In particular, businesses are concerned about certain provisions of the document, in particular, the grounds for revoking a license. Companies are concerned that the inclusion of such grounds as the sale of alcohol by a licensee with a damaged or missing excise stamp even on 1 bottle, the establishment by the regulatory authorities of the fact that the licensee is absent from the location, and not allowing them to be inspected, can potentially be used to pressure legal market operators.

It should be noted that the presence of 45 grounds for termination of a license in the law is already a risk factor and gives tax authorities quite broad powers, and in combination with the norms regarding the proposed mechanism for appealing decisions to terminate a license (more precisely, the absence of such a mechanism), timely restoration of the violated right and avoiding multimillion-dollar losses for business entities, in fact, does not seem possible. In the opinion of the business, this can become a tool for excessive pressure from the state and give tax authorities excessively broad powers without providing guarantees to protect market participants from abuse of such powers, since appealing the actions of tax authorities to the court does not stop their decision to revoke the license and leads to excessive costs for enterprises.

In addition, the business has a number of concerns about the innovations in connection with the functions and implementation of tasks by the representative of the regulatory authority at the checkpoint at the production of tobacco raw materials, tobacco products and liquids used in electronic cigarettes. In particular, the provisions of Art. 20 of the Law introduces the implementation of control by a representative of the regulatory authority for the receipt of tobacco raw materials, its release, storage, processing, compliance with consumption norms; accounting, storage and use of excise stamps and product labeling; receipt of raw materials; compilation of electronic documents in the Electronic system; and other tasks proposed in this article. At the same time, the absence of clearly defined powers and actions of the representative of the regulatory authority by the Law may have a negative impact on direct production processes and creates conditions for abuse of power by the representative of the regulatory authority. Interference in established production processes will lead to unplanned production stoppages, a decrease in the volume of finished products and, accordingly, tax revenues.

From the very beginning, the EBA’s experts warned about possible abuses when including such norms in the draft law (especially in the context of the fact that the corporate culture of tax authorities has not yet undergone changes). Nevertheless, the norms were reflected in the adopted document, so the community will keep abreast of the work of the regulatory authorities in this context and will inform in case of abuse.

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