On 12 December 2014, the Parliament of Georgia passed amendments to the Tax Code that defined the excise duty for 20 units of filtered or unfiltered cigarettes as follows: 90 Tetri per box of filtered cigarettes and 25 Tetri per box of unfiltered cigarettes plus 5% of the retail sales price of each type of product.
Correlation with the Applicable Law
According to Georgia’s Constitution, the introduction of any new tax or an increase in the rate for any tax, except for an excise duty, can only be made through a referendum and that referendum can only be initiated by the government. The same provision is provided by Georgia’s Economic Freedom law. Thus, the law restricts the power of the government and Parliament to introduce a new type of tax. In order to avoid conflict with these rules, optimal and lawful decisions have been made about applying an ad valorem tax to the existing excise duty on tobacco products.
Advantages of the Novelty
While planning the introduction of the new tax (which mainly provides for an increase in the excise duty on tobacco products), members of Parliament engaged in rather weighty arguments. According to the draft law’s explanatory notes, the planned amendments would have a substantial positive effect on the state’s budget, generating an increase in revenue of approximately GEL 110 million in 2015 as compared to 2014. The draft budget for 2015 showed that revenue would increase to GEL 208 million. In addition, the amendments aim to implement fair competition in the tobacco market, facilitate tax administration, strengthen tobacco control measures and harmonize Georgia’s taxation provisions with the EU laws.
Generally, an excise duty serves a fiscal purpose and a regulatory purpose. In Georgia, an excise duty is applicable to products that are harmful to a person’s health, such as tobacco products and alcoholic beverages. Thus, an excise duty aims to limit the consumption of those types of products. The Ministry of Finance of Georgia has stated: “In Georgia, tax rates are very low for tobacco products. Ten years ago Georgia undertook an obligation with the EU according to which an excise duty should, step-by-step, become more aligned with excise duties in Europe. Importantly, this helps insure that our excise duties are in synch with our neighbours in order to prevent smuggling”.
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