Tax hike on alcohol to fill empty government coffers
Members of the Verkhovna Rada, the Ukraine’s parliament, approved up to Hr 6 billion (EUR 560 million) in tax hikes by raising excise rates on cigarettes, alcohol and diesel fuel. The tax hike comes into effect on 1 May 2009. However, this measure still leaves a deficit projected to be much larger than the 3 percent reportedly sought by the IMF.
After the excise tax hikes are factored in, national revenues may reach Hr 245 billion (roughly EUR 23.1 billion) with spending at roughly Hr 270 billion, for a projected deficit of Hr 24 billion.
The IMF has welcomed the laws to increase excise duties on alcoholic beverages, but these measures only partially satisfied IMF terms.
The IMF loaned Ukraine USD 4.5 billion from a USD 16.4 billion credit line last autumn, but in February this year suspended payments because the government had not gotten spending under control.
Resumption of credit could mean another USD 12 billion altogether from the IMF alone. No less important, billions of dollars in other possible Western aid – from the European Bank of Reconstruction and Development, among others – hinge on IMF decisions.
Donor money is urgently needed to stabilise the Ukrainian currency hryvnia, which has lost 40 percent of its value against the U.S. dollar in the last year.
The prospects don’t look good that outside aid will come flowing back in anytime soon.
On 7 April, the World Bank predicted an even deeper recession ahead for Ukraine, a country of 46 million people. The nation’s economy is now expected to shrink up to 9 percent this year, worse than the 6 percent drop previously forecast. Inflation is expected at 16.4 percent, not as bad as last year’s 22.3 percent, but still potentially devastating – especially for pensioners and others with low incomes.
From 2000 to 2007, Ukraine’s economy expanded at an annual rate of 7 percent.
The Ukraine’s brewers try to be optimistic. Despite the economic crisis, “sales of so-called premium brands are still growing while sales of budget beers are declining”, Igor Tikhonov, Managing Director of SABMiller’s operations in the Commonwealth of Independent States, was recently reported as saying.
“Our main task is to have no losses at the Sarmat plant,” Tikhonov said. The unit “has not produced premium sorts of beer. Thus it is an attractive opportunity.”
Having grown 14 percent annually in the four years to 2006, Ukraine’s beer market stopped expanding in 2008 and growth may not resume any time soon, Tikhonov said. Total beer consumption stood at 28 million hl in 2007 and per capita consumption at 62 litres.
SABMiller’s Sarmat controls about 4 percent of Ukraine’s beer market, following an extended period of share losses that saw it slip from controlling about 15 percent in 2003. SABMiller acquired the eastern Ukraine’s Sarmat brewery in May last year and will invest more than USD 15 million this year.
The Ukrainian beer market is controlled by Sun InBev, followed by Obolon and Carlsberg.
