Taxing Vodka in Russia

Effective yesterday, the Russian government has set the minimum price of vodka at 89 rubles ($2.96) for one-half liter, ostensibly to fight the fake booze market. Retailers selling below the legal price will face prosecution and tough punishment.

First Deputy Prime Minister Viktor Zubkov said earlier other measures in the sphere would be accomplished by July 1, 2010.

Theses (sic) include the licensing of alcohol supplies, the introduction of a unified excise duty on alcohol, and tougher responsibility for the production and marketing of fake vodka. [...]

Soviet leader Mikhail Gorbachev introduced prohibition in the Soviet Union in May 1985 in an attempt to put a halt to the rampant alcoholism that was already taking its toll on the nation's economy and health system. His efforts to steer the Soviets to abstinence were ultimately unsuccessful, however, and the illicit production of moonshine - 'samogon' - rocketed, not to mention a sudden rise in sales of medicinal and industrial spirit. The never-popular policy of prohibition was later quietly dropped.

It's not news that counterfeit alcohol is a real danger to the Russian public since toxic substances are frequently used to increase volume. However, it is news that the Russian government has decided to license and tax alcohol and its distributors. Logically, I thought they were riding that cash cow all along.

The effect of minimum pricing probably won't impact the market as much as the licensing and taxing authority, which seems to have been downplayed by the news reporting. So what if there's a minimum price, there's always the black market, which I suggest is the Russian equivalent of the American convenience store.