Business Environment in the Republic of Belarus: Review of Tobacco Industry
Law Firm Glimstedt presents the overview of tobacco industry in Belarus. The article covers the following matters: current business trends and opportunities, restrictions and advertisement, prices and taxations, production and import requirements.
Belarusian tobacco market was affected by the currency crisis. Even before the crisis prices for the majority of cigarette brands rose by 30-60 % however prices for low-priced offerings of Neman Tobacco Factory Grodno remained on the same level. So in a short term, the crisis forced consumers to switch to lower-priced offerings. In a long-term, demand for tobacco products on the market have significantly increased. However supply of tobacco products has not been sufficient. Below we will present a brief overview over current business opportunities on the Belarusian tobacco market, including trends and relevant legal requirements.
Current Business Trends and Opportunities
Most common form of entering the Belarusian market is through a partnership with a local company. A reason behind it is that local authorities encourage producing “import replacement” products and international brands on local factories. Although consumers of tobacco products, are more loyal to foreign brands due to its better quality and marketing.
Successful business cases include British American Tobacco Plc, Japan Tobacco International, Tobacco International Enterprise Ltd and Imperial Tobacco Group Plc that manufacture their own brands on local factories here, in Belarus. The major local players on the market are Neman Tobacco Factory Grodno (Open Joint Stock Company, 100 % of shares belongs to Government) and Tabak Invest SP (privately owned joint Belarusian-American Company).
The other way to enter Belarusian tobacco market is to import tobacco products. Cigarettes import is possible only in cooperation with state-owned company – Belarustorg.
Specific Regulations for Tobacco Industry in the Republic of Belarus
Health Warnings, Restrictions on Advertisement
Advertising of tobacco products is banned. Free distribution of tobacco products, including their use as prizes or gifts during contests, promotional games, etc. is prohibited. Prohibition of advertising covers not only tobacco products, but also brand name, trade mark, geographical indication. In the mean time, brand name, trade mark of the producer of tobacco products as well as goods with the same brand and trade mark are allowed to advertise.
Even though the Republic of Belarus is part of the WHO Framework Convention on Tobacco Control (FCTC), it is not prohibited for tobacco companies to sponsor sports, arts and other activities.
There are specific regulations for a retail display of a cigarette pack. Health warnings on retail displays must be not less than 30 % of each big side of a pack. Furthermore retail displays of tobacco products which were produced in Belarus or imported in Belarus must contain information about danger of smoking and about a ban on selling of this production to persons under 18 on Russian and Belarusian languages.
Restrictions on Cigarette Usage in Public Places
Smoking in public places is restricted. These public places are the following:
Health, culture, educational and sport organizations’ buildings;
Trade centers, consumer services;
All types of railway stations, airports, subways, subway stations;
All types of public transport, trains, ships, aircraft, except for long-distance trains, passenger ships and planes, which have places specifically designed for smoking;
indoor dining areas; and
Offices of public administration, local executive and administrative bodies and organizations.
Smoking is allowed only in special duly equipped smoking areas.
Prices and Taxes
Pricing is regulated by the Ministry of Economics of the Republic of Belarus. Prices vary depending on whether it is a retail price or a wholesale price and whether tobacco products are of local manufacture or are imported to the Republic of Belarus. However retail prices for both locally produced and imported tobacco products are the same, they are fixed and stated in the Resolution of the Ministry of Economics of the Republic of Belarus of 29.03.2010 No.61 “About prices on tobacco products”. Important to note that for the last 6 months these prices have been increased 5 times.
Tobacco products are subject to excise tax and VAT. There are unified excise tax rates for both 1) excisable goods which are produced in the Republic of Belarus and 2) excisable goods which are imported to the Republic of Belarus and (or) are sold on the territory of the Republic of Belarus. Excise tax rates are listed in the Attachment 1 to the Tax Code of the Republic of Belarus.
The manufacture of tobacco products is a licensed type of activity in the Republic of Belarus. Cigarette production is regulated by quotas which are set by the Belarusian government. For the year 2011 such quotas are 27,6 milliards items (19.5% more in comparison with the year 2010) in accordance with the Resolution of the Council of Ministers of Republic of Belarus of 21.12.2010 No.1863 “About approval of quotas on tobacco products manufacturing in 2011”.
Import of tobacco raw materials and tobacco products is carried out without any quantitative restriction. However, there are some subject limitations.
Thus, Neman Tobacco Factory Grodno and Tabak Invest LLC are the only companies allowed to import tobacco raw materials.
Cigarettes import as well as other tobacco products is available only through state-owned company “Belarustorg”.
The situation on the tobacco market in the Republic of Belarus when customers had to change their preferences and tobacco companies tried to sustain profits was influenced by the currency crisis. Obviously the current situation won’t last for long. In order to assess business opportunities on the Belarusian tobacco market relatively stable size of the potential market, legal regulations of tobacco production and tobacco consuming in the Republic of Belarus and successful business practices within the industry should be taken into consideration.
AUTHOR: Eugenia Urodnich, Eugenia Yuditskaya
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.