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RUSSIA: Siberia and alcohol taxes

The Russian Regional Report (7/10/03) says that Siberian regions battle over alcohol production. The decade of Yeltsin's reforms condemned most Siberian regions to financial destitution. The Siberians' first response was to work together, especially through collective agencies such as the Siberian Agreement Interregional Association. However, at the same time, the regions began competing with each other in order to receive federal subsidies and foreign investment. In recent years, alcohol production has become a particularly active area of competition between regions. Such competition is not surprising because the sales of alcoholic beverages make up a substantial share of regional budgets. Naturally regions try to prevent producers located outside of their borders from selling their products on their territory. Such sales put pressure on local producers and reduce a region's budgetary income.

Until 1 January 2003, regions received 50 percent of the fees from sales of alcohol imported from other regions, while they received 100 percent of the fees from alcohol produced in their own region. Naturally such a system predisposed regions not to like outsiders encroaching on their territory. Since 1 January, the tax on production goes fully to the federal budget, while the warehouse tax goes to the regional budget. However, this change did not improve the situation, and regional governments remain strongly interested in supporting local producers, who produce jobs and numerous other benefits for the local economy.

The health of the local alcohol industry varies from region to region across Siberia. Generally producers in Altai Krai, Krasnoyarsk, Novosibirsk, Tomsk, and Kemerovo are doing badly. Tyumen, by contrast, is one of the more successful regions. Production increased 45 percent in 2002 and the growth continues in 2003. While two years ago, Tyumen was an outsider in alcohol production, it is now one of the seven largest players on the alcohol market in Russia. The secret of success in this case was that the oblast administration invested 120 million rubles in the development of the industry (Tyumen Regional Internet Newspaper,, 7 October 2002, 10 February 2003, and 18 April(-2003). Obviously not every region can make such an investment. Siberia's "vodka kings," many of whom are members of their regional legislatures, are growing nervous. They are more frequently calling for regional protectionism in various newspaper articles.

RH: I find this extraordinary. I cannot understand why Yeltsin's reforms condemned Siberia to destitution. It looks as though not only Yeltsin but all of Siberia depends on vodka, Why just Siberia? Is there any other region in the world which is si heavily dependent on booze taxes?

Ronald Hilton - 7/10/03