On Tuesday, 16 February, Saeima’s Public Health Sub-Committee views a draft on tobacco products. In it, Saeima deputies unexpectedly included a proposal to change the order for trade of tobacco products. This proposal details an order for traders to invest in new trade equipment – special metal shelves for storage of cigarettes.
Support for this proposal would provide even more retail trade market share to dominating trade networks in the country (Rimi, Maxima, Narvesen), because smaller traders have no financial ability to afford new investments after the previous and upcoming manufacturing cost increase (minimum wage increase of EUR 50 per employee and procurement of new cash registers), notes President of Latvian Traders Association Henriks Danusevics.
The idea for this change was offered by Healthcare Ministry last year. Fortunately, it was declined shortly after its announcement. Finance Ministry, State Revenue Service, Economy Ministry and retail traders all opposed this proposal. Moving cigarettes from stands to ‘under the counter’ would basically equate them to contraband and only serve to increase cigarette contraband in general. Losses in the form of unpaid taxes already reach EUR 80 million a year. This proposal would also reduce competition in retail trade – many small and medium-sized shops would likely drop their cigarette trade licenses, which would result in customers going to supermarkets and small businesses going bankrupt, explains Danusevics.
There are currently 4,204 trade locations in Latvia. 279 of them are supermarkets. Adapting a store to new requirements would cost EUR 700 – EUR 1,000. For 43% of stores around Latvia, cigarette trade does not bring even EUR 700 a year – more than 90% of the price of a single cigarette pack is made up of excise tax and VAT. Estimates show that adding the aforementioned changes would cost Latvian supermarkets around EUR 3 million, notes Danusevics.
«Experience of other countries shows that it is nothing more than yet another experiment pre-destined to fail. A similar proposal was viewed in Brussels two years ago. It was declined by the European Parliament and the European Council. Restrictions on product positioning in one of the four countries that has it (Finland, Ireland, Norway and Iceland) has failed to reduce the popularity of smoking. For example, the popularity of smoking among youngsters 15 to 19 years old has only increased (from 14.4% to 17.5%) after the introduction of such a restriction. Even outside of Europe, in Canada, the product placement restriction has only increased smoking among youngsters by 2%. In addition, it has also contributed to growth of contraband – the illegal market in Canada had growth from 4% to 23% over the course between 2005 and 2007,» – explains the president of the traders association.
«Local Latvian traders are already on the brink of extinction. This proposal and the way it was added to the law – five minutes prior to approval in the Saeima – makes one wonder about a possible conspiracy against local Latvian traders and preferential treatment to dominating traders,» – says Danusevics. «If the Saeima approves this new order, the government should offer compensations to retail traders. Considering the significant risk of increase of illegal trade, we believe this decision will be cast aside as ineffective in the future. Businessmen no longer wish to finance experiments.»