Excise tax on cigarette will increase starting from this September, according to government proposal which was passed with its second reading by the Parliament on July 29.

Excise tax on a pack of filtered cigarette will increase from current GEL 0.6 to GEL 0.75 and on a pack of non-filter cigarette from current GEL 0.15 to GEL 0.2, according to draft amendment to the tax code.

First Deputy Finance Minister, Giorgi Tabuashvili, told lawmakers that the move would generate an estimated additional GEL 25 million or possibly GEL 26 million in tax revenues this year.

The government cites intention to cut the smoking rate as a reason behind its decision to increase the excise tax.

UNM lawmakers, however, argued during the debate in Parliament on July 29, that the government decided to turn to cigarette excise tax to, at least partly, compensate for revenue shortfalls.

“This proposal first and foremost aims at filling the gap in tax revenues. But projected GEL 25-26 million, which is expected from increase of this tax, will fail to cover the shortfall of GEL 247 million in tax revenues, which was posted in the first two quarters of this year,” said UNM MP Zurab Melikishvili, who chaired finance and budget committee in the previous parliament.

According to a policy brief by Tbilisi-based think-tank Economic Policy Research Center, analyzing budget performance for the first half of 2013, the state budget, hurt by economic slowdown, has suffered about GEL 265 million shortfall in targeted tax revenues in the first six months of this year.

UNM lawmakers also argued that the move might increase smuggling of cigarettes, but the deputy finance minister said risk of such development was “minimal”.