Spirits Screwup Has Russia Saying Nyet to New Vodka

M O S C O W, June 7 -- — If you thought an energy shortage in California was trouble, try running dry on vodka in Russia.

That’s just what Russia’s alcohol industry is warning may happen, despite government assurances to the contrary. And for a nation where the drink is considered an indispensable part of the “Russian diet” — an estimated 1.2 billion liters of vodka was produced last year, not including the bootleg variety — sudden shortages could have dire implications for the current occupants of the Kremlin.

The problems started with stumbles over a new tax code that called for stricter rules on the production and distribution of spirits. Initially adopted last year, the code called for splitting alcohol excise duties between the country’s producers and distributors of alcohol, and allowing for an equal share of profits by the federal and the regional budgets.

Among other things, the changes require that all spirits produced and sold in Russia be marked with a second, regional excise duty stamp, in addition to the existing federal one.

Few have contested the two-tier stamping system itself, since its introduction is ultimately expected to dry up Russia’s huge bootleg and contraband trade, which by some estimates amount to 40 percent to 70 percent of the overall output. The measure will also provide for a direct cash flow to Russia’s regions — another important reason for its introduction.

So where did things go wrong?

Awaiting the ‘Stamp’ of Approval

The problem has been in the execution. After the government realized late last year that little had been done to implement the new marking system, the initial January deadline was postponed until this month.

Even now, however, Russian alcohol industry sources say most distilleries — especially the medium and small ones that are especially strong in the heavily consuming “provinces” — do not have the new regional stamping system in place. They blame the government for not providing the stamp in time.