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JANUARY/FEBRUARY 2016 TOBACCO INTERNATIONAL 35 cigarettes costs about RUB 35 ($0.45), in Armenia RUB 41 ($0.52) and in Kyrgyzstan RUB 30 ($0.38), while the average price in Russia is RUB 68 rubles ($0.87) per pack." At the same time, there are a number of possible scenarios provided for Armenia, Kyrgyzstan and Belarus that will give them a right to change the rate by 10-55 percent depending on the particular market situation. Russia and Kazakhstan also may change this rate but only within the limits of 10-30 percent. This measure is needed to avoid the negative effect from the fluctuation of the national currencies and a number of other factors in future. Loophole for Belarus However encouraging these signs of harmony and unanimity are among the EEU membership, there are potential problems. Even in the first weeks of 2 0 1 6 , t h e i m p l e m e n t a t i o n o f t h e agreement appeared to be questionable a s B e l a r u s d e m a n d e d t o e n t e r amendments that would less rapidly harmonize excise duties for low-price products. The allowable level of deviation from the indicated rates for cheap Belarusian goods proposed in 2016 is to be set at 65 percent, then 60 percent in 2017, 58 percent in 2018, 56 percent in 2019 and finally a gap of 30 percent in 2020. The Russian side did not support this amendment, while representatives of the tobacco business explained that this was probably a loophole for Belarus to continue cigarette smuggling. "The lack of a coordinated position of the EEU on the agreement is mainly c o n n e c t e d w i t h t h e c o n t r o v e r s i a l p r o p o s a l f r o m t h e B e l a r u s i a n side which leaves room for illegal distribution of products of the Grodno tobacco factory in Russia," said Sergei Kiselyov, vice president of corporate affairs and communications in JTI's Russian office. "The difference in prices provokes the illegal flow of tobacco products from neighboring countries," said Alexander Lutyi. "While the price gap between the neighboring countries is so high, the threat of the development of the shadow sector in the tobacco industry remains in place." Losses of the Budget The initiative to create a single tax p o l i c y f o r t h e t o b a c c o m a r k e t i s necessary in order to increase income for the national budgets of the EEU member countries. The smuggling of tobacco costs billions of taxes in this region, according to the estimates of EEU market participants. A recent market study by Nielsen suggests that smuggling and counterfeit production currently account for at least one percent of the Russian cigarette market, including 0.8 percent illegally smuggled cigarettes and 0.2 percent illegally produced cigarettes. JTI's Sergei Kiselyov estimates that in 2014 the Russian budget probably lost as much as RUB 21B ($420M, based on the 2014 exchange rate). The general director of the information The case for excise tax harmonization: Smuggling accounts for one percent of Russia's market. Different tax rates place certain tobacco markets at a disadvantage, which fosters the smuggling of cigarettes.