Yeltsin Taps Distilleries for Revenue

In a sobering blow to Russia’s legendary drinkers just before the year’s biggest binge, President Boris N. Yeltsin on Thursday announced a government takeover of all alcohol production and marketing to wring out more tax revenues to settle staggering state debts.

The move, to take effect on New Year’s Day, is expected to send liquor prices soaring throughout Russia, where duty exemptions doled out to Yeltsin supporters have long allowed them to control a lucrative market while paying virtually no tax.

Yeltsin’s order abrogates all existing privileges and exemptions, which should generate an immediate boost in tax collections from influential businessmen who make their fortunes trading cheap spirits.

But the action could backfire; previous Russian leaders have quickly learned the peril of getting between disillusioned people and their favorite means of escape.

Former Soviet leader Mikhail S. Gorbachev’s anti-drinking campaign of 1985 was launched more for health reasons and failed to make any dent in the level of drinking, but it instigated public resentment that swelled through his six years in office.

After more than five months away from the office because of heart trouble and a quintuple bypass, Yeltsin has probably targeted the liquor barrels both to look decisive and to cobble up urgently needed cash.

Presidential chief of staff Anatoly B. Chubais took pains to cast the takeover as anything but a renationalization of the country’s 700-plus distilleries. But as of the New Year holiday--Russia’s most important social occasion--the government will dictate every facet of production, from quantity to quality to packaging and pricing.

*

Russians are believed to be world leaders in strong-drink consumption, with sales of 2.9 billion liters of vodka alone last year, the equivalent of 5 gallons for every man, woman and child in the country.

The Russian government is nearly $3 billion behind in payment of pensions--a debt that could be easily erased by the reliable collection of liquor taxes. Chubais estimated the current losses from illegal and untaxed sales at $360 million a month.

Yeltsin, who returned to the Kremlin just this week, also lashed out at massive debts run up to the state pension fund by major industrial enterprises. He said 51 trillion rubles, or more than $9 billion, was owed by some of the most prosperous Russian companies.

“When the government cannot pay its people their pensions--and we have here 37 million pensioners--this is immoral,” the 65-year-old president stated as if in disbelief.

The alcohol takeover announcement followed a meeting of the leadership’s Extraordinary Commission on Strengthening Tax and Budgetary Discipline, formed by Yeltsin before he underwent heart surgery Nov. 5. Thursday’s meeting, which lasted more than two hours, was aimed at ensuring that liquor taxes are applied and collected so that the pension arrears can be cleared.

Vodka sales are a good example of the chaos that continues to strangle the Russian economy, as more is sold under the table and off the back of trucks than over the counter. Liquor wholesaling and distribution are also in the hands of organized crime.

“The state loses a lot of money due to the Bacchanalia in the alcohol market,” Chubais told reporters in the Kremlin.

Yeltsin created the emergency tax commission in October after Finance Ministry officials disclosed that government wage and pension arrears had amassed to $28 billion, or about $185 per capita, which is more than the average monthly wage for government workers.

Thursday’s meeting tackled only the smaller pension backlog, which Yeltsin declared the moral priority because pensioners constitute much of the 40% of the population classified as poor.

Most of the sweetheart deals enjoyed by those trading in spirits were granted by the presidential administration over the past few years as Yeltsin advisors sought to secure financial and political support from the newly wealthy.

Former presidential bodyguard Alexander V. Korzhakov and Shamil A. Tarpishev, Yeltsin’s tennis coach, have been described in Russian media as the chief purveyors of alcohol tax privileges. But both men have been ousted from the Kremlin inner circle since Yeltsin’s reelection in July.

Yeltsin gave his top ministers until July 1, 1997, to make up all overdue wages and pensions and forbade any further withholding of state payments as of Feb. 1.

*

Although no changes were announced for tax rates on producers, distributors and sellers, Chubais said government customs agents would be assigned to every distillery in the country for round-the-clock monitoring to ensure that alcohol is not sold on the side.

Imports of alcohol are also to be strictly controlled to prevent tax evasion, and key sources of cheap drink, such as Ukraine and Belarus, will have to conform to the tougher measures or be excluded from the Russian market, Chubais said.

Yeltsin is only a few months into his new four-year term, so the lost loyalty of the liquor industry kingpins should have no direct political influence. But resistance to the new controls can be expected from those who stand to lose much of their profits.

“This is not the first time Russian authorities have tried to straighten out alcohol circulation,” the evening newspaper Izvestia warned after the announcement, noting past, doomed attempts to target alcohol for public health or for profit.