Category: Taxation

BAT accused of tax evasion
Dutch authorities are pursuing British American Tobacco (BAT) for £902 million ($1.13 billion) in unpaid taxes, accusing the cigarette maker of avoiding tax on money channeled through the Netherlands, reports The Guardian.
The claim relates to taxes the company is said to owe between 2003 and 2016 and concerns internal fees paid by Dutch subsidiaries for loans provided by its U.K. holding company.
The internal fees at the center of the claim are said to have been artificially inflated in order to lower taxes due in the Netherlands.
BAT disputes the claim.
“We strongly disagree with the Dutch tax authorities’ assessment, and as such, we are appealing this claim,” a BAT spokesman said, adding that the company complies with all applicable tax legislation in each of its 200 markets.
September 23, 2019
Tax hike criticized
Tobacco industry representatives criticized Indonesia’s plan to raise cigarette prices by more than a third, saying that it would encourage illicit manufacturing and threaten jobs, reports Reuters.
“If illegal cigarettes become widespread then all parties are disadvantaged, from legal cigarette manufacturers, their workers, to tobacco and clove farmers,” said Hananto Wibisono, spokesman for Indonesia Tobacco Community Alliance. “The government will also be at disadvantage because illegal cigarette producers don’t pay excise taxes,” he said.
“It will definitely disrupt the tobacco ecosystem,” said Troy Modlin, director of market leader Sampoerna.
Sampoerna and Gudang Garam suffered their biggest intraday drops in share prices in more than 20 years following the tax hike announcement, causing them to lose IDR69.48 trillion and IDR27.68 trillion in market capitalization, respectively, according to Morningstar.
Finance Minister Sri Mulyani Indrawati said the government had tried to balance the need to address rising numbers of young smokers and cigarettes’ popularity among Indonesia’s poorest with the possible impact of a tax hike on the livelihoods of tobacco farmers.
She said the excise hike would result in only a 10 percent increase on the labor-intensive domestic hand-rolled cigarette industry. “But for companies whose turnover is over 50 billion rupiah, the increase is relatively higher,” she said.
The Indonesian government has been raising taxes on tobacco products almost every year since 2014, but that has not had a significant impact on smoking rates.
Nearly 70 percent of adult men smoke in Indonesia, according to the World Health Organization.
September 17, 2019
Tax hike announced
The government of Indonesia will raise the excise tax on tobacco and tobacco products by 23 percent effective Jan. 1, 2020, reports Tempo. The minimum retail price will be increased by 35 percent.
Finance Minister Sri Mulyani said the tax hike was aimed at reducing cigarette consumption, controlling the industry and maintaining state revenue, which she estimated to reach IDR173 trillion ($12.4 billion) next year.
She added that the government was concerned about the increasing prevalence rate of smokers among women and children from 2.5 percent and 7 percent to 4.8 percent and 9 percent, respectively.
“Therefore, we have to think of how to use this tax to reduce the smoking trend,” the minister remarked.
Indonesian tobacco companies’ shares tumbled following the announcement, according to Morningstar.
Market leaders Sampoerna and Gudang Garam dropped 22 percent each, causing them to lose IDR69.48 trillion and IDR27.68 trillion in market capitalization, respectively.
Both companies suffered their biggest intraday percentage falls in more than 20 years.
September 16, 2019
Funding healthcare shortfall
A proposed increase in taxes on alcohol, heated tobacco products and e-cigarettes in the Philippines will raise close to PHP370 billion ($7.17 billion)—enough to cover the funding gap for healthcare services, reports The Philippine Star, citing Finance Undersecretary Karl Kendrick Chua
Chua said a bill in Congress seeks to increase the current uniform tax on cigarettes and other tobacco products from PHP35 per pack of 20 to PHP45 per pack for 2020, PHP50 in 2021, PHP55 in 2022, PHP60 in 2023, and 5 percent indexation every year thereafter.
Meanwhile, Congress plans to impose a tax of PHP10 per pack of 20 of heated tobacco products in 2020 and five percent indexation onwards.
For e-cigarettes, lawmakers want to impose a tax ranging from HPP10 for every 10 milliliters to PHP50 for 50 milliliters plus PHP10 for every additional 10 milliliters.
Chua said the finance department is pushing for a uniform rate for heated tobacco products with that of cigarettes.
August 2, 2019
Smoking rate falling slowly
The incidence of smoking has been declining on the Chinese mainland, but more tobacco-control efforts are needed, according to a story by Wang Xiaodong in the China Daily citing the findings of a survey published on Thursday.
Last year, 26.6 percent of the mainland’s population 15 years of age or older were smokers, according to the survey, which was conducted by the Chinese Center for Disease Control and Prevention (CDCP) between July and December.
A similar survey conducted by the CDCP in 2014 and 2015 showed 27.7 percent of this age group smoked.
The survey reportedly found that there was increasing public support for tobacco control efforts. More than 90 percent of those surveyed said they supported a total ban on ‘tobacco in the workplace’, and more than 95 percent said they supported banning smoking in hospitals, in middle and primary schools, and on public transport. Nearly 80 percent said they hoped to see a ‘ban on tobacco’ in restaurants.
But the survey found too that adult smokers ‘generally lack the willingness to quit’, with 16 percent planning to quit within the year.
Zhi Xiuyi, vice-president of the Chinese Association on Tobacco Control, said China faced severe challenges in protecting people from the effects of tobacco use, despite the progress made.
“To achieve the government target of bringing down the percentage of adult smokers to 20 percent by 2030, we have a lot of work to do,” he said.
Wang reported that the biggest obstacle to tobacco control in China was the powerful tobacco industry, which was one of the biggest tax contributors to the government.
June 3, 2019
Cigarette sales down
Sales of cigarettes in South Korea in February were down 9.8 percent on those of a year earlier, according to a Yonhap News Agency story.
The fall in sales was attributed to a concerted anti-smoking campaign and higher prices.
Data compiled by the Ministry of Economics and Finance and published today showed that South Korean smokers bought 235.5 million 20-piece packs during February, down from 261.2 million during February last year.
The 2019 February figure was down 14.1 percent on that of February 2014.
Cigarette prices were increased by 80 percent in January 2015, from 2,500 won (US$2.20) per pack to 4,500 won, largely through the imposition of a tax hike.
And in 2016, the Government mandated that tobacco companies place graphic health warnings on the upper part of cigarette packs.
However, while combustible-cigarette consumption is falling, the consumption of vapor products is headed in the other direction.
Sales of heat-not-burn tobacco products reached 29.4 million packs in February, accounting for 12.5 percent of the country’s total tobacco market.
Such sales accounted for 8.5 percent of the market in February 2018.
March 29, 2019
Andorra raises price issue
A French member of the EU Parliament has asked the Commission if the Association Agreement between the European Union and Andorra will enable tobacco-product prices to be aligned.
In a preamble to two questions, Philippe Juvin said that March 18, 2015, had seen the start of official negotiations between the EU on the one hand and Andorra, Monaco and San Marino on the other, with the aim of deepening their relations.
‘The resulting agreement will enable the three states and their economic operators to participate in the European internal market by removing the barriers currently hampering their trade,’ he said.
‘In the light of the Council Conclusions of 3 December 2018, the EU “is fully committed, and stands ready to work towards finalising the discussions on the framework of the Agreement by spring 2019”.
‘According to our information, the agreement currently being negotiated, as far as the Protocol on Andorra is concerned, will include elements aimed at resolving the issue of tobacco prices, which gives rise to a large amount of traffic at the borders.’
Juvin then asked:
‘Would the Commission kindly explain to us what the provision in the Protocol is which will enable this issue to be resolved?
‘Will this provision enable tobacco prices to be aligned?’
The Commission is due to answer the questions in writing.
March 26, 2019
Taxing balancing act
Indonesia is to follow a policy of foreshadowing cigarette excise increases in such a way as to limit smoking while lessening the impact of any cigarette-sales reduction on tobacco-industry jobs, according to a story at en.tempo.co.
Finance Minister Sri Mulyani Indrawati said the Government had to address two concerns before issuing a regulation on cigarette excise: its impacts on health and the industry.
Sri Mulyani said that the use of tobacco by smokers, especially children, would badly affect their health in the future; so the Government imposed excise on tobacco products in a bid to lessen its consumption.
However, on the other side of the coin, the tobacco industry employed a large number of workers, including tobacco and clove farmers.
Speaking before millennials at a Youth Engagement event at Balai Sarbini, Jakarta, Sri Mulyani implied that, given these circumstances, it was difficult for the Government to decide whether to prioritize individual physical health or economic health.
Therefore, she said, the Government planned to gradually increase taxes based on the roadmap of tobacco excise, which would provide “a signal to the tobacco industry and regional administrations”.
At the same time, Sri Mulyani said, the Finance Ministry, through the Customs and Excise Directorate General, would strive to reduce the illegal trade in cigarettes.
In 2017, the illegal trade was said to have accounted for 10.9 percent of the cigarette market, a figure that fell in 2018 to 7.03 percent.
March 22, 2019
Swings and roundabouts
Indonesia is trying to find a balance whereby it can benefit from tobacco’s huge economic contributions while reducing its toll on the nation’s health, according to a story in The Jakarta Post.
In a statement issued during the weekend, Industry Minister Airlangga Hartanto said cigarette excise had reached Rp153 trillion last year, up by 3.9 percent from Rp147 trillion in 2017.
“Cigarette excise tax revenue contributed 95.8 percent of the national excise tax revenue,” he said.
At the same time, Airlangga said Indonesia exported cigarettes worth US$931.6 million last year, up by 2.98 percent from $904.7 million in 2017.
Because the cigarette industry mostly used domestic raw materials, including tobacco and cloves, it was able to compete on the global market.
Speaking about the health issues created by tobacco products, Airlangga said: “We will take employment and people’s health into consideration”.
The Government, he added, had been trying to create policies that would be acceptable to all parties in the tobacco industrial sector (IHT).
It had to ensure business certainty among IHT players.
For that, he said, the Government had issued a number of regulations – Government Regulation (PP) No. 109/2012 on security for materials of addictive ingredients, and Presidential Regulation No. 44/2016 on the negative investment list, which was supported by Industry Ministry Regulation No. 64/2014 on cigarette industry control.
March 18, 2019
Make them pay
Small retailers in Malaysia are said to have been frightened off selling illicit cigarettes by the prospect of a RM100,000 fine, according to a story by Mark Rao for The Malaysian Reserve.
Such stores had been havens for smokers who needed to find cheap cigarettes, but because they are not typically big-money businesses, they have had to think twice.
A Center for Public Policy Studies’ report last year found that well-known illicit brands such as John, Canyon and Luffman were typically hidden by small retailers in opaque boxes and shelves or underneath tables, from where they were sold to customers upon request.
Illicit cigarettes took 64 percent of the market during the fourth quarter of last year, according to a report cited by British American Tobacco (M).
With the Government needing higher revenues to plug a huge financial hole, it promised stricter enforcement against illicit cigarettes and liquor.
The Government is said to be aiming to ‘recover’ about RM1 billion in revenue lost to the black market with its threats of minimum fines of RM100,000 and six months’ in jail for individuals caught dealing with illicit cigarettes and liquor.
The Royal Malaysian Customs Department and other relevant agencies are said to have increased preventive measures since January.
But BAT MD Erik Stoel said the government’s intent was there and important regulatory steps had been taken, but enforcement intensity was still not at the level to make a significant impact.
“It is early days, but we believe it is critical that more focus is put on enforcement and more law enforcement agencies join the party,” he told The Malaysian Reserve.
He said changing the law dealing with illicit cigarette trade cannot be the sole option and urged a unified front between the relevant authorities to tackle the issue.
Meanwhile, the Galen Center for Health and Social Policy CEO Azrul Mohd Khalib said the environment for the black market for cigarettes and tobacco products had to be made hostile, intimidating and prohibitive by the authorities.
“One way to do this is to threaten and enforce severe penalties for small retailers and traders for carrying these products,” he said, citing the termination of business licenses as an effective deterrent.
Cigarette excise duties in Malaysia rose 110 percent from 2011 to November 2015, while the Sales and Services Tax last year resulted in an increase of up to four percent in retail cigarette prices.
March 18, 2019