Category: Taxation

Under threat in South Africa
The entire tobacco value chain in South Africa is under threat from illicit traders; a threat that could increase if a proposal to increase excise taxes again is accepted, according to a story in The Business Day quoting the recently-launched Black Tobacco Farmers Association (BTFA).
The story said it was estimated that close to 50 percent of South Africa’s tobacco-products market was controlled by illicit players, making it one of the world’s biggest markets for illicit tobacco products.
The illegal trade in tobacco products was said to be costing the fiscus up to R9 billion a year in uncollected tax.
The BTFA yesterday called on the government to keep tobacco excise taxes at their current level to protect jobs on farms.
Last year, the Government increased excise duties by between six percent and 10 percent in a move that was expected to bring in an additional R1.33 billion in revenue in the 2018/19 financial year.
The BTFA chairperson Ntando Sibisi said that his organization was asking the Finance Minister to ensure that the South Africa Revenue Service tackled the illegal trade in cigarettes more seriously before excise taxes were increased further.
“At this stage more excise duties will do nothing but cause the illicit economy to grow even more,” said Sibisi. “Under the current economic conditions, an excise increase will force more consumers to go for cheaper, untaxed cigarettes.”
Sibisi said the illegal trade was partly caused by high excise taxes and was “killing any progress that we have made over the years to create jobs and maintain jobs that have uplifted our communities”.
“The illicit cigarette trade places more than 10,000 jobs at risk and deprives SA taxpayers of R25 million in lost taxes daily,” he said. “We call on law enforcement agencies to act and actually clamp down on illicit cigarette trade and hope that this will be reflected in the budget.
“The future of tobacco farming, which provides a sustainable income for thousands of families, rests upon whether our concerns are taken seriously.”
February 19, 2019
A nice little earner
Tobacco users in Belgium contributed €2.373 billion in excise tax to the state’s treasury last year, according to a story by Jason Bennett for the Brussels Times citing a Sudpresse newspapers report.
Tobacco excise in 2018 was said to have been increased by €123.8 million on that of 2017, ‘after stagnating for four years’.
Border sales are thought to have played a role in the increase, partly because the price of a pack of cigarettes was increased by €1 in France in March 2018.
Tobacco excise in Belgium in 2018 accounted for about 27 percent of the treasury’s total excise income, €8.83 billion.
February 15, 2019
Plea for farmers
If the next sin tax increase were to be pushed through, the Government should help tobacco farmers and small retailers cope with the potential revenue loss they will suffer, according to a story in The Philippine Star quoting the Governor of the Ilocos Norte province, Imee Marcos.
The expected higher revenue from sin tax collection must be used to bankroll alternative, agriculture-related livelihoods for affected tobacco farmers, Marcos said.
Under Republic Act 7171, tobacco-producing provinces such as Ilocos Norte with an annual average production of not less than one million kg of Virginia tobacco are entitled to 15 percent of the excise tax collections from locally-manufactured cigarettes.
At the same time, Marcos wants the Government to crack down on cigarette smugglers and manufacturers of counterfeit tobacco products, which, she said, ‘are killing the country’s two million tobacco farmers’.
She asked the Government to study carefully the impact of any massive cigarette excise tax increase on poor people such as farmers and sari-sari store owners.
“Fake cigarettes seized in 2018 hit a record-high of P20.250 billion, depriving the government of much-needed revenues,” said Marcos, who is running for the senate.
Legal cigarette sales have decreased as prices have more than tripled since 2013, and this, according to the National Tobacco Administration, has translated into a drop in tobacco-farm output of as much as 20 million kg annually.
February 11, 2019
Tobacco firms a drain on UK
Big tobacco companies are paying a ‘pitiful’ amount of corporation tax on billions of pounds of profits, leaving UK taxpayers to pick up the tab for the enormous costs smoking adds to the National Health Service and the economy, according to a story in The Independent citing new research.
Researchers at the University of Bath were said to have found that Imperial Brands, British American Tobacco, Philip Morris and Japan Tobacco International had shifted their corporate structures to minimise their UK tax bills.
The authors have demanded a tobacco-industry levy to ensure companies pay for the costs associated with their products.
‘Despite being headquartered in Britain, Imperial paid an effective rate of just 13 percent over the past seven years, during which corporation tax has varied between 20 percent and 28 percent,’ the story said.
‘BAT is also based in the UK but paid “virtually no” corporation tax over the same period, including four consecutive years (2011-14) where it paid nothing at all, the paper found.’
February 8, 2019
Tax-induced price hike
The days of being able to buy Thai cigarettes for 60 baht a pack will come to an end later this year, according to a Thai Visa News story.
The prices of all the cheaper brands produced by the Thai Tobacco Monopoly (TTM) will be increased to at least 93 baht from October because of an excise tax increase.
This means that smokers will have to pay an extra 33 baht per pack on five brands.
Cigarettes currently priced in the 90-baht range might also face a price increase.
The director of the TTM Daonoi Suthiniphaphan said this would pave the way for packs selling at 100 baht per pack.
She defended the increases by saying they were not aimed at increasing TTM profits. The new prices were merely in line with new excise tax rates.
Meanwhile, the Daily News reported that a 55 baht per pack cigarette recently introduced to compete with foreign brands would be one of those hit by the higher excise tax rate.
February 5, 2019
World Bank report
Contrary to tobacco industry arguments, taxes and prices have only a limited impact on the illegal cigarette market share at country level, according to a World Bank report, Confronting illicit tobacco trade: A global review of country experiences.
The report, running to about 650 pages, says that evidence indicates that the illegal cigarette market is relatively larger in countries with low taxes and prices while relatively smaller in countries with higher cigarette taxes and prices. Non-price factors such as governance status, weak regulatory framework, social acceptance of illicit trade, and the availability of informal distribution networks are said to ‘appear to be far more important determinants of the size of the illicit tobacco market’.
Part of the Bank’s advice for tackling the illegal trade is for authorities to avoid reliance on the tobacco industry, whose role is said to pose a challenge to countries seeking to address the illegal trade, ‘since the tobacco industry is often linked to illicit trade in tobacco products, either directly or indirectly’.
‘The UK and Ireland case studies emphasize the need to fulfill obligations under Article 5.3 of the FCTC [World Health Organization’s Framework Convention on Tobacco Control] to prevent the tobacco industry from influencing public policy,’ the report says. ‘The case studies, including Colombia, Australia, Georgia, and Malaysia, also confirm prior findings that the tobacco industry regularly overstates levels and changes in tobacco illicit trade to oppose tobacco tax reforms. The Georgia and Uruguay case studies show that when the government responds to industry pressure and reduces taxes due to fears regarding tobacco illicit trade, the result is a decline in revenues and an increase in consumption, while the true drivers of illicit trade in tobacco products remain unaddressed.’
The Bank concludes, in part, that the following actions need to be undertaken to confront the illegal trade in tobacco products.
- ‘Require licensing for the full tobacco supply chain, as required by Article 6 of the [FCTC] Protocol.
- ‘Require use of secure excise tax stamps and other product markings to facilitate enforcement and tax collection, as required by Article 8 of Protocol.
- ‘Establish effective track-and-trace systems to follow tobacco products through the supply chain from production or import to sale to consumers (Article 8 of the Protocol).
- ‘Establish effective enforcement teams equipped with automated reporting devices, to reduce human discretion in tobacco tax administration (Articles 8 and 19 of the Protocol).
- ‘Obtain detection equipment and use it effectively at customs posts (Articles 14 and 19 of the Protocol).
- ‘Develop a risk profile to target inspections (Articles 10, 14 and 19 of the Protocol).
- ‘Set relatively low duty-free allowances (Article 13 of the Protocol and Article 6.2 of the FCTC) for tobacco product purchases, both in terms of amounts and frequency.
- ‘Regulate or ban trade in tobacco products in free trade and other special economic zones (Article 12 of the Protocol).
- ‘Set and enforce significant financial penalties and penal provisions for illicit trade in tobacco products (Articles 15, 16 and 17 of the Protocol).
- ‘Provide for secure and environmentally friendly destruction of seized cigarettes, carried out by the regulatory authorities and not by the tobacco industry (Article 18 of the Protocol).
- ‘Educate the public on the impact of tobacco illicit trade.
February 4, 2019
Vaping legal but difficult
Increasing numbers of Saudis are ditching their cigarettes and switching to vaping devices, according to a story in Arab News.
And they are free to do so because there are no laws banning vaping in Saudi Arabia. Indeed, vapers are free to indulge their habit in public.
But there is a catch. There are apparently no legal ways to obtain a vaping device or e-liquid.
The Ministry of Commerce and Investment banned the sale of vaping products in September 2015.
And Saudi law forbids the sale of such items and considers anyone bringing them in from abroad to be smuggling and, therefore, liable to be fined and have the items confiscated.
These bans, the News said, were forcing vapers in the Kingdom to seek ‘alternative’ methods of buying supplies – alternative methods whose legality was doubtful, which was leaving vapers unsure if they were breaking the law.
One problem for the authorities is that while neighboring countries such as the UAE have adopted similar stances towards vaping – selling the equipment is illegal but using it is fine – others, such as Bahrain, are more relaxed about vaping. So Bahrain is a prime location for smugglers sourcing vaping products.
Many people seem to take a pragmatic view of the situation. Those who spoke to the News called for vaping products to be regulated. “They [vapers] will probably do it anyway,” said a local vaper. “And with Saudi Arabia’s smoking rate being as high as it is, this could be a lucrative area of investment.
“Tax it. Double the price. Do whatever you have to do. Make it safer for everyone.”
Saudi Arabia is said to have a high smoking rate, even though the practice is considered taboo. The Saudi Diabetes and Endocrine Association estimates the number of smokers is almost six million. And this figure is expected to rise to 10 million by 2020, or roughly 30 percent of the population.
February 1, 2019
Funding questioned
A recent investigation has revealed that the New Zealand Taxpayers’ Union accepted funding from British American Tobacco, according to a press note issued by the public health organization Hāpai te Hauora and published on the New Zealand Doctor website.
‘In an investigation into the ties between “free-market think tanks” and the tobacco industry, right-wing lobbying group, the NZ Taxpayers’ Union, was identified as being supported by multinational firm British American Tobacco,’ the press note said.
Hāpai te Hauora said it had had a long history of challenging the Union, which had railed against cigarette tax increases and plain packaging laws in New Zealand.
Current Hāpai Tobacco Control manager, Mihi Blair, was quoted as saying that this was predictable behavior from tobacco companies, which continued to attempt to create divisions among those who were working towards eliminating smoking-related harm.
“I should think the NZ Taxpayer’s Union will have their tail between their legs,’ she said. ‘This completely undermines their credibility, especially with a motto like lower tax, less waste, more transparency. This is the sort of behaviour we expect from Big Tobacco – trying to find puppets to advance their interests.”
February 1, 2019
Tax hike sought
The Philippines Senator Manny Pacquiao said yesterday that his proposal to double the excise tax on cigarettes would prevent 850,000 people from taking up smoking during its first year of implementation, according to a PTV News story.
During a Senate Ways and Means Committee hearing on tobacco tax bills, Pacquiao said increasing cigarette tax would also raise funds for the government’s Universal Health Care (UHC) program.
Pacquiao said that, currently, 13 million Filipinos were smokers and 1.2 million were expected to join their ranks by 2022.
“Most of the victims are from the youth and marginalized sectors – people who have no means of paying for the harmful effects of smoking,” he said. “We have to protect the youth from smoking, which is highly addictive.”
Pacquiao filed Senate Bill 1599, which seeks to increase the current cigarette tax rate from PHP30 per pack to PHP60 per pack.
He said his tax bill was supported by the Department of Health and Department of Finance, and added that President Rodrigo Duterte had approved these Departments’ backing for the bill.
He urged the committee to approve the “very urgent measure” before the session ended next week.
January 30, 2019
HNB gaining share
Heat-not-burn (HNB) cigarettes accounted for 9.6 percent of South Korea’s tobacco market in 2018, up from 2.2 percent in 2017, according to a Yonhap News Agency story citing figures published today by the Ministry of Economy and Finance.
Overall, sales of combustible and HNB cigarettes were said to have fallen by 1.5 percent in 2018 from those of a year earlier following anti-smoking interventions by the government and higher prices.
Smokers bought 3.47 billion 20-piece cigarette packs last year, compared with 3.52 billion packs the previous year.
Sales of combustible cigarettes fell by 8.9 percent year-on-year to 3.14 billion packs in 2018, while those of heat-not-burn cigarettes increased from 79 million packs in 2017 to 332 million packs in 2018.
The 2018 sales figure was said to have been down by 20.4 percent on that of 2014, the year before the retail price of cigarettes was increased overnight on January 1, 2015, by 80 percent, from 2,500 won (US$2.20) per pack to 4,500 won, mainly on the back of a tax increase.
In 2016, the Government required tobacco companies to put graphic health warnings on the upper parts of both the main faces of cigarette packs.
Meanwhile, the government collected 11.8 trillion won in taxes from cigarette sales in 2018, up by five percent from the previous year’s 11.2 trillion won.
January 25, 2019