Category: Taxation

HNB tax hike closer
Multinational tobacco companies are decrying what they see as South Korea’s policy inconsistency as lawmakers are poised to pass a revised bill to hike taxes on heat-not-burn (HNB) devices, according to a story in The Korea Times.
Philip Morris International Korea and British American Tobacco Korea said they had launched these smokeless cigarette devices in Korea believing that tax rates and other regulatory standards would remain unchanged for a considerable time.
PMI Korea began selling IQOS in May while BAT Korea introduced Glo this month. Twenty-piece packs of the devices’ consumable items, HEETs in the case of IQOS and Neostiks in the case of Glo, are currently priced at 4,300 won ($3.77).
A pack of 20 traditional tobacco cigarettes retails for 4,500 won.
The two companies argue that the National Assembly’s move to raise excise taxes levied on a pack of 20 HNB sticks from the current 126 won to 594 won is unfair and makes it difficult for them to do business in Korea. Smokers pay a 594 won excise tax when they buy a pack of traditional tobacco cigarettes.
They argue that consuming HNB sticks is less risky than is consuming traditional cigarettes; so it is not fair to impose the same level of taxes on both.
On Tuesday, the National Assembly Strategy and Finance Subcommittee passed a bill revision to increase the excise tax on HNB sticks to 594 won. And both ruling and opposition parties are expected to approve the revision in a plenary session later this month. The change would then go into effect in September.
The lawmakers are also considering a consumption tax and a health-promotion fee for HNB products, which would force PMI and BAT to raise the prices of HEETs and Neostiks to as high as 6,000 won a pack.
August 24, 2017
HNB tax increase coming
The government of South Korea looks set to raise the tax on heat-not-burn (HNB) products such as Phillip Morris’ IQOS and British American Tobacco’s Glo, according to a story in The Korea Times.
Three lawmakers proposed the tax revision and the National Assembly Strategy and Finance Committee (SFC) said on Monday it would discuss the matter with relevant government agencies.
SFC members reportedly agreed with the lawmakers that the tax on IQOS and Glo was too low because of the absence of a tax code for HNB products.
They will seek to pass a relevant tax-code revision during a plenary session of the National Assembly on August 31 with the aim of its going into effect in September.
The government has asked for the National Assembly’s co-operation in passing the revision during the upcoming plenary session because, otherwise, the revision will have to wait until the next plenary session in December, which, the government said, would be ‘too late’.
Currently, a pack of Heets, the consumable item of the IQOS system, is sold at 4,300 won ($3.78) per pack, which includes 1,739.6 won in tax. A pack of traditional tobacco cigarettes meanwhile, sells for 4,500 won, which includes 3,323.4 won in tax.
Two of the lawmakers who proposed the revision believe that the tax on HNB products should be the same as that on traditional cigarettes, while the other proposer believes the former should be less than the latter.
Members of the strategy and finance committee are said to be trying to find middle ground.
The story quoted an unspecified ‘official’ as saying that the tax rate was only a matter of how much.
“Some said in other countries that the HNB e-cigarette is less harmful than general cigarette products so less tax should be imposed,” the official was quoted as saying. “But it’s not a decisive factor.
“The National Assembly will eventually pass the revision.”
August 23, 2017
No distribution ambitions
The EU Commission has said that it has no plans to propose the setting-up of a centralised European agency or governing body for the distribution of tobacco products.
The Commission’s comment came in reply to a question posed by Cătălin Sorin Ivan a Romanian member of the EU Parliament.
Ivan had asked whether it was true that the Commission was proposing to set up a new central European agency, namely a governing body that would centralize the entire distribution of tobacco products.
‘If this is not the case,’ he asked, ‘is the Commission indeed proposing to set up a body, and if so, what would its competition be and what would its competences be?’
In reply, the Commission said it had no ‘current plans to propose the establishment of a centralised European agency or governing body for the distribution of tobacco products’.
‘The Commission is currently working on the implementation of the systems of traceability and security features for tobacco products provided for under Articles 15 and 16 of Directive 2014/40/EU and has published an indicative implementation timeline on its website,’ it added.
August 18, 2017
EU eyes extending excise
The EU Commission has said that it is looking at whether the tobacco excise system should be extended to cover unmanufactured tobacco.
The Commission made its comment in reply to two members of the EU parliament who had asked what the Commission was doing to fight ‘bulk tobacco inflows into the European Union’.
In a preamble to their question, the Italian MEP, Fulvio Martusciello, and the Slovenian MEP, Patricija Šulin, said the fight against the illegal tobacco trade centered largely on manufactured cigarettes.
However, according to a study carried out by the Universita’ Cattolica del Sacro Cuore and Transcrime in December 2016, the illegal trade in bulk tobacco, or the sale of unbranded cut tobacco outside legitimate channels, had been increasing.
More than €870 million per year was lost in eight EU member states alone, a considerable proportion because of inflows from outside the EU, mainly from Bosnia and Herzegovina.
The illegal tobacco trade was in breach of the competition laws laid down in Article 101 of the Treaty on the Functioning of the European Union, but bulk tobacco had never been cited as a growing problem.
‘In the light of the above information, what is the Commission doing to fight bulk tobacco inflows into the European Union?’ they asked.
In answering, the Commission said it considered smuggling of bulk tobacco a growing and worrying phenomenon. The diversion of bulk tobacco of both EU and non-EU origin to be used for illicit cigarette production or roll-your-own cigarettes had been identified as an increasing problem within the EU and caused losses of excise duties for member states.
The Commission said it had adopted in 2013 a comprehensive strategy to combat the illicit tobacco trade and had been implementing it in close co-operation with member states.
‘In addition, to address more specifically the issue of bulk tobacco smuggling, the Commission is currently carrying out a review of Directive 2011/64 on the excise duty applied to manufactured tobacco,’ the Commission said. ‘One of the issues that the Commission is looking at in that context is whether to extend the excise system to raw tobacco, which is currently exonerated from excise duties.’
August 17, 2017
Tracking the rationale
A member of the European Parliament (MEP) has expressed concern that the introduction of a tobacco tracking and tracing system could run ‘counter to all business rationale’.
In a preamble to questions posed to the European Commission and that will be answered by the Commission in writing, the Hungarian MEP Norbert Erdős said the purpose of the tobacco tracking and tracing system envisaged in Directive 2014/40/EU was to combat the illegal tobacco trade, which was not only prejudicial to public health and taxation, but also detrimental to the legitimate interests of compliant business operators and lawful tobacco growers.
‘I am concerned, however, that the EU system will be nothing but an isolated solution, as there are no guarantees as to whether third countries, which are sometimes the origin of illicit tobacco products, will introduce a similar system,’ he said.
‘Even if they do, such schemes may not be interoperable with the EU system.
‘Without such guarantees, there is a significant risk that we will be introducing a mechanism of very little (if any) public health and budgetary benefit which runs counter to all business rationale.’
Erdős asked:
* ‘How can the Commission guarantee that the EU tobacco tracking and tracing system will be globally interoperable?’ and
* ‘What consultations are taking place with the WHO Framework Convention on Tobacco Control (FCTC) Secretariat and what internationally recognised standards are being taken into account for this purpose?’
August 15, 2017
Running out of steam
The number of smokers in Australia has increased for the first time since anti-smoking campaigns were ramped up a generation ago, casting doubt on the effectiveness of cigarette tax increases, according to a story by Adam Creighton for The Australian.
Creighton quoted Dr. Colin Mendelsohn, an expert in public health at the University of New South Wales, as saying that an unexpected standstill in the national smoking rate since 2013 combined with a rapid population growth had pushed up the number of regular smokers by more than 21,000 to 2.4 million.
Mendelsohn said Australia’s “punitive and coercive” policies to curb smoking had “run out of steam”.
“For the first time ever, there has been no statistically significant reduction in the smoking rate, and an increase in the number of smokers in Australia,” he reportedly told The Australian, noting the nation’s smoking rate was now higher than the US’ smoking rate for the first time in a decade. “This is despite plain packaging and the most expensive cigarette prices in the world.”
Mendelsohn said plain packaging and tax increases had worked better for younger smokers than for older smokers, noting regular smoking rates for 12-to-17-year-olds had halved to 1.5 percent during the past three years. “But we’re left with established, older smokers who can’t or won’t quit. The strategy of higher prices isn’t working for them,” he said.
A standard pack of Marlboro cigarettes averages $25.10 in Australia according to price comparison website Numbeo, compared with $14.80 in Britain, $8.50 in the US and $1.90 in Indonesia.
There was a law of diminishing returns associated with price increases, said Mendelsohn, and a lot of smokers were digging their heels in. High prices were fuelling a black market.
Meanwhile, Dr. Alex Wodak, director of the Australian Drug Law Reform Foundation, endorsed Mendelsohn’s analysis and concerns. “Australia is doing everything right in terms of tobacco control, but one key difference with the UK and USA, where smoking rates have dropped, is our hostility to e-cigarettes,” he said.
Creighton’s story is at: http://www.theaustralian.com.au/news/nation/more-smokers-lighting-up-despite-everincreasing-taxes/newsstory/190014e7306548c49fc372dabb5a0555.
August 15, 2017
‘Smoking fee’ ruled out
A law passed by the Oklahoma legislature with the dual purpose of raising revenue while serving as a smoking-cessation tool has been ruled unconstitutional by the state Supreme Court, according to a story by Richard Craver for the Winston-Salem Journal.
The court’s ruling said, in part, that the smoking-cessation tax was part of an attempt by the Oklahoma legislature to generate new revenue streams to help meet the constitutional mandate to balance the state budget. The state has been dealing in recent years with a declining recurring tax revenue.
Four bills were introduced in the Oklahoma House that listed the $1.50-per-pack levy as a tax.
Their insertion into Senate Bill 845, however, switched the terminology from tax to smoking-cessation fee even though just $1 million of the $225 million in revenue would have been used to discourage tobacco usage among your people.
SB845, which was passed on May 26, was pitched as a way of encouraging smokers to lower, if not eliminate, their consumption of traditional cigarettes by making cigarettes more expensive.
Legislators sought the $225 million in revenue from SB845 as a last-minute strategy to meet the state Constitution’s balanced budget mandate, the court said. It would have been the largest amount of new recurring revenue passed by the legislature during the 2017 session.
The court said the legislature faced a ‘constitutional conundrum’ of whether to violate the constitution with passage of SB845 or violate the balanced budget mandate.
‘None of this is to say that the legislature cannot choose this particular sort of regulatory tool – a sin tax – to further its goal of reducing smoking,’ the court said.
‘But the enormity of the revenue generated by SB845, when contrasted with the (minimal) sums earmarked for smoking cessation programs, and the scant inclusion of any other regulatory function in the bill, compels the conclusion that the generation of revenue for the support of state government was the measure’s primary purpose,’ the justices said.
The approval of the $1.50-per-pack increase was challenged by Reynolds American Inc, Philip Morris USA and several convenience stores, wholesalers and smokers.
The law was set to go into effect in late August.
The state has until Thursday to file a petition for rehearing.
Craver’s story is at: http://www.journalnow.com/business/business_news/local/oklahoma-supreme-court-rejects-per-pack-smoking-cessation-fee/article_49d41e75-6171-58a5-80fb-b0566b37b077.html.
August 15, 2017
Criminals given “leg-up”
An Australian Liberal-party backbencher fears his government may be giving a “leg-up” to organized criminals by continuing to bump-up tobacco taxes, according to a story by Roje Adaimy for the Australian Associated Press.
Craig Kelly told parliament on Tuesday the retail price of a pack of cigarettes was headed toward $40 in Australia, yet packs were being ‘sold wholesale in Asia for the equivalent of $1’.
He agrees the extra revenue from the latest tax increase will help repair the budget and that the high cost of smoking could deter people from smoking.
“But my concern that what will happen, is we’ll be basically creating prohibition by price,” Kelly was reported to have said.
“The risk is that we’re going to turbocharge the illicit and underground market, we’re going to turbocharge smuggling, we’re going to turbocharge black market cigarettes and we’ll be giving a leg up to organised crime.”
According to Kelly, about 14 percent of the cigarettes sold in Australia are illicit, and he wants law enforcement agencies to be given more resources to monitor the trade.
While Mr Kelly is happy to see fewer young people smoking and wants rates to drop to zero, he questioned whether higher prices were just diverting them to other drugs.
“There is a real risk because of the price sensitive nature of cigarettes that we may merely be trading one health hazard for another,” he said.
His comments came as the lower house passed a bill to increase the tax on roll-your-own cigarette tobacco, cigars, snuff, and other products to bring them in line with manufactured cigarettes.
The change, announced in the May budget, will be made over four years and is expected to rake in $360 million.
August 9, 2017
Smoking saves £14.7 billion
Contrary to popular belief, the three most censured ‘lifestyle factors’ – drinking alcohol, smoking tobacco and eating to obesity – do not cost the UK taxpayer money, according to a note posted on the Institute of Economic Affairs’ (IEA) website.
In fact, the punitive taxes levied on the products that fuel these lifestyles more than cover the costs they impose on public finances, ‘providing a net saving to the government of £22.8 billion,’ the IEA says.
The findings of the latest instalment of a three-part series of reports from the IEA, debunks the claims of public health campaigners that these lifestyle choices are draining public services.
‘It may be easy to point the finger of blame at smokers, drinkers and the obese for rising NHS [National Health Service] costs, but this no longer stands up to scrutiny given the findings of this report and the levels of taxation now levied on “sin”,’ the IEA note said. ‘And by scapegoating these people, campaigners and policymakers risk ignoring the real problem that our healthcare system faces: an ageing population.’
The latest report, Smoking and the Public Purse, is said to be the first of its kind to measure the net effect of smoking on the taxpayer in the UK, including savings and focusing purely on external costs.
The costs and savings from smoking are said to be:
- The government spends £3.6 billion treating smoking-related diseases on the NHS and up to £1 billion collecting cigarette butts and extinguishing smoking-related house fires.
- The government saves £9.8 billion annually in pension, healthcare and other benefit payments due to premature mortality.
- The government brings in £9.5 billion annually in duty paid on tobacco.
This means that smoking produces a net saving to the government of £14.7 billion a year, at current rates of consumption.
“We are constantly being told that people who choose to drink, smoke or eat too much are a burden on the UK taxpayer,” said the report’s author Christopher Snowdon, head of Lifestyle Economics at the IEA. “This is one reason why we have seen such aggressive hikes in taxes on alcohol, smoking and very soon, a tax on sugar. But the justification for these taxes is based on an illusion.
“Smokers, drinkers and those who are obese actually provide a net benefit to the public finances, so vilifying them is futile in the quest to make savings for the NHS.
“A careful consideration of the evidence shows that the popular belief that costs will fall if people live healthier and for longer is false. While it’s good that we now have longer life expectancies, policymakers must now address how we tackle the financial consequences of the ageing population rather than pointing the finger elsewhere.”
The IEA note is at https://iea.org.uk/media/uk-will-pay-almost-25-billion-in-sin-taxes-next-year/; from where it is possible to download a copy of ‘Smoking and the Public Purse’, and the separate reports on alcohol and obesity.
August 8, 2017
Tough on tobacco
As part of a new strategy to curb tobacco use, the Armenian government on Thursday announced plans to restrict smoking in public places and raise cigarette prices, according to a story in The Asbarez Post.
Prime Minister Karen Karapetyan’s cabinet was said to have approved the program, which aims to reduce the level of smoking in the country by a targeted amount during the next three years.
According to Ministry of Health estimates, the prevalence of smoking among Armenia’s adult population is more than 25 percent, while that among men is 55 percent.
The Health Minister, Levon Altunyan, said the planned anti-tobacco strategy included wide-ranging measures that would “toughen” rules on smoking in offices, restaurants, cafés and bars, raise cigarette taxes and ban all forms of tobacco advertising.
Speaking to reporters, Altunyan would not say whether there would be a blanket ban on smoking in public places. He said instead that these issues would be clarified when the government sent a package of bills to parliament this fall.
Altunyan insisted that Armenian companies manufacturing and importing cigarettes had not lobbied the government to water down the planned measures.
“We haven’t asked for their opinion either,” he added.
Arsen Torosyan, a doctor and anti-smoking campaigner, cautiously welcomed the government’s plans. “I hope that at least part of what has been declared will be implemented – cigarette prices will be raised, smoking will be completely banned in public places and tobacco advertising will be banned in full,” he said. “This cannot fail to cut the number of smokers because these methods have been successfully used all over the world.
“The key thing here is political will,” Torosyan added, pointing to the failure of a five-year anti-tobacco program adopted by the authorities in 2010.
That program was supposed to reduce tobacco consumption, but government data show that the proportion of heavy smokers in the population increased from 23 percent in 2012 to 26 percent in 2016.
A law that came into force in 2005 banned smoking in hospitals, cultural and educational institutions, and on public buses, while additional restrictions introduced a year later required other entities – including bars and restaurants – to allow smoking only in special ‘secluded areas’. However, since no sanctions were put in place to deter those inclined to ignore the regulations, the measures proved largely ineffective.
August 7, 2017