Category: Taxation

  • Illicit Sales Shrivel in Papua New Guinea

    Illicit Sales Shrivel in Papua New Guinea

    Photo: Anton Balazh

    The prevalence of illicit cigarettes in Papua New Guinea has declined remarkably, report the Papua New Guinea Post-Courier and The National, citing a report by the Manufacturers Council of Papua New Guinea (MCPNG).

    According to MCPNG CEO Chey Scovell, the share of tax-avoiding products has declined to 4 percent from 40 percent, allowing tax authorities to collect more revenue. “This is a massive drop, which has resulted in the PNG government taking back millions of kina in revenue from the illicit tobacco importers and sellers, when you consider that government was forgoing almost half a billion kina each year from untaxed illicit tobacco,” Scovell said. 

    He attributed this success to the implementation in 2019 of a new system to encourage manufacturers to produce and sell a smaller portion of their products at a reduced rate.

    “By allowing a 50 percent discount on taxed supplies, a real problem coming from high taxes has been addressed,” said Scovell. Previous high tax rates led to more illicit consumption, he noted. “Consumers in PNG faced prices as PGK1.20 ($0.32) for legal products compared to the PGK0.50 for illicit alternatives.”

    “Although there is still an ongoing battle to lower prices further, market observations reveal approximately 85 percent of consumers are shifting toward legal purchases,” Scovell said.

    “I appeal to the government to continue this so we do not go back to 2018 levels of illicit tobacco flooding our markets and causing the government and legitimate business to lose out,” he said.

  • Latvia to Raise Liquid Tax by 21 Percent Yearly

    Latvia to Raise Liquid Tax by 21 Percent Yearly

    Photo: alexlmx

    Latvia will increase excise taxes on e-liquids by an average of 21 percent annually until 2026. The excise tax rates on heated-tobacco products and combustible cigarettes are set to increase by 5 percent and 5.6 percent every year, respectively.

    Meanwhile, the tax on other “tobacco substitute” products, including nicotine pouches, will rise by 10 percent.

    Tobacco harm reduction advocates warned that the measure would negatively impact Latvia’s efforts to curb smoking by making safer alternatives less attractive.

    “Increasing the taxation of safer nicotine products will discourage smokers from switching and push users back to smoking,” said Alberto Gomez Hernandez, community manager of the World Vapers’ Alliance, in a statement.

    “The international evidence has shown that increasing taxation of e-cigarettes and e-liquids has always led to an increase in smoking, particularly among young adults and low-income groups.

    “Latvia should follow the steps of countries that are successfully reducing smoking rates by encouraging smokers to switch, such as the United Kingdom and Sweden, instead of making it more costly for them.”

  • Pacific Disputes ‘Shocking’ Tax Bill

    Pacific Disputes ‘Shocking’ Tax Bill

    Pacific Cigarette Co. co-founder and chairman, Adam Molai, during a virtual press conference on Oct. 11

    Pacific Cigarette Co. (PCC) of Zimbabwe has rejected a US$33 million tax bill (comprising separate assessments of US$19 million plus ZWD79 billion) and hopes an ongoing discussion with the national revenue collector will lead to an amicable settlement of the impasse.

    PCC went into voluntary business rescue soon after the Zimbabwe Revenue Authority (ZIMRA) in June handed it the assessment covering the periods 2018, 2019 and 2020.

    Adam Molai, co-founder and chairman of the Harare-based firm, told journalists during a virtual press conference on Oct. 11 that the bill was too high for any local company to be liable for over three years.

    “I don’t believe there is any company in Zimbabwe which over a period of three years can rack up a tax bill of over $20 million so that’s why we are disputing it,” he said.

    “This period that is being talked about is the period 2018, 2019 and 2020, but from the year we started operating until 2020 we have been audited every single year by ZIMRA, so it shows that we are compliant.”

    PCC”s production has, since 2005, been based on toll manufacturing, which meant it manufactured cigarettes for other firms.

    However, authorities have changed the way they calculate tax for toll manufacturers, which left PCC with obligations amounting to $33 million.

    The bill, Molai said, is “shocking” in terms of its magnitude.

    “Effectively what this assessment means was that if you look at a company [which for example] sells a product at $100, it has a cost of sales of $70 which is raw materials,” he said.

    “ZIMRA came in and said the $70 of raw materials is also income and because ‘we are deeming it income, we are going to levy VAT on it and after levying VAT because it is 2018, 2019 and 2020 we are also going to levy interest and then we are also going to levy a penalty for each of the years,’ so effectively what that would mean is Pacific produces their cigarettes at a price of zero. If our cost of sales is also deemed income it means our cost of production is zero, our raw materials are for free and that is what we are disputing.”

    PCC says it pays an average of $3 million in taxes yearly and has invested up to $250million since it started operating in 2002 as a threshing company.

    ZIMRA has 90 days within which to respond to an objection but before that period had elapsed, it, Molai claimed, issued a garnishee order against PCC.  The tax collector also wrote to the company’s clients asking them to pay all they owed PCC to ZIMRA instead.

    “That closes all our income streams and that is when we took the decision to say the most responsible decision is to place the business under business rescue,” said Molai.

    Responding to a question from Tobacco Reporter, Molai expressed confidence that ZIMRA will hand down a favorable decision but if it turns out negative, the company will appeal to the courts.

    “The day that the contingent liability is removed off our balance sheet, we will have an extremely strong balance sheet,” he noted.

    “The good thing about our company that is different from other companies that go into business rescue is we don’t have multiple challenges to address, we only have one single challenge to address which is this dispute.”–Daisy Jeremani

  • Ireland Raises Cigarette Prices, Plans Vape Tax

    Ireland Raises Cigarette Prices, Plans Vape Tax

    Image: Vitalii

    Ireland increased the price of a pack of 20 cigarettes by €0.75 ($0.80) and announced a new tax on vaping products for next year, reports The Irish Times. Other tobacco products will be subject to a pro-rate increase.

    The move “supports public health policy to reduce smoking levels in Irish society,” according to Finance Minister Michael McGrath.

    “In light of public health interests, continuing delays to the revision of the Tobacco Products Tax Directive and the Program for government commitment to tax e-cigarettes and vaping products, I am proposing to introduce a domestic tax on these products [e-cigarettes and vaping products] in next year’s budget,” said McGrath.

    “Considerable preparatory work” by the Department of Finance and Revenue will be necessary to draft the underpinning legislation, he said.

    “Nicotine is one of the most addictive substances on the planet, and there has been an explosion in youth use of e-cigarettes that has been further fueled by the advent of disposable vapes,” said Chris Macey, director of advocacy with the Irish Heart Foundation. “We can’t afford to wait a moment longer than necessary to impose this tax.”

    The Irish Heart Foundation called on the finance minister last week to introduce a €0.10 per milliliter tax on e-liquid.

    Smokers’ rights group warned against unintended consequences. “Annual tax hikes on tobacco are punishing consumers for enjoying a perfectly legitimate habit,” said John Mallon, spokesperson for Forest Ireland. “Not only does it discriminate against consumers on lower incomes, [but] it will drive even more smokers to the black market.” Mallon said smokers “don’t deserve” the excise increase.

    “Legitimate retailers will lose business to criminal gangs, and smokers who stay within the law will be further punished compared to those who, understandably, buy their tobacco from illicit traders,” he said.

  • Serbia Raises Excise on Tobacco

    Serbia Raises Excise on Tobacco

    Image: Henning Marquardt

    Serbia has raised excise taxes on cigarettes, fuel, alcohol and coffee by 8 percent, effective Oct. 1, reports Euractiv.

    According to Bojan Stanic, deputy director of the Strategic Analysis Department at the Serbian Chamber of Commerce, the increase does not mean the products will become 8 percent more expensive; it comes down to the price structure.

    “Excise taxes are increasing by 8 percent,” said Stanic. “When you look at the price structure of fuel, one part relates to the purchase price of fuel, and then excise tax is added, and this part of the excise tax is increased by 8 percent. This does not necessarily mean fuel at the pumps will become much more expensive.”

    “The budget of Serbia is constrained, and it is under pressure due to rising interest rates for repaying the state’s debt,” said Stanic regarding the decision. “On the other hand, there is pressure that mostly affects the poor, and of course, it is necessary to provide increases in pensions and one-time transfers to the population in terms of assistance. All of this is applied to relieve the poorest part of the population. Additionally, it was necessary to find additional revenues. Someone calculated that increasing excise taxes was the way to go.”

    “However, when we talk about other products like coffee, alcohol, and tobacco, which are also subject to excise taxes, these are not essential goods; people can live without them. Therefore, it is believed that there will be less resistance if taxes on these products are increased,” he added.

  • Korean Court Overturns PM Tax Refund

    Korean Court Overturns PM Tax Refund

    Photo: mnimage

    The Supreme Court of Korea has overturned a ruling that awarded Philip Morris Korea a tax refund, reports Business Korea. The case has now been sent back to the Suwon High Court.

    The dispute stems from 2014, when fiscal authorities announced new cigarette taxes that caused the price of pack of cigarettes to increase from KRW2,500 ($1.95) to KRW4,500 in January 2015.

    The National Tax Service (NTS) argued that Philip Morris Korea had sold cigarettes stored in purpose-build warehouses to wholesalers at an inflated price after January 2015, but had manipulated the sale to appear earlier in order to evade the additional special consumption tax that followed the price increase.

    When the NTS demanded tax payments of KRW99.7 billion, Philip Morris Korea challenged the decision, first the Tax Tribunal and then in court.

    The lower court accepted the company’s claim that the cigarettes in question were shipped to wholesalers in 2014, before the special consumption tax was applied.

    However, the Supreme Court viewed Philip Morris Korea’s temporary warehouses as a stopgap measure intended to accumulate as much inventory as possible before the price increase, in order to profit from the price differential later on.

    “Even if the computer system shows that the cigarettes were sold in advance before the tax increase, the special consumption tax should be levied based on Jan. 1, 2015, when the cigarettes actually moved from the temporary warehouses to the wholesalers,” the court said in its ruling.

  • Less Smoking Affects Childhood Services

    Less Smoking Affects Childhood Services

    Image: Seventyfour

    The decline in California smoking rates is affecting the state’s early childhood services, reports the San Francisco Chronicle.

    First 5 California, the state’s early childhood services, are mostly funded by cigarette and other tobacco product taxes. In 1998, voters passed Proposition 10, which levied a tobacco tax and dedicated the money to programs that would help families with young children. It was not meant to be a permanent solution for funding, however. First 5 programs around the state are trimming budgets and cutting back programs now that the funding is decreasing.

    Last year, Californians passed Proposition 31, which banned the sale of flavored tobacco products.

    “We all expect revenues to go down, the question is what will be the magnitude,” said Michael Ong, chair of the state’s Tobacco Education and Research Oversight Committee.

    First 5 cuts differ among counties—some counties rely more heavily on tobacco tax funds than others, and each county has made cuts in ways they see fit, for example, cutting programs supporting foster children and dental health and support for family shelters.

    The group funds a broad number of programs in partnership with nonprofits, local hospitals, clinics and county health and education offices. Some of the programs they fund include children’s mobile immunization clinics, dental services, developmental screenings, family case management, parenting classes and home visits from a nurse for first-time mothers. Programs vary by county.

    First 5 expects to receive about 30 percent less funding from tobacco taxes by 2026 compared to 2021. Projections for this year’s budget had First 5 receiving about $348 million from tobacco taxes. After the flavor ban was passed, the new budget had the organization receiving about $310 million, and by 2026, projections show a decrease to $280 million.

    From 1999 to 2000, the organization received $690 million from tobacco taxes.

    Statewide, tobacco taxes account for 73 percent of First 5’s annual budget, but this varies by county—First 5 distributes funds based on an equation that takes into account birth rate.

    Ong stated that ideally, the group would source funding from elsewhere. “But that’s a pretty tall order for county governments,” he said. 

  • Health Minister Wants Larger Share Taxes

    Health Minister Wants Larger Share Taxes

    Photo: MemoryMan

    MemoryMan

    The government of Nepal should direct all the money its collects from tobacco products to the Ministry of Health and Population, Health Minister Mohan Bahadur Basnet told lawmakers on July 13, according to a report in My Republica. 

    The Nepalese state earns an estimated NPR6 billion ($45.66 million) in tobacco taxes annually. The health ministry, however, receives only NPR4 billion, Basnet lamented.

    The additional tax revenues could be used to add more doctors and health workers, he suggested.

  • Industry Concerns Over Romanian Tax Plans

    Industry Concerns Over Romanian Tax Plans

    Image: Tobacco Reporter archive

    Romania’s finance ministry plans to increase excise duties on tobacco and nicotine products this year in addition to the excise calendar that has already been approved, causing tobacco firms concern, according to The Romania Insider.

    “The moderate five-year timetable for increasing excise duty adopted less than 12 months ago should have provided the fiscal predictability needed to combat illicit trafficking,” said Jorge Araya, director of the southeast Europe area for BAT. “It should not be forgotten that illicit trafficking also means decreasing revenues to the state budget, financing criminal networks and uncontrolled access to products that do not meet quality or hygiene standards.”

    Excise duty was previously increased in April of this year. Excise duties and cigarette prices in Romania are the highest in the European Union in relation to purchasing power.

    Araya argues that the tax increases make smuggling very profitable because cigarettes can be bought in neighboring countries at around half the price of those in Romania.

  • Nigeria Suspends Taxes on Tobacco

    Nigeria Suspends Taxes on Tobacco

    Image: Tobacco Reporter archive

    Nigeria’s president, Bola Tinubu, has suspended excise taxes on some locally produced goods, including tobacco, and telecommunications services that were introduced two months ago, reports Bloomberg.

    Tinubu signed the executive orders to “address business unfriendly fiscal policy measures and multiplicity of taxes,” according to his spokesman, Dele Alake.

    The order includes certain imported vehicles, single-use plastic products and domestically manufactured alcoholic drinks and tobacco. The excise taxes were introduced by Muhammadu Buhari in his last weeks in office.

    Tinubu “promised to run a government that will not make life difficult for Nigerians or asphyxiate corporate entities,” Alake said.