Category: Taxation

Tax key to illegal trade
Despite measures taken since 2013, the challenge posed by the illegal tobacco trade remained as ‘preoccupying’ today as it had been in the past, according to a report last week by the EU Commission to the Council and Parliament.
‘The EU and its member states have no choice but to continue to address the threat from illicit tobacco and its changing patterns with determination, since this illicit activity is detrimental to public health, finances and security,’ the report’s conclusion said.
‘With its combination of strong legislative responses, robust law enforcement and enhanced co-operation at national, European and international levels, the 2013 Strategy remains relevant. It is too early to pass final judgment on its effectiveness, since its key components – such as tracking and tracing – are not yet applicable.
‘Looking at the growing threat from cheap whites in particular, the FCTC [World Health Organization’s Framework Convention on Tobacco Control] Protocol – once fully applied by a critical mass of countries, including key source and transit countries – will be a key tool in combating the global illicit tobacco trade. However, while tracking and tracing in particular will help to secure the legal supply chain, additional tools will be needed to address domestic or foreign clandestine cigarette production effectively.’
One of those tools is seen as the reduction of price differentials between countries – that is, the reduction of tax differentials.
‘Despite the actions taken so far, the size of illicit trade remains by and large stable,’ the report said in a section headed Further reflections. ‘In particular, the phenomenon of cheap whites and counterfeits, while not entirely new, has become increasingly troublesome over the last years. Therefore, now seems to be the right moment for considering additional measures to effectively complement the 2013 Strategy in the future.’
One of those measures would involve reducing the ‘incentives’ for smugglers.
‘Currently, the main incentive for the illicit tobacco trade is the possibility to exploit price differentials between EU member states and neighboring countries, but also between markets in EU member states,’ the report said. ‘One standard 40ft container holding some 20 million cigarettes smuggled into the EU can yield up to €2 million in illegal revenue depending on the tax burden. The level of taxation is a major factor in the price of tobacco products, which in turn influences consumers’ smoking habits, following the rules of price elasticity. A certain degree of upward convergence between the tax levels applied in the member states would help to reduce fraud and smuggling. Neighboring countries such as Belarus with an excessively low tax rate on tobacco products should be urged to approximate their excise duty rates with the minimum rates in the EU, not least in the shared interests of health policy and raising public revenue.’
The report goes on to describe how the effect of reduced incentives could be enhanced if in parallel smugglers’ production and distribution costs were driven up and if sanctions had a sufficiently dissuasive effect.
The Commission said that based on its present analysis and further dialogue with stakeholders, it would complete its evaluation of the present strategy and decide on the appropriate follow-up in 2018.
May 16, 2017
Mighty in talks over future
The LT Group and British American Tobacco are reportedly in talks with the Wongchuking family about the acquisition of the Bulacan-based cigarette maker Mighty Corp, according to a story in the Philippine Star relayed by the TMA.
Some industry observers believe that such an acquisition could bail out Mighty from a 36.5 billion-peso (US$734.2 million) tax evasion lawsuit.
Previous reports claimed that other tobacco firms, including Associated Anglo-American Tobacco and Japan Tobacco Inc, had expressed interest in acquiring Mighty.
An unnamed source said Mighty was looking to sell only its assets, such as machinery and other equipment, while retaining its sprawling nine-hectare property in Bulacan, which it could lease to tenants.
A final decision is expected in June.
The company has not been able to import raw materials since a Board-of-Customs order on March 14 and it is now said to be relying on its inventory, which running down.
Meanwhile, a number of retailers are said to have stopped selling the company’s products.
The Philippine Amalgamated Supermarkets Association was quoted as saying that some retailers had begun taking Mighty products from their shelves amid concerns that they could be cited for selling cigarette packs carrying counterfeit or fake tax stamps, should the allegations against Mighty be proven.
May 16, 2017
Tax on e-cigs should be zero
Declining smoking rates in Europe mean less tax revenue for many fiscally strained governments, but trying to make up for these losses with a tax on electronic cigarettes would be a big mistake, according to piece by Alex Brill published on euractiv.com.
Brill is a research fellow at the American Enterprise Institute, a Washington DC-based think tank.
Following actions by some European nations, the European Commission was now contemplating the proper tax treatment of e-cigarettes and had just finalised a public consultation on the topic, he wrote.
Taxing e-cigarettes would have a negative effect on nascent, but important, public health gains for four reasons.
The first reason was that e-cigarettes posed a far lower risk to the health of users and non-users than did traditional tobacco cigarettes.
The second was that e-cigarettes were effective tools for helping smokers quit.
The third was that e-cigarette usage was still relatively low and a tax would discourage smokers from switching.
And the fourth was that taxing e-cigarettes had not proven to address budget woes.
Brill said that the good news was that the clinical evidence clearly indicated that e-cigarettes were less risky substitutes for conventional cigarettes.
‘Given that a core objective of the European Commission Tobacco Products Directive is to ensure “a high level of health protection for European citizens”, the proper tax to levy on e-cigarettes should be self-evident: none,’ he wrote.
The full euractiv.com version of Brill’s piece, which has been published also in media outside of Europe, is at: https://www.euractiv.com/section/health-consumers/opinion/dont-thwart-an-ally-in-the-war-on-tobacco/.
May 15, 2017
Limited tax increase plea
The Association of Indonesian Light Cigarette Producers (Gaprindo) has said that the excise increase for light – also known as white or non-kretek – cigarettes should not be more than five percent because of an ongoing economic slowdown in the country, according to a story in The Jakarta Post citing a report at kontan.co.id.
“Customs and excise is quite burdensome for industry players,” Gaprindo’s chairman Muhaimin Moefti was quoted as saying.
“This year, it rose by 10 percent, and even last year it rose by 15 percent.”
The association had asked the government to review customs and excise rates every three to five years, instead of every year as was done currently, said Muhaimin.
Separately, the Finance Ministry’s customs and excise director general, Heru Pambudi, said the government was not planning for a tobacco-products revenue increase.
He projected that there would be a decrease in production of two percent this year.
As of April, he added, his directorate had recorded a decrease in customs and excise revenue when compared with the revenue of the same period of last year.
May 15, 2017
Huge tax increase in Taiwan
Taiwan’s Ministry of Finance said yesterday that the price of cigarettes would be increased by NT$20 (US$0.60) per pack on the back of a 169 percent increase in tax, according to a story in The Taiwan News.
The announcement followed the passing by the Legislature of the third and final reading of an amendment to the Tobacco and Alcohol Tax Act.
The increase is due to take effect on June 20.
The amendment raises the cigarette tax from NT$590 per 1,000 cigarettes (per kilogram) to NT$1,590, which translates into a tax per pack of NT$31.8, up from the current NT$11.8.
The Finance Ministry said the increase was expected to generate NT$23.3 billion in additional annual tax revenue, which would be used to fund a long-term care program for seniors.
Finance Minister Sheu Yu-jer said earlier this year that he believed the policy would also help curb tobacco consumption and promote public health.
May 12, 2017
Considering fairer taxes
The new president of South Korea, Moon Jae-in, is to examine the possibility of making tax-free cigarettes available to low-income earners, according to a story in The Korea Herald.
A cigarette excise tax increase by the previous administration at the start of 2015 raised the price per pack from 2,500 won ($2.20) to 4,500 won.
The tax increase was widely criticized as being regressive, while not lowering cigarette consumption significantly. According to market research firm Nielsen Korea earlier this year, cigarette consumption in 2016 rose 9.3 percent from that of 2015, showing that the effect of higher prices on cigarette sales had mostly dissipated.
During his campaign, Moon said that the excise tax was unfairly burdensome on low income smokers.
The Herald reported that industry watchers had not expected Moon to lower the tax because the increased tax revenue would be necessary to fund campaign pledges.
However, according to an opinion piece by Park Moo-jong published in the Korea Times at the end of April, of the five major candidates in the May 9 presidential elections in South Korea, four had vowed to freeze cigarette prices and one had pledged to cut them. Hong Joon-pyo, at the time a conservative front-runner, reportedly said that, if elected, he would cut cigarette prices from 4,500 won (about US$4) to 2,500 won a pack.
A spokesman for President Moon’s administration said yesterday that cigarette taxes would remain at their current level.
“Instead of lowering the tax, we are looking into the possibility of creating tax-free cigarettes for low income consumers,” the president’s spokesman Hong Ik-pyo told The Korea Herald.
But Hong said that no timeframe has been set for the introduction of the lower-priced cigarettes.
May 11, 2017
Illegal trade up 90 percent
The consumption of illicit cigarettes in India increased by 90 percent last year, according to a story by Siddharth Tiwari for the Sunday Guardian, citing ‘industry’ figures.
Industry studies backed by seizure figures are said to have revealed that 17 billion cigarettes are smuggled into India each year.
But, presumably because of locally-produced cigarettes on which tax is not paid, the total number of illicit cigarettes on the market is much higher. According to Euromonitor International, the number of illicit cigarettes consumed in India has increased from 11.1 billion in 2004 to 23.9 billion in 2015.
This was said to make India the fourth largest illicit-cigarette market.
Meanwhile, a study by the Federation of Indian Chambers of Commerce and Industry indicated that the number of illicit cigarettes in India had double during the past decade, causing an annual revenue loss to the national exchequer of more than Rs90 billion.
The illegal trade was said also to be undermining the government’s efforts to reduce smoking by making cigarettes increasingly expensive.
But some see the high-tax strategy used by the government as being at least part of the problem.
Tobacco-industry experts were said to have told the Sunday Guardian that high and discriminatory taxes, coupled with extreme regulations such as pictorial warnings, were providing a boost to the illegal cigarette trade in India.
“The illegal cigarette trade is on a growth trajectory due to the high tax arbitrage,” said Syed Mahmood Ahmad, director of the Tobacco Institute of India.
“In addition to this, non-adherence of illegal cigarettes with regulations like pictorial warnings lends an impression that they are safer alternatives to their legal counterpart.”
May 9, 2017
Warnings up to 90 percent
The government of Nepal is aiming to require that tobacco manufacturers include 90-percent graphic health warnings on their products from 2018, according to a story in The Kathmandu Post
The requirement would be aimed at discouraging tobacco consumption.
But it was not clear from the story how far along the road were plans for the new warnings.
Addressing an event in the capital entitled, the South Asian leadership training for the control of tobacco products, the Minister for Health, Gagan Kumar Thapa, said the Nepal government aimed to build a tobacco-free generation by 2030.
He said he believed that requiring graphic health warnings on tobacco products would reduce demand for such products and contribute to creating a healthier society.
And he added that those warnings should take up 90 percent the packaging – presumably 90 percent of the main surfaces.
At the same time, on the recommendation of the World Bank and the World Health Organization, the government is said to be planning to hike excise duty and value added tax for tobacco products.
The minister said also that the government was working to raise the minimum legal age to 21 years for buying and using tobacco products, a provision that would be in place by 2018.
May 9, 2017
New taxes add fuel to fire
The tobacco provisions within Ontario’s 2017 budget have been described by Imperial Tobacco Canada as a reversal of previous policy and a boost for those involved in the country’s biggest illegal tobacco market.
The budget imposes an additional $2 in tax on a carton of cigarettes and makes provision for the addition of another $8 in tax during the next two years.
The Finance Minister was said to have reversed the province’s policy on tobacco taxation a year after putting it in place.
In a statement issued through PRNewswire, Imperial said it was committed to working with government on responsible legislation and fiscal policy, but believed the budget measures would push more people toward the illegal market.
“For a province that has the highest contraband rate in Canada and the second highest in all of the Americas, this increase is both irresponsible and irrational,” said Eric Gagnon, head of Corporate and External Affairs. “The Wynne government is caving to the agenda of radical anti-tobacco lobbyists, an agenda that completely ignores public health and the realities of Ontario’s illegal tobacco trade. Now that these groups have had their way, it’s time to take action because these increases will only exacerbate the significant contraband problem in the province.”
Imperial’s statement said that Ontario was the hub of Canada’s contraband tobacco trade and lost an estimated $1 billion in tax revenue each year because of that trade.
The province was home to more than 20 illegal tobacco factories and hundreds of smoke shacks with ample production capacity.
Illegal cigarettes were produced in facilities that were unlicensed, unregulated and uninspected, and because these products were not taxed, they were purchased illegally for a fraction of the price of legal products.
“If health groups are truly concerned with the health of Ontarians, then we invite them to join in the fight against the illicit trade, which provides cheap cigarettes to youth,” said Gagnon. “It’s time to stop turning a blind eye to the growing criminal trade that’s taking place, not only to help curtail tax evasion, but for the fiscal equity and safety of all Ontarians living in the communities where these criminals operate. This reckless, head-in-the-sand approach to tobacco taxation only benefits organized crime.”
“Ontario has poured gasoline on a fire of its own making and has gone back on a commitment it made in its 2016 budget for scheduled, moderate tobacco tax increases over time. The question now is whether or not Ontario will take decisive action to put that fire out? We have seen none so far,” said Gagnon.
May 1, 2017
Consumption increased
The number of cigarettes smoked in Sri Lanka increased by 6.4 percent between 2014 and 2016, according to a story in the Daily News quoting the executive director of Verite Research, Dr. Nishan De Mel.
Addressing a press conference held at the Government Information Department Auditorium in Colombo on Thursday, he said that 3,560 million cigarettes were smoked in the country during 2014, and that this figure had risen to 3,960 million in 2015 and to 3,790 million in 2016.
It was suggested that smoking should be reduced by 25 percent and that this decrease should be brought about at least in part by increasing taxation.
Meanwhile, the executive director of the Alcohol and Drug Information Center, Pubudu Sumanasekara, said that people did not switch to beedis after an increase in the price of cigarettes, as was stated in media reports.
This was because there were cheap cigarettes in the market.
It was very difficult to make the Finance Ministry and the financial section of the media understand the truth about the tobacco industry, he said.
May 1, 2017