Category: Taxation

  • Tobacco Tax Dropped from U.S. Legislation

    Tobacco Tax Dropped from U.S. Legislation

    Photo: RomanR

    Previously proposed tobacco tax increases have been removed from the U.S. Build Back Better Act, a massive piece of legislation conceived to fund Covid-19 relief, boost economic recovery and invest in new infrastructure. The most recent version of the proposed bill, H.R. 5376, makes no mention of the measures.

    The dropped proposal would have effectively doubled the federal excise tax on small cigars and cigarettes, and it would have increased the tax on chewing tobacco from a little over $0.50 to $10.70—more than 21 times its current level. It also called for a new tax on vapor products.

    The proposed tobacco tax hikes attracted fierce criticism from retailers and tobacco harm reduction advocates, among others.

    On Sept. 24., the National Association of Convenience Stores sent a letter warning lawmakers against unintended consequences, such as illegal trade and underage sales.

    “When the price of a product rises too much too fast, illicit purveyors will seize the opportunity to exploit and take advantage of current users and entice new users without discriminating based on age,” the letter read. “This undermines the responsible measures our retailers have taken and creates a problem for society as a whole.”

    Earlier, the Tax Foundation cautioned that the proposal would make cigarettes—the most harmful tool to consume nicotine—cheaper than other, less-risky tobacco products in many states.

    While every U.S. state taxes cigarettes by quantity, a majority tax other tobacco products by price. When states tax tobacco products by price, the tax on the product will “pyramid” since the federal tax is levied at the manufacturer level and the state tax is levied at the distribution level, according to the Tax Foundation.

    “In effect, the state tax base includes the federal tax and becomes a tax on a tax,” wrote Ulrik Boesen, senior policy analyst in excise taxes of the Tax Foundation.

    While the most recent version of the H.R. 5376 omits tobacco tax hikes, there is no guarantee the measure will not reappear in future renderings of the proposed legislation.

  • Trade Warns Against Tax Hike’s Unintended Consequences

    Trade Warns Against Tax Hike’s Unintended Consequences

    Photo: RomanR

    A coalition of trade associations, including the National Association of Convenience Stores, has warned U.S. Congress against the unintended consequences of raising tobacco taxes, reports Politico.

    Lawmakers have been debating an ambitious plan to create jobs and lower the cost for services such as childcare, higher education and healthcare. The Build Back Better Bill is to be funded by higher taxes on the wealthiest individuals and large corporations, including tobacco companies.

    The proposal would effectively double the federal excise tax on small cigars and cigarettes, and it would increase the tax on chewing tobacco from a little over $0.50 to $10.70—more than 21 times its current level. It also establishes a new tax on vaping, or e-cigarettes.

    In a letter dated Sept. 14, the trade associations argued that if the price of tobacco products spikes, buyers would move to the tobacco black market where sellers don’t abide by standard regulations and often prey on young people.

    “When the price of a product rises too much too fast, illicit purveyors will seize the opportunity to exploit and take advantage of current users and entice new users without discriminating based on age,” the letter reads. “This undermines the responsible measures our retailers have taken and creates a problem for society as a whole.”

    Erika Sward, assistant vice president of national advocacy at the American Lung Association, countered that raising taxes is effective at reducing tobacco consumption.

    “Very predictably and very unfortunately, this letter goes right to what the industry always argues when a meaningful and effective proposal is on the table, which is that there’s going to be a black market,” Sward said. “It bears itself out over and over again, but the bottom line is [that] what happens is we have fewer people buying tobacco products, especially kids,” with higher taxes.

    The funding proposal has also been criticized for making potentially less harmful smoking alternatives, such as vapor products, more expensive than cigarettes.

  • Indonesia to Raise Cigarette Taxes

    Indonesia to Raise Cigarette Taxes

    The government of Indonesia will increase cigarette taxes next year, reports Tempo, citing Finance Ministry Head of Excise Sarno.

    According to Sarno, cigarette sales in Indonesia reached 356.5 billion units in 2019, a year in which there was no tax increase and cigarettes sold for IDR22,940 ($1.61) per pack. In 2020, a tax hike drove the per pack price to IDR24,632 and sales dropped to 322 billion sticks.

    Sarno explained that the Finance Ministry decided to raise the excise because it is considered to be effective in controlling tobacco consumption or smoking, particularly among children. “The support from various parties makes us enthusiastic to support public health,” he said in a webinar held by the Center of Human and Economic Development of the Ahmad Dahlan Institute of Technology and Business Jakarta on Oct. 7, 2021.

    The Finance Ministry also aims to reduce the prevalence of underage smokers from 9.1 percent to 8.7 percent, which is in line with the National Medium-Term Development Plan 2024.

    Sarno said that the ministry considered issues of health, state revenues, labor, farmers, industry, raw materials trade and illegal tobacco before raising the cigarette tax.

  • Thailand OKs New Tobacco Tax Structure

    Thailand OKs New Tobacco Tax Structure

    Photo: Jo Panuwat D.

    Thailand’s cabinet has approved a new excise tax structure for cigarettes, reports The Bangkok Post, citing a finance ministry source. The measure is expected to take effect Oct. 1.

    At present, Thailand levies a 20 percent tax on the retail price for cigarette packs costing up to THB60 ($1.77). If the retail price exceeds THB60 per pack, a 40 percent tax rate is applied.

    The cabinet has reportedly agreed to raise the tax rate from 20 percent to 25 percent, including the 40 percent tax rate, together with an adjustment of the retail price, which is at least THB60.

    The levy in terms of volume will be raised to THB1.25 per cigarette from THB1.20, with the retail price expected to rise by THB6 to THB8 per pack.

    Panuphol Rattanakanjanapatra, governor of the Tobacco Authority of Thailand, has warned that the tax hike will substantially boost the illegal cigarette trade.

  • Tobacco-Heating Market Slumps After Tax Hike

    Tobacco-Heating Market Slumps After Tax Hike

    Photo: Юрий Дьяконов

    The market for heated-tobacco products in Ukraine has stopped growing in the wake of a significant tax hike at the start of 2021, reports the Interfax-Ukraine News Agency. According to Philip Morris International’s local director, Kostas Salvaras, sales will likely decline in 2021.

    PMI estimates the market grew by 80 percent in 2020. On Jan. 1, 2021, Ukraine increased the excise tax on heated-tobacco products by 320 percent, causing retail prices to jump and sales to slacken. According to PMI data, retail prices on tobacco sticks have increased by an average of UAH13 ($0.49).

    According to PMI, the state budget receipts from the sale of heated-tobacco products in the fourth quarter of 2021 will decrease by 60 percent to 70 percent compared to the same period in 2020. The company intends to reduce the purchase of excise duty stamps for heated-tobacco products by nearly 67 percent in the quarter.

    Meanwhile, PMI has already observed an increase in heated-tobacco products smuggled from neighboring countries where prices are lower.

    Salvaras estimates that illicit sales now account for 15.9 percent of the Ukrainian tobacco market compared with 2.3 percent in 2017. Given the current level of illegal trade, the state will receive less than UAH13.2 billion in tax receipts in 2021, he said.

    PMI has urged the Ukrainian parliament to reconsider plans to further raise excise taxes and delay the next jump in prices for heated-tobacco products.

    “This is a necessary step that will allow consumers and businesses to ‘digest’ the 320 percent increase and adapt to new conditions,” said Salvaras. “It will also stimulate the attraction of additional investments in this area, which is important both for the country’s economy and for public health—after all, the authorities should be interested in motivating smokers to look for a less harmful alternative to cigarettes.”

  • Philippines Urged to Raise Cigarette Excise

    Philippines Urged to Raise Cigarette Excise

    Image: Tobacco Reporter archive

    The Philippines should increase excise taxes on tobacco products to at least 75 percent of the average retail price, according to Jeremias Paul Jr., a former undersecretary at the department of finance who now leads the World Health Organization’s fiscal policy unit.

    The measure would generate additional revenue for Covid-19 measures and minimize coronavirus infections with severe symptoms.

    “With this limited fiscal space, one potential option I really urge countries to do is raise tobacco and other health taxes. Raising excise taxes on tobacco products is a proven effective and cost-effective measure to prevent NCDs [noncommunicable diseases],” he told The Philippine Star.

    According to Paul, the government should also consider factors such as affordability trend and tax structure in determining how much tobacco tax should be imposed.

    At the end of the day, he said the excise tax should result in price hikes that will force buyers to rethink consumption.

    In 2019, President Rodrigo Duterte signed into law an excise tax of PHP45 ($0.88) per pack on cigarettes. The amount is set to increase to PHP50 this year, PHP55 in 2022 and PHP60 in 2023.

    Last year, revenue agencies collected PHP148.45 billion in tobacco taxes, exceeding their target of PHP139.12 billion by nearly seven percent. In 2021, collection has grown by more than 31 percent to PHP82.97 billion as of the end of July from PHP63.3 billion a year ago.

  • Tax Hike Could Make Cigarettes Cheap Option

    Tax Hike Could Make Cigarettes Cheap Option

    Photo: RomanR

    A proposal to raise U.S. federal taxes on tobacco could make cigarettes—the most harmful way to consume nicotine—cheaper than other tobacco products in many states, warns Ulrik Boesen, senior policy analyst in excise taxes of the Tax Foundation.

    The proposal, which would double the tax on cigarettes while taxing every other tobacco and nicotine product at comparable rates, would likely also boost tobacco product smuggling.

    Writing on the Tax Foundation’s website, Boesen says these unintended consequences are due in part to the way other levels of government tax tobacco. While every U.S. state taxes cigarettes by quantity, a majority tax other tobacco products by price. When states tax tobacco products by price, the tax on the product will “pyramid” since the federal tax is levied at the manufacturer level and the state tax is levied at the distribution level.

    “In effect, the state tax base includes the federal tax and becomes a tax on a tax,” explains Boesen.

    Boesen says there are additional reasons not to levy tobacco excise taxes based on price. “For most excise taxes, the base should be the harm or cost-causing element because that best internalizes a negative externality,” he says. “For tobacco products, that is clearly the quantity of tobacco consumed.”

  • Thailand Plans Cut in Tobacco Duty to Lure Foreigners

    Thailand Plans Cut in Tobacco Duty to Lure Foreigners

    Photo: Osipov

    Thailand is preparing to halve the duty on imported cigars for five years as part of an economic stimulus and investment promotion package, reports The Bangkok Post.  

    According to Patchara Anuntasilpa, director-general of the Customs Department, the cuts are in accordance with the Sept. 14 cabinet resolution involving plans to revive the post-Covid-19 economy by encouraging wealthy foreigners and skilled professionals to stay and work in the country.

    The scheme aims to draw more than a million qualified people to Thailand over the next five years and generate about a trillion baht over the period. Cuts in import duties will be part of the mix.

    The group is expected to spend on average 1 million baht per person per year while staying and working in Thailand.

    The package also includes a 10-year Thai visa for approved special visitors along with their spouses and children, the same rates of income tax as Thai citizens, a tax exemption for income earned abroad and the right to ownership of property and land. 

    The announcement comes as Thailand prepares to implement a new excise tax structure for cigarettes next month.

    Under the new system, a flat tax rate of 40 percent will be applied to cigarettes regardless of the retail price.

    At present, the law applies a 20 percent tax to the retail price for packs costing up to THB60 ($1.83). If the retail price exceeds THB60 per pack, a 40 percent tax rate is applied.

  • Roccatti Embarks on ‘Ride for Vape’

    Roccatti Embarks on ‘Ride for Vape’

    Photo: IEVA

    Umberto Roccatti, president of the National Association of Electronic Smoke Manufacturers (ANAFE) in Italy and vice president of the Independent European Vape Alliance (IEVA), is biking 700 km to protest a planned vapor tax hike in Italy.

    Italian vapor taxes are set to increase from Jan. 1, 2022. “The gradual increase, every year for three years, of the taxation on electronic cigarettes is pure absurdity that risks bringing to its knees a sector already severely affected by the pandemic and which today counts about 45,000 employees,” said Rocatti in a statement.

    The new tax regime, he added, will not only cripple a supply chain comprising small and medium enterprises but also encourage black market sales. According to Rocatti, the tax hikes would make some vapor products more expensive than some cigarette brands, encouraging vapers to return to smoking.

    Rocatti’s “Ride4Vape” left Bolzano Sept. 20 and will pass through Abano Terme, Santarcangelo di Romagna and Sangemini before finishing in Rome. Along the way, Roccatti will explain on Facebook the disastrous effects of the fiscal policy call on lawmakers to reverse their plan.

    “What the whole sector hopes for is a revision of the current tax burden—which turns out to be particularly excessive,” says Roccatti. “Moreover, it should be noted that the revenue—referred to the first months when the tax came into force before it was suspended by the new government—was not what was expected but quite the opposite, thus confirming the fact that raising taxes, especially in the midst of a pandemic, does not contribute positively to state revenues. We therefore ask for stability and fiscal balance on a sector which already underwent four tax increases in the last six years.”

  • Critics: All-Nicotine Tax Hike Would be Counterproductive

    Critics: All-Nicotine Tax Hike Would be Counterproductive

    Photo: berkut_34

    A new plan to raise the tax on all nicotine products sold in the U.S. would benefit large corporations and traditional tobacco products while unfairly hurting people in lower socioeconomic classes, writes Alex Norcia in Filter.

    The proposal, first circulated on Sept. 12, calls for the tax per 1,000 cigarettes to be increased to $100.66. Vaping products would be taxed at this same rate, with 1,000 cigarettes being equal to 1,810 mg of nicotine.

    This means that a 30 mL bottle of e-liquid containing 3 mg of nicotine per milliliter would be subject a tax rate of $5 for the bottle. A 120 mL bottle of e-liquid that contains 6 mg of nicotine per milliliter would attract a tax rate of $40 for the bottle.

    In comparison, critics and tax reformists have estimated that a four-pack of Juul pods would be taxed around $9—giving a clear advantage to a giant over the smaller player. More alarmingly, a pack of cigarettes would only be taxed around $2, creating an incentive for nicotine users to pick cigarettes over less risky vapor products.

    “A better strategy from a public health perspective would be to raise taxes on cigarettes more and taxes on e-cigarettes less to financially incentivize smokers’ use of safer e-cigarettes,” Michael Pesko, a health economist and an associate professor of economics at Georgia State University, told Filter.

    The tax increase has been billed as a way to make America’s wealthiest individuals and most profitable corporations pay their fair share. However, as Norcia points out, smokers do not typically belong to the upper classes. According to the Centers for Disease Control and Prevention, current cigarette smoking in the United States “is higher among people with low annual household income than those with higher annual household incomes.”

    If signed into law, the nicotine-specific tax legislation is projected to raise $96 billion in the next decade or so. But some of these funds would come from making dangerous combustibles more affordable than vaping products.

    “Between the FDA’s arbitrary decisions on flavored vaping products and the imposition of a huge federal tax on all nicotine-containing products, the Biden administration could deal a death blow to tobacco harm reduction in the United States,” Greg Conley, the president of the American Vaping Association, told Filter.