Category: Taxation

Excessive Tax Rates Boost Illicit Markets

Photo: Tobacco Reporter archive
Excessive tax rates on cigarettes induce substantial black and gray market movement of tobacco products into high-tax U.S. states from low-tax states or foreign sources, according to a new report by the Tax Foundation.
New York has the highest inbound smuggling activity, with an estimated 53.5 percent of cigarettes consumed in the state deriving from smuggled sources in 2020. New York is followed by California (44.8 percent), New Mexico (45.5 percent), Washington (41.5 percent), and Minnesota (34.8 percent).
New Hampshire has the highest level of net outbound smuggling at 52.4 percent of consumption, likely due to its relatively low tax rates and proximity to high-tax states in the northeastern United States. Following New Hampshire is Indiana (35.6 percent), Virginia (27.6 percent), Idaho (25.8 percent), Wyoming (24.4 percent), and North Dakota (18.6 percent).
Illinois and New Mexico significantly increased their cigarette tax rate from 2019 to 2020. Both states saw major increases in cigarette smuggling.
“Policymakers interested in increasing tax rates should recognize the unintended consequences of high taxation rates,” the Tax Foundation wrote on its web site. “Criminal distribution networks are well-established and illicit trade will grow as tax rates rise.”
The authors stress that excessive taxation is not the only driver of illicit trade. Measures such as flavor bans and reduced-nicotine mandates, they argue, also have the potential to push tobacco sales into the illegal sphere.
December 7, 2022
Excise Duties, Tobacco Purchasing Age Raised

Image: Huebi | Adobe Stock
Turkmenistan has raised the excise duty rates for production and import of alcohol and the import of tobacco products, reports Interfax. The legal purchasing age for tobacco products was also raised from 18 years old to 21 years old.
Excise on imported tobacco products will rise from 93 percent to 116 percent effective Jan. 1, 2023. Excise on strong alcoholic beverages produced in the country will increase from 53 percent to 61 percent; beer produced in the country will see an increase from 26 percent to 30 percent; and imported beer will increase from 80 percent to 92 percent.
The purchase age increase is effective immediately.
December 1, 2022
EU: Sweden Retains Right to Set Snus Tax

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The EU Commission’s spokesperson for tax matters, Daniel Ferrie, said at a press conference on Nov. 28 in Brussels that Sweden has the right to set the tax level on snus.
His comments, reported by Aftonbladet, follow an uproar among Swedish snus lovers after the publication of a leaked document suggesting the EU wants to force Sweden to raise the tax on snus by 200 percent.
The document, which was seen by Aftonbladet, contains proposals for a new excise tax on tobacco.
If applied to Sweden, the price of a can of portioned snus would have increased by approximately SEK34 ($3.26). The price of a can of loose snus would have increased by approximately SEK62 compared to today. A can of General loose snus would cost over SEK120 under the proposal.
Reminding his audience that Sweden is exempted from the EU snus ban, Ferrie said the bill under discussion would not change Sweden’s status. “Sweden will retain its full freedom to set tax regimes and excise taxes for snus,” he said.
November 28, 2022
Hong Kong Poised to Hike Cigarette Taxes

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Hong Kong authorities are likely to announce a steep rise in the price of cigarettes next year, reports The Standard.
In an attempt to cut smoking prevalence to 7.8 percent by 2025 from 10.2 percent today, the special administrative region wants to increase the price of a pack of cigarettes to HKD100 ($12.82) from HKD59, Hong Kong Council on Smoking and Health chairman Henry Tong Sau-chai said.
Raising the tobacco tax is the most effective way to achieve the goal, according to Tong, who noted that the tax rate has not been adjusted substantially over the decade.
The council is also proposing a “tobacco endgame,” a strategy that would include a ban on cigarette sales to people born after 2009.
Last year, a similar measure was adopted by New Zealand to create a smoke-free generation by prohibiting people born in or after 2009 from ever buying cigarettes.
Tong said the year 2009 was chosen because people born that year would turn 18 in 2027—the last year of the current government’s term.
Critics have warned that the council’s proposals will encourage smokers to buy their cigarettes on the black market. The government, they said, should instead work on combating illicit cigarettes and adopt a rational tobacco tax strategy.
November 21, 2022
Virginia Tech to Study Impact Tobacco Taxes

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Scientists with Virginia Tech’s Fralin Biomedical Research Institute at VTC are leading a five-year, $3.5 million study to predict the impact of tobacco taxes on health.
“Taxes are one of the most effective ways to change behavior—they make people think about their choices, including their choice to use tobacco,” said Warren Bickel, a professor at the Fralin Biomedical Research Institute and director of the institute’s Addiction Recovery Research Center, in a statement.
Funded by the National Cancer Institute of the National Institutes of Health, Bickel’s research project will forecast the impact of tobacco tax proposals in a complex experimental marketplace that continually changes with the introduction of new products, such as low-nicotine cigarettes or electronic cigarettes.
According to Virginia Tech, the work has potential to deliver research-based health policy guidance for new tobacco regulations as well as evaluate the health consequences of people’s economic choices.

“Taxes are one of the most effective ways to change behavior—they make people think about their choices, including their choice to use tobacco.”
Warren Bickel, director, Fralin Biomedical Research Institute Addiction Recovery Research Center
“Taxes can help people achieve better health by discouraging them not to smoke. If you make the product more expensive, people will use less of it. They can also leverage people to move from the most harmful tobacco products to the least harmful,” said Bickel, who is also the director of the institute’s Center for Health Behaviors Research.
He will take tobacco-related health disparities into account by investigating socioeconomic factors.
“People with low incomes have a higher prevalence of smoking, and disproportionate tax policies could have far-reaching direct and unintended effects,” said Bickel, who is also a professor of psychology in the Virginia Tech College of Science.
To get clear answers, Bickel’s approach involves the Experimental Tobacco Marketplace, an invention of the Addiction Recovery Research Center. Participants have an account and buy tobacco products to reflect their typical purchasing. Co-investigators at the Fralin Biomedical Research Institute working on the project with Bickel include Jeff Stein and Allison Tegge.
The marketplace places the mix of products, prices and specific regulations under experimental control for researchers to estimate policy impact in real-world circumstances.
In this environment, researchers can forecast the impact and health equity of tax proposals, including a proposal that equally levies taxes across all tobacco products as well as others that issue tax based on a product’s nicotine content, potential for harm or whether it has received a modified-risk designation from the Food and Drug Administration.
“We can implement policies in the experimental tobacco marketplace and provide information about the impacts on people’s tobacco purchasing,” said Bickel. “For example, if lawmakers or regulators restrict access to one product versus another, will it result in smokers making less healthy or more healthy choices? It is an ideal resource to investigate the harm reduction potential of low-nicotine cigarettes and alternative nicotine products.”
November 21, 2022
Russia Developing New Excise Technology

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Russian authorities are developing technology for digital excise tax on tobacco, reports Interfax, citing comments made by State Secretary and Deputy Finance Minister Alexei Sazanov during a meeting with foreign businesses at the American Chamber of Commerce in Russia.
“It is assumed that the tax service will automatically calculate tax liabilities when products are released into circulation as based on data that is in the information systems for labeling tobacco and beer,” said Sazanov. “This should further reduce the number of disputes between taxpayers and the tax service.”
Further digitalizing and transferring tax calculation functions to the tax authorities are part of a drive to simplify administration, according to Sazanov. “This has already been implemented for the majority of property taxes,” he added.
November 18, 2022
Morocco to Increase Waterpipe Taxes

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Morocco is preparing to increase taxes on waterpipes, reports Morocco World News.
The country’s Finance and Economic Development Committee approved the new taxes on Nov. 9. Following the increase, smokers would pay MAD675 ($63) per kg of shisha smoking material.
The approval comes after a government amendment to the Finance Bill of 2023 extending the tax base to include shisha without tobacco and electronic cigarettes.
Officials said the measure “aims to preserve the health of consumers, especially young adults, and to protect them against the negative effects of consumption and addiction to these products.”
The statement further explains that the imports of tobacco-free shisha are not subject to taxes, although they carry the same health risks as tobacco-based shisha.
The decision to raise the tax is based on World Health Organization research indicating that smoking products containing a mixture of fruits and herbs without tobacco pose a similar risk to tobacco products.
The WHO recommends subjecting such products to the same restrictions and taxes as tobacco products.
According to the Moroccan government, the European Commission classifies herbal mixtures, aromatic herbs or fruits as smoking products.
November 13, 2022
Indonesia: President Approves Tobacco Tax Hikes

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Indonesian President Joko “Jokowi” Widodo approved a plan to increase tobacco taxes by 10 percent in 2023 and 10 percent in 2024, reports Tempo. The objective is to reduce the number of underage smokers.
“In today’s decision, the president has agreed to increase cigarette excise tax by 10 percent for [the] 2023–2024 period,” said Finance Minister Sri Mulyani after meeting at the Bogor Presidential Palace, West Java, on Nov. 3, 2022.
The increase in excise will apply to machine-made “white” cigarettes, machine-made kretek cigarettes and sigaret kretek pangan products.
Indonesia has struggled with high rates of underage smoking. The government aims to reduce smoking prevalence for 10-year-olds to 18-year-olds to 8.7 percent.
Cigarettes also represent the second-largest household expense—just below rice—in Indonesia.
November 3, 2022
Russia Continues to Collect Significant Tobacco Taxes

Photo: RODWORKS
Tax payments by the leading international cigarette manufacturers have provided the Russian government with at least $7.25 billion in additional income since President Vladimir Putin ordered his army to attack Ukraine, according to an analysis of Russian Treasury figures conducted by The Telegraph.
Center-Life, an anti-smoking lobbying group in Ukraine, told The Telegraph that 2020 taxes from PMI and JTI alone would fund 700 Mil Mi-24 helicopters, 1,970 T-72 tanks and 382 Sukhoi Su-25 fighter jets for the Russian army.
“It’s clearly completely wrong that these western firms continue to pay significant taxes into Russian coffers because so much of Russian state expenditure now is to fund the war in Ukraine, which is killing people in large numbers,” Bob Seely, a Member of Parliament on the Foreign Affairs Committee, was quoted as saying by The Telegraph.
Following the Feb. 24 invasion, international cigarette manufacturers announced they would end their operations in Russia, but retreating from such a major market is easier said than done. Tobacco companies have had to carefully navigate shifting regulations and avoid missteps that could prompt the government to seize the business, for example—all the while trying to protect employees from becoming targets for arrest.
Earlier this year, Philip Morris International CEO Jacek Olczak described the process as “bloody complex.” In a July interview, he said the company was unlikely to be able to leave Russia before the end of 2022.
Russia is the world’s fourth-largest cigarette market. Prior to the war, Japan Tobacco International led the market with a 36.7 percent share, followed by PMI (31.7 percent) and BAT (23.5 percent), according to Cowen & Co.
November 1, 2022
China to Start Taxing E-cigarettes Nov. 1

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The Chinese government will start taxing e-cigarettes on Nov 1., reports Reuters.
Producers and importers of e-cigarettes will incur a 36 percent levy while wholesale distributors must pay an 11 percent tax.
Experts said that the annual sales revenue of domestic e-cigarette makers is about RMB20 billion ($27.36 billion), so the tax may contribute an additional RMB10 billion to the government’s annual revenue, according to The Global Times.
China has long been the world’s largest producer of e-cigarettes, though consumption lags behind that of Western countries.
Inspired by the overseas success of the Juul, venture-backed startups started marketing e-cigarettes to domestic consumers in 2018.
These companies operated in a legal gray area until the State Tobacco Monopoly Administration (STMA) asserted its authority over the business. In 2021, the STMA announced that it would require e-cigarette companies to obtain a license in order to continue selling to consumers.
Tobacco products remain a major revenue generator for Beijing, with cigarette sales generating roughly 5 percent of the central government’s tax revenue each year.
The STMA operates under China’s Ministry of Industry and Information Technology. China Tobacco, STMA’s commercial arm, is a shareholder in China’s state-backed investment fund for the chip industry.
October 26, 2022