Lithuania has decided to separate from many EU countries – as a result, budget losses may reach millions
Incandescent tobacco is slowly trying to push traditional cigarettes out of the market. Its share is growing every year, while the sales of regular smokers are decreasing.
It is estimated that in the capital, smoking tobacco can already occupy more than 30 percent of the entire market.
Actively seeking changes in the calculation, some tobacco manufacturers came to the market last year with new products that are taxed less than they would have been able to pay under the previous system, until this one was in force in most European countries.
So does the state collect as much tax as it could?
Losses – 5 million euros
Since last year, the procedure for calculating excise duties has changed in several ways.
Yours used to be based on tobacco, being in specific products, and counted continuously. Now – by units of incandescent tobacco sticks.
Of all the EU countries, a similar procedure is valid only in Hungary and partly in Italy. The directive of the Council of Europe does not specify how it should be calculated, but such recommendations may appear – a new version of the directive is currently being prepared.
Until 2022, only “Philip Morris Baltic” distributed heated tobacco products – their packets named “Heets” indicated a specific weight of 5.4 grams.
Last year, the innovation was also important for British American Tobacco, only the weight of the Neo package of its products is not indicated, because it is not mandatory.
However, these glow sticks weigh significantly more than the competition.
Therefore, there were questions whether the state, having abandoned the calculation based on the whole, does not lose income from shares. According to some estimates, the loss of the budget can reach up to 5 million euros in three years.
The idea was welcomed in advance
The National Tobacco Manufacturers Association (NTGA), which unites British American Tobacco and Japan Tobacco International, has long welcomed the Ministry of Finance’s permission to change the excise duty calculation procedure.
“This move will limit opportunities for manufacturers to speculate on the amount of tobacco in products, thereby reducing excise duty,” the association’s letter stated.
And with the changes coming into effect, British American is just like Tobacc, which is heavier than its competitors.
NTGA executive director Arnas Neverauskas explained to “Lietuvos rytui” that in our country all heated tobacco products are similar to cigarettes – they are stick-shaped, each pack contains 20 of them.
“Therefore, it is logical to compare them to the most similar products – cigarettes, and also calculate taxes,” said the head of the NTGA.
True, there are already various such games in other countries. For example, with several capsules or breakable, when one stick can easily be made into two.
As this market develops, isn’t there a risk that some of the manufacturers will start abusing and offering such products paying a much lower excise duty than they actually owe?
“We have no doubt that state institutions are monitoring what this market looks like, evaluating all its manifestations.
So far, we do not have such games in Lithuania. And anyway, the most important thing for us is that the regulatory environment is predictable”, said A.Neverauskas.
Warned of danger
But even before the Seimas adopted the amendments, the Association of Lithuanian Chambers of Industry, Commerce and Crafts spoke out against them and suggested waiting until the European Commission prepares a new directive.
According to the association, calculating taxes based on units distorts the market – comparatively less tobacco products are taxed more. In addition, opportunities for abuse also arise.
“In Poland, the change in taxation of cigars and cigars from weight to units resulted in cigars that were 15 centimeters long and 200 grams in weight.
In Germany, in order to circumvent the excise tax, long cigarettes with two filters on both ends were sold, which could be cut and smoked to obtain two cigarettes”, such examples were presented by the Association of Lithuanian Chambers of Commerce and Crafts.
For its part, the company Philip Morris International, which is NTGA, continues to advocate that excise duties should be calculated according to an independent.
“These games are available in various sizes and shapes both in the EU and on the global market, they are produced using global technology and the weight of tobacco can vary widely.
Therefore, such calculation of excise duty creates more favorable conditions for those products that are larger and have a higher tobacco content.
Also, this calculation will cause confusion for hybrid games that are both tobacco and e-liquid.
Thus, taxation is based on each fair product, regardless of its form or tobacco content,” said Liudas Zakarevičius, Philip Morris Baltic’s head of external affairs for the Baltic countries.
This company still indicates the amount of tobacco even on the new packaging of its products.
It was limited to facts only
The Ministry of Finance did not answer the question of whether the changed excise duty calculation procedure could have been even useless for the budget.
“The amount of tobacco in heated tobacco products may be alternative, as in cigarettes or other products, but these products are sold and consumed in units.
Taking this into account and in order to make the administration of excise duties clearer and simpler, the rates for these products were set for 1000 units.
The excise rate per kilogram was recalculated into the excise rate per units based on the data of the Customs Department available at the time on the maximum dose of tobacco or herbal product in grams per unit (heated stick) of heated tobacco and alternative products sold on the Lithuanian market,” states the ministry’s reply.