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April 27th, 2011:

Tobacco tax increase must not be voted down

South China Morning Post — 27 April 2011

On the day Chief Secretary Henry Tang Ying-yen resumed the debate to complete the budget’s controversial journey through the legislature, he pledged the administration will not become a mere “caretaker government” while it completes its term due to end next year. If the promise is to be kept, officials must first dig themselves out of the hole created by this year’s budget, which seems to get ever deeper. Taxing people, only to give them back the cash, is not the soundest public finance policy, although this has become the standard political response to demands from the public whenever there is a big surplus. But the latest twist in the budget saga could see the government taxing smokers, only to then give some of those proceeds back to the tobacco industry. This bizarre outcome could occur if legislators vote down the tobacco tax increases made in the budget, as many have suggested they will do. The government was right to impose the higher taxes as part of measures to deter smoking. It should seek to persuade legislators not to veto the increase and avoid another embarrassment.

The problem has arisen as a result of the sorry budget saga. The government has generally shown a lack of commitment towards sustainable long-term policies in its budgets, but at least in the past, it appeared to have faith in the analysis and the calculations of its professional economists and stuck to its principles on delivering what it thought would be a balanced budget. But in March, Financial Secretary John Tsang Chun-wah decided to react to a public outcry and effectively contradict himself – and all the principles he had previously championed about fighting inflation – by announcing direct cash handouts of HK$6,000 to permanent residents. As the weeks went by, it became clear that this populist announcement was a politically motivated, panic-induced response. Until now, the details of the proposal remain sketchy and it is unclear exactly who, how or when people will get hold of their cash. And even though the new arrangement could potentially require extra spending of HK$40 billion, of which none will result in investment returns, the government has not explained how these new arrangements affect their original calculations.

Now, lawmakers who criticised the pan-democrats for opposing the budget are themselves threatening to derail one of its most sensible measures. The government presumably identified the tobacco industry as one which should be taxed more because it agrees with the experts that tax increases are the best way to help quit smoking. The increased taxes will provide more funds for anti-smoking campaigns and improved health services. At the same time, the profit incentive in a harmful industry will be decreased. All in all, it is a sensible tax policy. But lawmakers from the pro-establishment camp which controls the legislature wants to overturn or at least cut that increase which was implemented with immediate effect upon the delivery of the budget in February. If that happens, the government will have to pay back the tobacco industry an estimated HK$300 million, even though it was the consumer who had to pay. Meanwhile, there would be less money for anti-smoking campaigns and to improve health services.

Lawmakers should think hard before vetoing these measures. The tax increases are needed in the interests of public health. Should the unthinkable happen and the increases be voted down, the tobacco industry must act responsibly and donate any tax rebate it receives to public health services.

Government to clamp down on tobacco smuggling

April 27, 2011

Tough new plans to tackle the illicit tobacco trade have been published by HM Revenue & Customs (HMRC).

Under the new strategy, supported by the UK Border Agency, the Government has provided additional investment for more officers to target organised criminals who smuggle tobacco. There will be increasing numbers of prosecutions, more illicit tobacco will be seized, and smugglers will face fresh hard-hitting financial sanctions. Minimum indicative levels for travellers bringing tobacco into the UK from the EU will also be reduced, aligning the UK with levels elsewhere in Europe.

Justine Greening, Economic Secretary to the Treasury, said: “The Government believes that tobacco smuggling must be tackled head on. Tobacco fraud costs taxpayers more than £2bn a year, depriving the public of revenue to fund vital public services.”

“We have made an additional £917 million available to HMRC to tackle evasion, avoidance and criminal fraud across the tax system, and that includes illicit trading in tobacco. Those who think that tobacco smuggling is a quick, easy and risk free crime that will go unchallenged, are making a serious mistake.”

Key changes under the new strategy include:

increasing our criminal intelligence and investigation resources deployed on tobacco fraud by 20% to prosecute more of those involved in smuggling at all levels;

expanding our successful overseas network of fiscal crime liaison officers to increase seizures of illicit cigarettes targeted on the UK by 20%;

introducing new technology, intelligence and detection capability to improve our ability to respond more flexibly at the border and inland;

pursuing proceeds of crime and applying new powers of assessment and penalties, including recovering lost taxes and charging penalties up to 100% of the tax evaded, to deter offending and prevent re-offending;

reducing the minimum indicative levels for personal imports to 800 cigarettes and 1 kg hand-rolling tobacco in the autumn, bringing the UK into line with all other EU Member States. These levels are used as a guide for determining whether tobacco products imported from the EU are for personal use.

Fiscal cost of smoking far more than tax revenue from tobacco

MTI – Econews Wednesday 01:40, April 27th, 2011

The fiscal cost of smoking in Hungary is well over revenue from excise tax and VAT on tobacco sales, business daily Világgazdaság reported on Wednesday, a day after Parliament approved a ban on lighting up in most public places.

Budget costs related to smoking — both direct and indirect — came to HUF 379 billion-397 billion in 2004, Zsófia Pusztai, who heads the World Health Organisation office in Hungary, told the paper.

In the same year, budget revenue from excise tax and VAT on tobacco products reached just HUF 258 billion.

About 3 million of Hungary’s 10m population smoke. About 2,300 Hungarians die each year as a result of exposure to second-hand smoke, the paper said, citing scientific studies. Almost 28,000 Hungarian smokers die each year because of smoking-related illnesses.

The ban is likely to have little effect on Hungary’s catering industry, health economist József Bodrogi told the paper. In a recent study of 48 countries that introduced bans on smoking in public places, the only country in which turnover fell was Ireland, but there the ban came at the same time as a hike on the beer tax, he added.

Hungary’s tobacco industry, which employs almost 25,000 people, turns out more than 15 billion cigarettes a year, 11 billion fewer than ten years earlier.

Treasury to cut holidaymakers’ personal tobacco allowances in £2bn tax clawback effort

The number of cigarettes holidaymakers may bring back from Europe without attracting questions from Customs officials is to be cut by more than two-thirds as part of a Treasury attempt to claw back some of the £2.2bn in tax lost to tobacco smuggling every year.

The proposed change, which sets a guideline limit of 800 cigarettes and 1kg of rolling tobacco, will reignite a battle with campaigners such as smokers’ rights group Forest. Simon Clark, director of Forest, described the move as “shocking”, noting that current limits of up to 3,200 cigarettes and 3kg of rolling tobacco were set in 2002 after an attempt to clamp down further met with outrage and legal challenges.

Treasury minister Justine Greening is to set out plans to slash existing guideline limits, bringing them in line with Ireland and many other parts of Europe. “It doesn’t actually change the rules,” she said. “People who are holidaymakers or travellers from the UK, who maybe want to bring back some cigarettes when they come home for personal use, they are not affected at all. But we do believe this will do is start to deter those people who are actually just using minimum indicative levels as a way of bringing in wholesale amounts of cigarettes.”

“The levels people [will still be able to] bring in are more than enough for their own personal use – that is not something we would, or should, challenge.”

This claim was immediately challenged by Clark said: “The Labour government was forced to increase the limit from 800 to 3,200 because there was chaos at airports and ports around the country, with goods and vehicles being seized all over the place. We have absolutely been there with the 800 guideline. It didn’t work.”

Under European law, smokers bringing in tobacco merely have to convince Customs officials it is for personal use. Official guidance, however, sets the level at which suspicion is cast on personal imports.

In 2002, when then chancellor Gordon Brown sought to impose a maximum guideline of 800 cigarettes, an opposition campaign won enthusiastic support from sections of the media. The Sun newspaper claimed it had been victorious when the level was increased to 3,200 after a series of stunts including sending its own bus, full of page three girls, to head a protest convoy of cross border shoppers to Calais. The Treasury also faced a legal challenge from cross-Channel operator Hoverspeed.

This time, Greening is confident she has the support of the tobacco industry and believes a guideline limit of 800 cigarettes – commonplace across the continent – is well established in European law. Campaign group Action on Smoking and Health is also supportive.

The Tobacco Manufacturers Association said it would not oppose the reduced guideline limits but noted the move would not be welcomed by low-income smokers, coming a month after heavy price rises imposed in the budget. Paul Stockall of the TMA said the budget imposed the steepest price rises on cheap cigarettes and rolling tobacco, the price of a packet of 20 cigarettes and a 25g pouch rising around 10% to £5.64 and £7.34 respectively.

“We would expect non-duty-paid [smuggled cigarettes] sales to increase,” he added.

More than one in 10 cigarettes smoked in the UK is smuggled or bought legitimately by overseas travellers. The figure for rolling tobacco is almost half. Tobacco sales nevertheless generate £8.8bn in tax each year for Treasury coffers.

The controversial move to lower guideline limits for returning holiday-makers is part of a broader package of measures which will see a 20% budget increase for Revenue & Customs’ 685-strong anti-smuggling team. Additional resources will primarily be focused on intelligence operations overseas, where seizures exceeded 1bn cigarettes for the first time last year.

The biggest loss to the Treasury comes from counterfeit tobacco products and so-called “illicit white” – brands manufactured for overseas markets and smuggled into the UK, the most prevalent of which is Jin Ling, which is made in Kaliningrad, Russia.

Deborah Arnott, chief executive of Action on Smoking and Health said: “ASH welcomes the much of HMRC’s new strategy particularly increased investment in tackling smuggling. However, there is too much weight placed on collaboration with the tobacco industry which has historically been a major driver of smuggling, and no reference to the UK’s obligations to protect tobacco control from the vested interests of the tobacco industry. And there is no clear ambition for the size of reduction in the illicit market which they expect to achieve from this increased investment.”