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March 20th, 2017:

Treasury consults on tax treatment of heated tobacco products

The Treasury is consulting on the tax treatment of heated tobacco products, which are being promoted as a new innovation in the tobacco market. In these products processed tobacco is heated (but not burned like conventional tobacco) to produce, or flavour vapour. Heated tobacco is not a separate category in its own right in current legislation, so a consultation on their tax treatment aims to help maintain the integrity of the duty system going forward.

The consultation scope does not include e-cigarettes, which do not contain tobacco.

The consultation closes on 12 June 2017.

AMP snuffs out tobacco investment

http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=11821645

AMP Capital is to snuff out its investment in tobacco manufacturing companies including millions of dollars invested through its KiwiSaver funds.

The move is part of a decision to pull out of tobacco investments worth A$440 million across its global investment portfolio.

The asset manager will also pull its Australian investments out of cluster munitions, landmines, biological and chemical weapons companies.

The move follows on from its New Zealand arm which pulled out of these investments last year following reports by the New Zealand Herald and Radio New Zealand which highlighted KiwiSaver’s exposure to the controversial sectors.

AMP Capital chief executive Adam Tindall said it had excluded tobacco manufacturers under a new environmental, social and governance and socially responsible framework because their products were highly addictive, could not be consumed safely and impacted non users via second-hand smoke.

He said cluster munitions, landmines, biological and chemical weapons manufacturers were excluded because their products indiscriminately kill through normal use (including during peace time) and their use leaves a legacy of significant and specific danger for civilians.

“We are not prepared to deliver investment returns to customers at any cost to society.

This position has been affirmed through consultation with major institutional clients and engagement with retail customers.”

Divestment from the tobacco investments would occur progressively over 2017 the company said, with impacted investors notified prior to any changes being made.

“The managers of impacted portfolios will be instructed to progressively sell down their holdings of excluded securities in a reasonable manner. This may take up to 12 months from time of formal notification,” a spokeswoman said.

Last year the Herald identified AMP Capital’s KiwiSaver funds had $17,169,091 invested in tobacco companies in the year to March 31, 2015.

It also has investment funds outside of KiwiSaver which are likely to include tobacco investments.

The AMP spokeswoman said it was not giving a regional breakdown for its tobacco investment.

Recent Gains on Global Tobacco Taxation

http://blogs.worldbank.org/health/recent-gains-global-tobacco-taxation

The landmark Surgeon General’s Report on Smoking and Health, issued by U.S. Surgeon General Dr. Luther Terry in 1964, represented the first time that a government report linked smoking and ill health, including lung cancer and heart disease. The scientific evidence accumulated over the past five decades has helped us understand how tobacco use imposes a heavy health and economic burden across countries.

Action to curb tobacco use makes solid economic sense, given the high costs of tobacco-related illnesses and premature death and disability among adults in their most productive years. Smoking harms health, incomes, earning potential, and labor productivity. Smoking also undermines human capital development —a critical factor for inclusive economic and social development.

Raising tobacco taxation commensurate with affordability levels is proven to be the most effective measure to curve consumption. Tax increases are most effective in countries where the social acceptability of smoking is reduced by curtailing smoking in public places and educating the population about its negative health impact.

Contrary to the assumption that tobacco taxes are regressive, the results of recent studies done in Chile and the United States show that the benefits of this policy measured in terms of lower medical expenses and an increase in working years outweighs any relative increase in tobacco prices, largely benefitting the poor more than the rich.

Over the past decade, the World Bank Group (WBG), in partnership with the Bill & Melinda Gates Foundation and the Bloomberg Foundation, and in coordination other organizations, such as WHO, has expanded its tobacco taxation work globally to assist countries implement their public health and domestic resource mobilization efforts. Simultaneously, technical assistance is being provided to strengthen countries’ legal and regulatory capacity to control illicit tobacco trade. Support is also being provided to facilitate knowledge-sharing, building upon existing platforms such as the Joint Learning Network (JLN).

The experience of Philippines over 2012-2016 is one of the most compelling examples of ambitious national tobacco tax reform. It involved a fundamental restructuring of the country’s tobacco excise tax structure, including reduction in the number of tax tiers; indexation of tax rates to inflation; and substantial tax increases which expanded the fiscal space to fund the increase in the number of families enrolled in the health insurance scheme from 5.2 million primary members in 2012 to 15.3 million in 2015.

More recently, national governments in several countries have adopted significant tobacco tax reforms to improve public health and mobilize domestic resources, covering a total population of 200 million people. In the Ukraine, the 2017 budget includes a 40% excise tax increase on tobacco products, above the 2016 level, while maintaining a 12% ad valorem tax. It is estimated that that this measure will increase on average the excise tax burden as a share of the retail price of a pack of cigarettes from 41% in 2016 to 46% in 2017, while consumption is expected to decrease by 10%. To get a sense of the magnitude of health gains likely to result from the adoption of these tax increases, modeling work estimated that, by 2035, Ukraine’s recent tobacco tax increases will prevent 126,730 new cases of smoking-related disease; 29,172 premature deaths; and 267,098 potential years of life lost, relative to no change in tax. These reductions in disease and death are estimated to result in significant healthcare costs avoided.

As part of broad fiscal reforms approved by Colombia’s Congress, new taxes on tobacco products will nearly triple prices over 2017-2018, with annual adjustments for inflation and a mandated specific increase in subsequent years. Likewise, in Moldova, the average excise tax burden on a pack of cigarettes will increase from 39% in 2016 to 45% in 2017.

Following the introduction of the new tax regime in 2017, Armenia’s tobacco excise tax burden will double, increasing to 62% of the average retail price by 2020. In the case of Armenia and Colombia, tobacco taxation increases are part of larger tax system reforms that were included under fiscal consolidation programs.

In moving forward this agenda, we have to be clear that to be effective and sustainable, the design of tobacco tax reforms has to be grounded on a good understanding of how public policy is created and implemented in a country, including the social forces which could support or hinder the passage of strong anti-tobacco measures. We also have to be mindful that the adoption of tobacco tax reforms could be greatly facilitated if they are included as part of broad fiscal consolidation programs as shown by the recent experience in Armenia and Colombia, or as part of the formulation of annual government budgets as shown by the experience in Moldova and Ukraine.