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Opportunities and threats of the excise tax harmonization in the EU – Latvia’s approach. Māris Jurušs Deputy Director Tax Policy Department Ministry of Finance of Latvia 20 .0 9 .2006 PRAGUE. The main requirements of EU. - PowerPoint PPT Presentation
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Opportunities and threats of the excise tax harmonization in the EU
– Latvia’s approach
Māris JurušsDeputy Director
Tax Policy DepartmentMinistry of Finance of Latvia
20.09.2006PRAGUE
The main requirements of EU
• The minimum excise tax rate: 57% of the most popular price category (MPPC) and not less then EUR 64 per 1000 cigarettes
• Combined excise tax rate: specific + ad valorem. The ad valorem rate is applied on retail price
• Equal excise tax rate for all cigarettes
• Fixing of maximum retail price (MRP)
• Minimum tax (optional)
Retail Price Structure (EU directives)
Manufacture Price
Trade Margin
Specific Excise
Ad Valorem Excise
VAT
100%
> 15%
5% -55% of total taxation
>57% of MPPC, > EUR 64
< 90% of Retail Price
Retail Price Structure (EU directives)
Harmonisation of excise tax on cigarettes in Latvia with EU requirements
• 1st step: 01.01.1999 Introduction of general EU requirements (tax warehouses, suspended tax payment procedure, guarantees etc).
• 2nd step: 2001 - 2003Introduction of equal excise tax rates. Introduction of combined tax rate. Introduction of MRP system.
• 3rd step: 2003 - 2010Gradual increase of excise tax rate to the minimum EU level: 57% of MPPC and not less then EUR 64 per 1000 cigarettes.
GDP per Capita in EU, 2004
0
10000
20000
30000
40000
50000
60000
70000
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Dānija
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Minutes worked to purchase 20 cigarettes
30
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2020
19 19 18
16 1515 15
1413
1110 10 9 9 9 9
8
6 5 5
0
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20
25
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35
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IN E
UR 64
Slovā
kija
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ritān
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nija Īrija
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Beļģija
Austrij
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Itālij
a
Nīder
lande
Luksem
burga
Dānija
Slovē
nija
Harmonization of excise taxwith EU requirements
2002 2003 2004 2005 2006
Excise tax, % no MPPC 30% 37% 41% 45% 49%
Currently established annual increase of excise tax on cigarettes
2006 2007 2008 2009 2010
Specific rate, 7,6(10,92)
8,4 (12,07)
9,3(13,36)
10,5(15,08)
17,8(25,57)
LVL (EUR) per 1000 cigarettes
Ad valorem, % of MRP
14,8 19,2 23,5 27,9 32,2
Expected MPPC
2006 2007 2008 2009 2010
MPPC, EUR per 20 cig. 0,63 0,81 0,93 1,10 1,66
Opportunities of the harmonization of the excise tax in Latvia
• Fiscal aspects:– yearly excise duty revenue increase:
• in 2004: 20 Milo. EUR• in 2005: 30 Milo. EUR• in the first half of 2006: 18 Milo. EUR• about 90 -100 Milo. EUR in 2010
– more option for budget programmes
• Social / health aspects:– decreasing of consumption– decreasing of smoking
Threats of the harmonization of the excise tax in Latvia
• Smuggling– in 2005 arrested 7,36 Milo. units of cigarettes and 24,4 tons of
tobacco;– in the first half of 2006 arrested 18,93 Milo. units of cigarettes;
• Alternative products to cigarettes (smoking tobacco)• Excise tax rates in neighbouring countries
– in Russia: 0,046 EUR per 20 cig.+8% (or 5-7 times less than in Latvia)
– in Belarus: 0,036 EUR per 20 cig. (or 9 times less than in Latvia)
• Inflation – in 2005: 6,7% ( 0,28 pp from tobacco products)– in the first half of 2006: 6,3% (0,21 pp from tobacco products)
Changes in exchange rate of national currency - lats (LVL) 2002 – 2005
0,5
0,51
0,52
0,53
0,54
0,55
0,56
0,57
0,58
0,59
0,6
0,61
0,62
0,63
0,64
0,65
0,66
0,67
0,68
0,69
0,7
0,71
0,72
0,73
02.0
1.20
0201
.02.
2002
.01
.03.
2002
.02
.04.
2002
.01
.05.
2002
.03
.06.
2002
.01
.07.
2002
.01
.08.
2002
.02
.09.
2002
.01
.10.
2002
.01
.11.
2002
.02
.12.
2002
.02
.01.
2003
.03
.02.
2003
.03
.03.
2003
.01
.04.
2003
.02
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2003
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2003
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2003
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2003
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2003
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2003
.03
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2003
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.12.
2003
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.01.
2004
.02
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2004
.01
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2004
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2004
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2004
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2004
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2004
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2004
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2004
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2004
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2004
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2004
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2005
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2005
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2005
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2005
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2005
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2005
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2005
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2005
.01
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2005
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2005
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2005
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2005
.
Excise tax harmonization
0,17 0,18 0,210,27
0,340,43
0,55
0,70
1,01
1,28 1,28 1,28
0,00
0,50
1,00
1,50
2,00
2,50
3,00
2002 2003 2004 2005 2006 2007 2008 2009 2010
Pri
ce a
nd
Exc
ise
Tax
, EU
R p
er 1
000
cig
aret
tes
Excise tax (present plan), EUR per 20 cig. EU minimum, EUR per 20 cig.
due to exchange rate changes 2003- 2005 curent planed tax rate increase is not enough sufficient
Excise tax harmonization Option 1
0,17 0,18 0,210,27
0,340,43
0,55
0,70
1,01
1,28 1,28 1,28
0,00
0,50
1,00
1,50
2,00
2,50
3,00
2002 2003 2004 2005 2006 2007 2008 2009 2010
Pri
ce a
nd
Exc
ise
Tax
, EU
R p
er 1
000
cig
aret
tes
Excise tax (present plan), EUR per 20 cig.
EU minimum, EUR per 20 cig.
Excise tax harmonization (option 1) , EUR per 20 cig.
Option 1More faster increase
Excise tax harmonizationOption 2
0,17 0,18 0,210,27
0,340,43
0,55
0,70
1,01
1,28 1,28 1,28 1,28 1,28 1,28
0,00
0,50
1,00
1,50
2,00
2,50
3,00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Pri
ce a
nd
Exc
ise
Tax
, EU
R p
er 1
000
cig
aret
tes
Excise tax (present plan), EUR per 20 cig.
EU minimum, EUR per 20 cig.
Excise tax harmonization (option 2) , EUR per 20 cig.
Option 2to prolong tranzitonal
period and keep approx. the same annual growth
Further harmonization of the excise tax – Latvia’s approach
• Depends on:– Economical situation– Inflation rate– Situation in market– Smuggling activities
• Further activities:– Report to the government– Negotiation with the Commission
Thank you for
your attention!
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