The Lithuanian Free Market Institute has examined draft amendments to the Law on Pollution Tax aimed at introducing additional taxes on tobacco products (cigarettes, cigars, cigarillos and smoking tobacco) and formulated its comments and proposals. According to the project, its revenue will be used to attain the objectives of the Special Municipal Environmental Protection and Environmental Support programmes (education, control, prevention, etc.)
Additional taxes on tobacco will boost the consumption of illegal cigarettes
Counterfeit cigarettes comprise a large share of Lithuania’s tobacco market, 28 per cent according to the latest data.[1] And the main cause is high taxation of tobacco products. Currently, excise duties and VAT constitute as much as 79 per cent (1.95 Euro) of the retail price of an averagely priced packet of cigarettes (2.46 Euro).
Another tax increase will raise the price of an averagely priced packet of cigarettes by 8 per cent and will widen the gap between the prices of legal and illegal cigarettes, a major source of profit from tobacco smuggling. This will further augment incentives to purchase illegal goods.
The object of taxation is inadequate
Waste generation prevention, management, utilisation and other environmental initiatives are already funded from revenue of both targeted and general taxes and there is no need for additional charges. To add, the explanatory note of the project does not justify the choice to impose taxes on tobacco products in particular, because according to the accompanying document, waste management of other products such as candy wrappers, chewing gum or tea bags is no less problematic.
In the light of the aforesaid arguments LFMI calls for the rejection of the proposal.
The full position paper (in Lithuanian) is available at http://www.llri.lt/naujienos/ekonomine-politika/ekspertize-del-papildomo-tabako-gaminiu-apmokestinimo/lrinka
[1] Nielsen. 2014. Empty Packs Survey Report Lithuania.
