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Slovakia will have the highest tax on cigarettes in CEE region

INCREASING excise taxes on cigarettes higher and earlier than originally planned is one of several measures by the Robert Fico government aimed at consolidating public finances in Slovakia. This may make Slovakia’s excise tax on cigarettes the highest among European Union member countries in central and eastern Europe (CEE). The Slovak parliament advanced the draft revision to the law on the excise tax on tobacco products, raising the excise tax to the second reading on July 25. The final adoption of the new legislation is expected in September.

Cigarettes (Source: SME)

INCREASING excise taxes on cigarettes higher and earlier than originally planned is one of several measures by the Robert Fico government aimed at consolidating public finances in Slovakia. This may make Slovakia’s excise tax on cigarettes the highest among European Union member countries in central and eastern Europe (CEE). The Slovak parliament advanced the draft revision to the law on the excise tax on tobacco products, raising the excise tax to the second reading on July 25. The final adoption of the new legislation is expected in September.

The Finance Ministry has calculated that the rise would have a negative impact on the families of smokers as the price per package of cigarettes will increase by an average of €0.1, the SITA newswire wrote.

The Finance Ministry pushed through a hike in the excise tax on cigarettes in 2010 during the Ivena Radičová term to comply with EU legislation and tax harmonisation. The ministry under Ivan Mikloš proposed the hike in one step as of February 2012. Later the cabinet divided the hike into two steps while the second increase was planned for March 2013. Mikloš places efforts to avoid huge price differences compared with neighbouring countries behind this division.

To raise more money for the state budget the Fico government proposes to hike tobacco product tax rates higher and earlier, beginning October 1.

The new legislation should bring additional budgetary income of €8.147 million in 2013, €8.514 million in 2014, €8.871 million in 2015 and €9.217 million in 2016. Its influence on budgetary income in 2012 is expected to be neutral.

The draft revision increases the specified part of the excise tax on cigarettes from €58 per 1,000 cigarettes to €59.50 per 1,000 pieces (representing a 2.59 percent increase) and the minimal tax rate on cigarettes from €88.50 to €91 per 1,000 pieces (a 2.82 percent increase). Originally, under the previous cabinet of Iveta Radičová, the specified part of the excise tax was to increase to €59 per 1,000 cigarettes as of March 2013.

The draft also increases the excise tax on cigars and cigarillos from €75.56 per 1,000 pieces to €77.37 per 1,000 pieces (a 2.4 percent increase). Moreover, it raises the excise tax on tobacco from €69.44 per kilogram to €71.11 per kilogram, representing a 2.4 percent increase.

Ivan Štefanec, deputy for the Slovak Democratic and Christian Union (SDKÚ) considers the raise of excise taxes less damaging than in the case of direct taxes.

“In Slovakia we should not increase direct taxes; we should not increase payroll taxes, rather we should simplify this system,” said Štefanec as cited by SITA in June, adding that the core with regards to public finance consolidation is in saving measures and the reduction of expenditures.

Sub: Excise tax on cigarettes in EU

The lowest excise tax on cigarettes can currently be found in Lithuania, Poland and Latvia, Ľubomír Koršňák, an analyst with UniCredit Bank Slovakia wrote in his memo. Ireland, Great Britain, and France have the highest tax.

“Slovakia ranks among countries with the lower excise tax,” wrote Koršňák. “Even the October hike… will not change this fact.”

In general, the excise tax on cigarettes is lower among new EU member countries of central and Eastern Europe, which is to a great extent linked to lower price levels in these countries.

“Out of CEE countries Slovakia has the second highest excise tax on cigarettes,” wrote Koršňák, adding that after the October increase Slovakia will top the ranking in the region.

After the average price level in individual countries is taken into consideration, the lowest excise tax on cigarettes is in Luxembourg, Denmark and Austria. Great Britain, Ireland as well as Malta and Bulgaria have the highest ones.

“We consider the increase of the excise tax on cigarettes, but also other taxes imposed on negative externalities, for example so-called hamburger taxes, environmental taxes and similar taxes, to be a relatively suitable instrument of necessary consolidation of public finances,” wrote Koršňák. “The idea of these taxes is to tax additionally that part of consumption which brings the society additional costs and thus to reduce demand for such part of consumption. Higher budgetary incomes and in a mid-term also theoretically lower public expenditures on recovery of impacts of these negative externalities are its side product.”

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