2012: Tax Revenues at a Dead-End?

The latest issue of “Tobacco Observatory,” published by the REF – Ricerche Economia Finanza, predicts that “The path to achieving the revenue objectives in 2012 promises to be difficult.”

But the REF does not explain why there is this difficulty, nor does it indicate the logical solution. This is because the “Cigarette Price Swindle,” which we have been denouncing for years and which has led the Italian Treasury into a dead end, enriches the REF’s official sponsor, British American Tobacco Italia.

The only publication in Italy that analyses the domestic tobacco market, a reference for “institutions and government organs,” is in fact, only a ramshackle source of disinformation aimed at protecting the profits of the cigarette manufacturers at the expense of the State income, taking advantage of the incompetence of Italian politicians.

The Dead End Street

Tax revenues are falling because the State divides up the income from price increases with three multinational cigarette manufacturers. Since 2004 cigarette prices have risen steadily, but behind this “sting,” 10 cents at a time, is not the State raising taxes, as everyone believes, but Philip Morris, British American Tobacco and Japan Tobacco that hike prices whenever they want to earn more. Of course, the State, too, collects more if prices rise, but with this system, it is like “fare alla Romana” (everyone takes a share). In normal countries the State earns the entire price increase through taxes.

Today we find ourselves in a dead-end street: if prices go up, cigarette consumption tends to go down and the State, even if it earns more on a single pack of cigarettes, does not earn enough to make up for the fewer packs sold, so its tax income drops. Obviously, “dividing the spoils” with Big Tobacco does not pay off. The REF’s analysis, on the other hand, maintains that the loss of income is due to the general contraction in household consumption, to increased black market sales and other similar bullshit.

The Solution of the Problem

The cigarette price swindle that has led to a drop in tax revenues takes place through coordinated price hikes decided on by the ‘cartel’ of three multinational producers in a market without free competition. There is no free competition because the market is governed by the infamous “minimum tax;” without this «tassa minima» the scam would not be possible. It is no coincidence that the compliant Tobacco Observatory in its latest issue makes no mention of the minimum tax.

The swindle, with excise duties on tobacco blocked at 58.5% since 2004 while in France the excise has been raised to 64%, has boosted Philip Morris’s profits on Marlboros up to 600%, a profit level reached only in Italy, and the State, for years, has been giving away to the producers a significant part of its potential tax income.

The restoration of a competitive market was requested by the European Court of Justice in its judgment of June 24, 2010. The Court’s sentence abolished Italy’s previous minimum price, and consequently, also precluded the minimum tax (DL 94-23, June 2010), which was created to circumvent the sentence. With a freed market, cigarette prices would fall and producers’ profits would fall with them. The State could then raise prices to the previous level augmenting its tax income. For consumers cigarette costs would be the same. That is how the system works in all of Europe except Italy.

Beware of Scams

In 2005, before it was sponsored by British American Tobacco, the REF’s Tobacco Observatory railed against the minimum price of cigarettes:

“It is an obstruction to free competition; it violates European regulations on the free determination of prices; the European Union will intervene.”

In 2007, here is how the REF introduced its new BAT-sponsored version of the journal: “Tobacco Observatory is an initiative supported by British American Tobacco Italy to promote a widespread and transparent picture of knowledge on tobacco issues, it is in sharing of this objective that the REF is setting up the following publication” (BAT would later be deleted from the text).

Then, Tobacco Observatory began writing that the minimum price was the ideal solution, and after the European Court of Justice abolished the minimum price, the paper praised the “minimum tax,” devised by our politicians to skirt the European sentence; to this, the REF gave the grotesque definition of “selective tax.”

If originally, Tobacco Observatory was a useful point of reference for the tobacco market, today with BAT’s sponsorship, it has lost every trace of ethics. Unfortunately, the “widespread and transparent knowledge,” claimed by the REF, comes from Italy’s only technical publication of the sector, acknowledged as such by the national press and, alas, it is held in high regard by ignorant politicians in their decisions involving the interests of our country.

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