Blog

The AAMS Is Cheating the Government: D.L. 94 of 23/6/2010

The “minimum tax” on cigarettes, outlined in law decree D.L. 94 dated 23/6/2010, will not bring the increase in fiscal revenues the Government is expecting.

This tax, studied by the AAMS, will do nothing more than recreate the situation of the “minimum price,” for which last June 24th the Italian Republic was condemned by the European Court of Justice.

The new “minimum tax” will allow foreign multinational cigarette manufacturers, coordinated by the AAMS itself, to continue their “cartel” which, with the excuse of not reducing tax revenues, has enabled them in these years to increase their profits in a shrinking market.

In fact, the coordinated price increase of the multinationals’ products, in a market protected by the minimum price and therefore, without free competition, has benefited both the State with a growth of tax income, and also the multinationals with higher unjustified profits.

Returning to a competitive market without privileges, the big producers would have to cut their profits to avoid losing market share. A situation like this would make it possible to increase the State’s excise taxes without necessarily increasing cigarette prices.

What is Hidden Behind the Numbers?

Price to the public Before the DL 94 With the DL 94 As the EU indicates
Excise Producer’s profit Excise Producer’s profit Excise Producer’s profit
*Minimum excise **Minimum tax – The figures in the table are based on a manufacturing cost estimated in 0.12 euro per pack plus 0.04 distribution.
4.50 € 2.61 € 0.53 € 2.61 € 0.53 € 2.61 € 0.53 €
4.40 € 2.55 € 0.52 € 2.55 € 0.52 € 2.56 €* 0.51 €
4.30 € 2.50 € 0.50 € 2.50 € 0.50 € 2.56 €* 0.44 €
4.20 € 2.44 € 0.48 € 2.44 € 0.48 € 2.56 €* 0.36 €
4.10 € 2.39 € 0.46 € 2.39 € 0.46 € 2.56 €* 0.29 €
4.00 € 2.33 € 0.44 € 2.33 € 0.44 € 2.56 €* 0.22 €
3.90 € 2.28 € 0.42 € 2.28 € 0.42 € 2.56 €* 0.14 €
3.80 € 2.22 € 0.40 € 2.22 € 0.40 € 2.56 €* 0.07 €
3.70 € 2.22 €* 0.33 € 2.56 €** 0.00 € 2.56 €* 0.00 €
3.60 € 2.22 €* 0.26 € 2.56 €** -0.08 € 2.56 €* -0.08 €
3.50 € 2.22 €* 0.18 € 2.56 €** -0.15 € 2.56 €* -0.15 €

The tax increase does not mean only a price increase, but also because of free competition, a possible cutback in the profits of the producers.

To maintain the price of 3.80 euro per pack after the introduction of the minimum excise, as indicated by the European Union, cigarettes would have to be sold practically at cost price.

In this case, if Philip Morris, BAT and Japan Tobacco, because of Yesmoke’s competition, sold their Dianas, MSs and Winstons at 3.80, the State would get the tax revenues it was planning for, cigarette buyers would pay the same price as before, and the burden of the higher fiscal pressure would be borne by the manufacturers.

Probable Future Scenarios

Italy will be sanctioned again by the European Union for not respecting the sentence of the European Court of Justice.

The TAR—the regional court—of Lazio, will intervene again and will abolish Law decree 94; this will lead to a collapse of cigarette prices, along with tax revenues. The State will need considerable time to correct the situation that is created.

Related Articles

Connect with Us

Communicate with us and follow our updates on your preferred social network.