Cigarette Prices – What’s Brewing?

On next 24th of June, the European Court of Justice will issue its sentence of condemnation of Italy for the Minimum Price of cigarettes.

The prices of some brands will go down, and to avoid a loss of tax revenues, the Government will be forced to come up with compensation measures of a fiscal nature.

According to the European Union, price increases must not be made with the minimum price system that increases the profits of the manufacturers but with taxes that enable the State to earn more.

This is why the European Court of Justice is obliging Italy to eliminate this iniquitous system. So, what are our politicians doing to get ready for this impending market revolution?

June 8th 2010: the engine is warming up to make corrections to the financial package, pushed also by the followers of Gianfranco Fini—“the Finiani”—in the Chamber of Deputies and the Senate, with the backing of some outside supporters, in the offices of «Fare Futuro» (a foundation tied to Gianfranco Fini’s Alleanza Nazionale Party), they have drawn up some possible changes and have studied the possibility of intervening in the sale price of cigarettes and tobacco products (with an amendment or a decree law (decreto legge) which would be included in the economic package).

This would be an urgent operation to head off the sentence of the European Court of Justice on the Minimum Price mechanism. In its place, there could be the introduction of a sort of Minimum Tax «Tassa Minima».

Fiscal Policies – The Italian Way


Ass Kissers

In these past decades, in the field of tobacco taxation, we have seen some the worst characteristics of our country.

Italy has always distinguished itself for an astonishing sycophancy before the interests of multinational corporations, responding with irrational and idiotic reasoning and measures that would be considered inadmissible to the public opinion of third world countries.

Yesterday: Double Costs for Italian Citizens

To avoid any loss of tax revenue from cigarette sales, Italy has given away billions of euro to Big Tobacco.

The price increase, and consequently the minimum price, agreed on between a manufacturers’ cartel and the AAMS (Azienda Autonoma Monopoli di Stato), to bring about a growth in the value of the market and thus of the fiscal income, meant that Italian smokers had to pay a double cost.

In fact, every time cigarette prices increased, only 50% of the increase went to the State as tax income, while the other 50% went to the cigarette manufacturers as unjustified higher profits.

The same increase in tax revenues could have been achieved by simply changing the excise aliquot, without making tobacco buyers pay a double cost.

Was this illogical strategy of the AAMS due to the incompetence of the public organs that came up with the idea, or was it decided by some politicians’ personal interests in Big Tobacco?

Tomorrow: No One Dare Touch Marlboros!

Our politicians, to keep the prices of high-range cigarettes from going up, which would have happened with an increase of the aliquots (all the companies would pay taxes equally), are getting ready to introduce a “Minimum Tax” – «Tassa Minima».

In essence, following the abolition of the minimum price, this tax would end up penalizing more the cigarette makers of the lower price range like Yesmokes, and less those of the high range like Marlboros.

But what is more important, is that this “new system” too, would funnel less income to the State, adding it instead, as usual, to the profits of the foreign multinationals.

To simplify, an aliquot of 50 cents more on each pack, with 4.5 billion packs sold each year in Italy, compared to the system of the minimum price, would generate an additional 2 billion 250 million euro more of tax income.

With the “Tassa Minima” system, the State, as usual, would get only a part of this amount.

The European Union: Lobbyists at Work

If, on one hand, the European Community, agreeing with Yesmoke, has declared that the Minimum Price is illegal, on the other hand, the same European Community is not setting limits on a Minimum Tax, thereby allowing Member States to minimize the potential tax advantages of the change.

On the 16th of July 2008, Laszlo Kovacs, European Commissioner for Taxation and Customs Union, presented a taxation proposal “in whose preparation all the subjects involved in the sector had taken part.”

Renzo Patria

Renzo Patria

In the discussion with Kovacs, there were the big multinational cigarette producers, but not Yesmoke the originator of the change with its lawsuit against the Minimum Price.

As “bearer of the opinion of the tobacco producing chain in Italy,” there was the well-known lobbyist of Philip Morris,” the Honorable Renzo Patria with his “Filtabacco.” He was representing Yesmoke, too, but Yesmoke knew nothing about it.

So, if with the Minimum Price the multinationals have benefited for years, the fact that no limits were set for a minimum excise tax will permit some States to create a situation similar to the one before.

Nevertheless, in spite of its limits, the European Community has the merit of having imposed a glimmer of law and fairness. Imagine what the Italian tobacco market would be without it!

The Italian Collection of Bullshit

Years of idiotic rationalizations by politicians, news reporters and public organs have attempted to justify Italy’s tax policies, presenting a picture of the penetration of tobacco multinationals not only in politics and society but also in the Italian psyche.

For example, the REF (Ricerche Economia Finanza – Economic, Financial Research), officially sponsored by British American Tobacco, commented: “In this scenario at the end of the year, the tax revenue expected from the sector will be reached and probably surpassed…” So, if the State is happy with the income it collected, why not give the surplus to Big Tobacco?

The lawyer, Carlo Rienzi, president of the Codacons

The lawyer, Carlo Rienzi, president of the Codacons

The CODACONS lined up on the side of Big Tobacco and against the European Community in Yesmoke’s lawsuit against the minimum price: “in defense of the health of children.” And the Italian Parents’ Movement – Movimento italiano Genitori (MOIGE) declared that the fact that the European Community wants to abolish the Minimum Price is alarming.

The president of the Italian Tobacconists’ Federation—Federazione Italiana Tabaccai—, Giovanni Risso, was the most pathetic: according to him the minimum price was instituted to safeguard the interests of tobacco sellers by preventing prices from going too low (…).

And to crown it all, while the European Community is proposing an increase of cigarette taxes, in Italy, a “current of thought” has emerged that is debating the risk of these tax increases – that might encourage smuggling with cigarette prices that were too high.

In fact, Philip Morris already makes a profit of 870% on its «Virginia Slims»: Big Tobacco, with a production cost of about 7 cents per pack, sells the pack for 67 cents, with a mark-up that would make any tax collector happy.

And if Virginia Slims, Marlboros and Merits increased their prices, their sales would probably drop, so, unfortunately, there would no longer be a place for taxes….

Among other things, Italy is a country where cigarettes are relatively cheap. What would smokers do in New York where a pack costs 10 dollars or in London where they have to pay more than 8 pounds per pack?

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