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Español Tax Revenue – Watch out for the A.A.M.S.!
Raffaele Ferrara, general director of the A.A.M.S. – Autonomous Administration of the State Monopolies
Since the 1990s, in the period of the A.A.M.S./E.T.I.* agreement with Philip Morris for the production of Marlboros in Italy, the A.A.M.S. has always worked against increases of fiscal pressure, that is, of the excise aliquot. It has consistently privileged pricing maneuvers that safeguard the profits of the manufactures. Why should it change now?
In that period, the A.A.M.S. was openly acting in the interest of Philip Morris; the other multinationals, that did not sell much in Italy, were still excluded, and they protested, as Yesmoke is doing today.
Today the strategy remains unchanged but the cartel has opened up to take in Japan Tobacco and British American Tobacco.
The 1990s: The A.A.M.S. / E.T.I. are with Philip Morris
In 2003, a trial involving the cartel run by the A.A.M.S. /E.T.I. and Philip Morris was held which resulted in their conviction. At the trial, B.A.T. stated that in the early 1990s, the A.A.M.S. had imposed its directives on cigarette manufacturers, excluding Philip Morris: “There has been a pervasive intervention of the A.A.M.S., which, concerned about safeguarding its own interests and those of Philip Morris, has instrumentally used its numerous powers and roles to impose its directives on other manufacturers having more modest market shares, using its power to delay pricing registrations and practicing discrimination in the distribution”.
Philip Morris had signed an agreement to produce Marlboros in the A.A.M.S plants, and the A.A.M.S. was protecting the interests of its “Client”. B.A.T., moreover, pointed out that sales price increases were not the only way to bring in more tax revenue: it was possible to reach the same objective by varying the excise levy. This is exactly what Yesmoke is saying to the A.A.M.S. today.
According to B.A.T, the concurrence between the A.A.M.S. /E.T.I. and Philip Morris regarding the prices was evident “in their agreement on price rises that produced an increase of tax intake deriving from the sale of cigarettes, avoiding changes, provided by the law, of the excise tax, that would give the same increase. The companies agreed to go ahead with contextual and homogeneous rises of cigarette sales prices, as this method, not only satisfied the needs of the State revenue, but also allowed the producers to boost their income; their income, on the contrary, would be reduced if the excise tax was raised”.
The effects of these contract relationships between the A.A.M.S. and Philip Morris to define price increases emerged even more clearly in the hearing of the general manager of the A.A.M.S. before the Financial Commission of the Chamber of Deputies in November 1995. On this occasion, the general manager acknowledged explicitly that the “license contracts stipulated by Philip Morris and the A.A.M.S., especially in relation to the calculation of the royalties, limited the operations of the latter, inducing it to make pricing maneuvers instead of fiscal ones.”
This conditioning finds further confirmation in the price increases that took place at the beginning of 1996; in the minutes of the meeting of the A.A.M.S Board of Directors of 29 December 1995, the A.A.M.S. general manager and a member of the board express their perplexity on the pricing nature instead of the fiscal nature of the maneuver, aimed at “making consumers pay for the need to earn additional margins of revenue deriving from tobacco”, when adjustments could have been made […] to the taxation system, in which significant margins exist to increase tax income; these adjustments, however, had to be […] made up from the profits of the manufacturers”.
2004: B.A.T. and Japan Tobacco join the cartel of the A.A.M.S.
In 2004, British American Tobacco acquired the E.T.I. - Italian Tobacco Agency - and in 2005, arrived the minimum price, which the three cigarette multinationals all agreed on. However, the minimum price, the European Union stated, “safeguards the profits of the manufacturers taking resources away from the State’s tax income”.
Thanks to the minimum price, Philip Morris succeeded in earning 495% profit on a pack of Marlboro cigarettes, B.A.T. reached a 380% profit on a pack of MSs and Japan Tobacco hit a healthy 415% intake on its Camels.
The big three naturally defended the minimum price, which was aimed at keeping the excise low and increasing their profits and this led to Italy’s controversy with the European Union. The E.U. in 2008 started up violation procedures and on June 24th 2010 imposed the abolition of the minimum price.
The Lawyer Raffaele Ferrara recently had the government approve a new “minimum tax”, whose purpose is to circumvent the European Union’s 2010 abolition of the old minimum price.
The continuity of the actions of the A.A.M.S. is clear: still today, it wants to make consumers pay the need for higher tax income, when it could reach the same objective by increasing the excise aliquot. But this would reduce the disproportionate profits of Big Tobacco!
The A.A.M.S. is an aberration, because it is openly, almost “officially”, defending the interests of the foreign tobacco giants, who no longer manufacture in Italy and do not even pay taxes in our country, greatly damaging the Italian State and the national cigarette producers.
* E.T.I. – Ente Tabacchi Italiano – the Italian Tobacco Authority
The Ente Tabacchi Italiani was instituted on the 9th of July 1998, implementing a government order. It was a public economic agency (later transformed into the E.T.I. S.p.A.), which was entrusted with the production and marketing activities previously reserved, or in any case, attributed to the A.A.M.S.. The E.T.I. until 2004, the year it was sold to British American Tobacco, besides the most popular italian brands, manufactured Marlboro cigarettes for Philip Morris.
The A.A.M.S. – Amministrazione Autonoma Monopoli di Stato - Autonomous Administration of the State Monopolies
Although the State monopoly was abolished in 2004, and all the Italian cigarette brands were sold to the multinational manufactures of the sector, the A.A.M.S. has held on to its questionable role in the Italian market, exercising activities of “control over the manufacturing, distribution and sales of processed tobacco products and the collection and payment of the associated taxes”.
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