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Minimum Price of Cigarettes

The “Minimum Price” was introduced in Italy, France, Ireland and Austria in 2005; it was abolished by the European Court of Justice with its sentences of 4 March 2010, against France, Ireland and Austria, and of 24June 2010 against Italy. But in the “Belpaese,” the effects of the minimum price were extended thanks to Leg. Decree – DL 94, passed on the 23rd of June 2010, which set up the so-called «Tassa minima» (Minimum Tax) and which enabled Italy to circumvent the European judgment. The “minimum tax” was in turn revoked by the Regional Administrative Court—the TAR–of Lazio on April 5th 2012. This date marks the final liberalization of the Italian market.

The Minimum Price for cigarettes obliges the manufacturers of lower cost cigarettes to raise their prices to a minimum set by the State.

In theory, they would earn more; but in fact this does not happen, because consumers, choosing from a selection of products having the same price, are led to choose the better-known and more advertised brands. Any economical cigarettes on the Italian market today, because of this law, will have to cost the same as Winstons or Pall Malls.

So, this increase to the minimum price does not help local manufacturers, nor does it bring greater income to the State; it only boosts the turnover of the cartel of the multinational giants. If there had been, instead, a generalized tax increase on all cigarette brands, the State would have benefited from higher revenues and the big cigarette multinationals would have had to reduce their profits to remain competitive.

The reaction of Yesmoke and of the European Commission

On October 5th 2007, Yesmoke presents a petition to the European Commission for the abolition of the minimum price, and on the 3rd of July 2008, the European Commission refers Italy to the Court of European Justice.

The EU Violation Procedure is activated when it is believed that a Member State has violated an obligation imposed by Community law. It can be invoked by the European Commission (article 226 the EC Treaty) or by any Member State against another Member State (article 227 of the EC Treaty).

“Taxation has the same effect on prices as a mandatory minimum price, and it doesn’t damage the competition on a price basis,” points out the European Commission communication.

If today’s prices of cheaper cigarette brands were determined by higher taxes, the cigarettes would cost the same as they do today, but the State would make about 1.5 billion euro more each year – and Philip Morris would find itself in an extremely critical situation.

Chronology

  • July 2, 2007: The European Commission has officially announced that it is ready to undertake legal action against Italy (as well as Austria and Ireland), for the decision to fix a minimum price for cigarettes as a measure to dissuade smokers, instead of using the instrument of taxation;
  • October 5, 2007: Yesmoke submits a notification to the European Commission concerning the minimum price for cigarettes in Italy;
  • July 3, 2008: The Commission has decided to refer Italy to the Court of Justice, concerning the minimum price of cigarettes;
  • June 26, 2008: The press realase is published on the official website of the Europea;
  • June 10 – December 18, 2008: Yesmoke challenges the latest two provisions made by the Italian monopoly for the increase of the cigarette minimum price;
  • January 28, 2009: The regional administrative court of law of Lazio agrees with Yesmoke and suspends the latest 2 provisions about the increase of the cigarette minimum price – Yesmoke can decrease te price from 3,60 euro for 20 sigarette, to 3,40 euro;
  • March 12, 2009:The Council of State sustains the petition of provisional precautionary measure – “Misura cautelare provvisoria,” – which suspends the order of the TAR of Lazio. Yesmokes return to 3.60 euro;
  • April 7, 2009: The Consiglio di Stato conferms the suspension of the provision of the TAR del Lazio of January 28. The Yesmoke, at the moment, cannot be sold at 3.40 euro;
  • May 13, 2009: TAR Lazio – The definitive decision of the TAR for the abolition of the minimum price has been postphoned to November 25, 2009;
  • November 25, 2009: Hearing at TAR Lazio;
  • January 26, 2010: The sentence – Il TAR The TAR does not reject Yesmoke’s requests and defers the trial, awaiting the imminent abolition of the minimum price by the European Court of Justice;
  • June 24, 2010: The sentence – The  European Court of Justice abolishesh the minimum price in Italy;
  • April 5th, 2012: the TAR of Lazio revokes the DL 94, the “minimum tax.”

Getting around the Court Sentence, the “Minimum Tax”

While the European Court sentence was enacted regularly in France, Ireland and Austria, in Italy it was not. On the 23rd of June 2010 the DL 94 «Tassa minima» was passed to circumvent the judgment of the Court of Justice scheduled for the next day. The new “minimum tax” did not affect anyone, because if a cigarette maker wanted to lower his prices below the 3 euro and 80 cents of the old minimum price (just abolished by the European Union), he would find a tax that would force him to sell below cost. Since selling tobacco below cost is prohibited, no one could reduce his prices and so no one would ever pay the tax. If he did, he would be violating Article 39-quater, paragraph 2, of Legislative Decree 26 October 1995, n. 504, which prohibits the sale of tobacco products below cost.

The “minimum tax” was devised to neutralize the effects of the abolition of the minimum price. It was implemented to satisfy the foreign tobacco multinationals who do not like higher taxes and consequent lower profits.

The “minimum tax” would be annulled on April 5, 2012 by the TAR of Lazio.

Yesmoke’s comment

The interests in play are now all foreign: the manufacturers, the brands of cigarettes of the ex-State Monopoly and Logista, foreign too, the only distributor.

There is practically no one left that is Italian, and the Italian State is paying the defense for foreigners, against Italy’s own interests, considering that:

  1. The State collects less with the minimum price;
  2. The State will be condemned to pay compensation to Yesmoke because of the minimum price;
  3. The State with the State Advocacy – Avvocatura dello Stato – paid with public funds, is defending the interests of foreign companies; these companies have already been condemned for smuggling and tax evasion (with final sentence) and they continue to elude taxes in Italy with total impunity.

So the Italian State is a loser three times. In this picture, Yesmoke is substituting the State and, alongside the European Union, the company is also fighting a battle against the State, so that the State itself, eliminating the obstacle of the minimum price, can increase its fiscal revenues and not leave all these funds to foreign manufacturers.

Yesmokes’ position coincides with that of the European Commission. The Italian minimum price policy will very likely lead to the shutdown of any company that attempts to enter the market.

Philip Morris has always done all it could to neutralise the so-called economical brands using every possible means. These include, as in this case, the imposition of its concept of price increases that ends up raising the prices only of the economical cigarettes – so that they will no longer be “Economical.”

A producer who reduces his prices is not encouraging people to smoke more. In fact, he is creating a base on which the State can increase taxes and its fiscal revenues for the benefit of all of us. To try to make people smoke less, which measure is fairer: a price increase or a tax increase? Whom would you prefer to give your money to – to foreign tobacco giants or to your own country?

The “Political Price”

Today Philip Morris earns with its Marlboros almost as much as the tax collector and taking advantage of all these profits is an army of mysterious backers and parasites of all species and of all political colors. Against the profit that cigarette manufacturers are raking in today, totally unjustifiable and unthinkable in any other trade sector, Yesmoke is going to take a strategic and demonstrative stand: it is going to introduce onto the cigarette market a product of top quality practically at production cost: the so-called “Political Price.”

At this point, the Italian State will have to bring cigarette prices to a level judged useful to dissuade tobacco consumption, and it will do this by raising taxes on all cigarettes. So, finally the prices of all the brands will rise, taking Yesmoke price as reference point, and Big Tobacco, to remain competitive and to not lose market share, will be forced to either raise its prices or lower its profits.

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