The Government Has Come Up with a Way to Counter Cigarette Manufacturers

The government has submitted a proposal for amendments to the Excise Tax Act to parliamentary procedure, aiming to prevent manufacturers from creating speculative stocks and to increase budget revenues from excise taxes through stricter control of excise stamps.

The main idea is, says Finance Minister Slavko Linić, to prevent manufacturers from creating speculative stocks and avoiding the payment of excise taxes.

Linić states that manufacturers, during the last two increases in excise taxes, literally emptied their stocks of excise stamps with old excise rates the day before the government’s decision, thanks to information they obtained. They then sold cigarettes at old prices, which did not bother consumers, but the state budget suffered.

Minister Linić supported this with the data that the revenue growth from excise taxes in the first five and a half months of this year was 37 percent, instead of the planned 46 percent. At the same time, he adds, the profits of cigarette manufacturers increased.

“They simply emptied the stamps overnight to profit and essentially stole from the state budget. To prevent this, we completely banned the issuance of stamps for the last three months, and in the meantime, two weeks ago, there was an increase in excise taxes, so we were not robbed like last time,” said Linić.

The government, with the proposed law, wants to obligate manufacturers to inventory all stocks of cigarettes in production facilities, warehouses, and sales points whenever there is a change in cigarette prices, whether due to their own pricing policy or excise taxes.

Additionally, excise stamps will not have a price on them, but will be price-free.

Thus, regardless of when the stamps for cigarettes were obtained, the new excise tax will be paid on the same day it begins to apply.

All of this, according to Minister Linić, should result in all revenue from the increase in excise taxes ending up in the budget.

He states that the goal is not to introduce new taxes, but to stop negative behaviors where reaching into the state budget was a practice.

Prime Minister Zoran Milanović asked whether this was a punishable behavior or cunningness of cigarette manufacturers, and when Linić replied that it was the latter, he warned that then they should choose their words carefully. They were cunning, faster, now we will be faster, said Milanović.

As unofficially learned from the Ministry of Finance, due to the machinations of manufacturers with excise stamps, the budget lost approximately one hundred million kuna with each change in excise taxes.

The Ministry claims that the system change, which is supposed to take effect on July 1 of this year, should not affect retail prices of cigarettes.

The Ministry will, as learned, strengthen inspection oversight of cigarette stocks, engaging hundreds of customs officers.