Healthcare Sector Denied Earnings From Cigarette Tax

EghtesadOnline: In the Iranian years ending March 2018 and March 2019, the Health Ministry did not receive a penny of its 50% share in cigarette tax revenues, the head of the National Tobacco Control Secretariat of the ministry said.

News ID: ۷۸۵۲۵۷

14 January 2020

"Had this revenue been allocated, it could have been spent on treatment of tobacco-related diseases and smoking prevention education," Financial Tribune quoted Behzad Valizadeh as saying.

Noting that tobacco tax rate must be based on retail prices and not factory prices, the official said, “With the current calculation procedure, the country’s tax rate on cigarette is less than 15%, which is not an effective deterrent to smoking.”

According to the World Health Organization, tobacco taxes must account for at least 70-75% of the retail prices for tobacco products in order to help reduce consumption.

“Despite the seemingly high tax rate on imported cigarettes [92%], the country earns virtually nothing from cigarette imports because the Fifth Five-Year Development Plan [2011-16] prohibits cigarette imports. What we know is that the law has been in effect since March 2018 and the country has achieved self-sufficiency in cigarette production,” he was quoted as saying by ISNA.

Valizadeh noted that the budget bill for the next Iranian year (2020-21) has set a 75-rial tax on each Iranian cigarette, 150 rials on jointly-produced cigarette, 25 rials on a cigarette made domestically under international brands and 600 rials on imported cigarette.

Each dollar is currently exchanged at around 130,000 rials.

The government has projected that it will earn 7,000 billion rials ($53 million) from cigarette tax next year.

“About 50 billion or 2.5 billion packs of cigarettes with an average price of 60,000 rials (46 cents) are produced in Iran annually. What is generated from cigarette tax accounts for 15% of the retail price of tobacco products which is utterly insignificant once you compare it with the costs of treating smoking-related diseases, i.e. 300 trillion rials [$2.29 billion],” he said.

“An estimated 15% of Iranian people smoke. Tobacco consumption by this small percentage of people burdens the Iranian economy with an estimated 1,000 trillion rials [$7.6 billion] annually. In fact, non-smokers have to carry the healthcare burden of smokers.”

The Iranian National Tax Administration has recently announced duties and tax rates applicable to imported and locally-produced cigarettes in the current Iranian year (March 2019-20).

Imported cigarettes are subject to a 12% value added tax, 3% duties levied by the municipalities, 26% import tax, 1% tax levied by the Iranian Red Crescent Society, 40% direct tax and 10% tax on government-granted monopoly license. All in all, a 92% tax is levied on imported cigarettes.

This is while a 12% value added tax, 3% duties levied by the municipalities, 10% direct tax and 2% government-granted monopoly license are imposed on locally-produced cigarettes. A total of 27% duties and tax are levied on domestically-produced cigarettes.

Also, jointly-produced cigarettes are subject to a 37% tax and cigarettes made domestically under international brands are subject to a 42% tax.

20% Growth in Production

Iran produced 35.3 billion cigarettes during the first eight months of the current Iranian year (March 21-Nov. 21) to register an increase of more than 20% compared with last year’s corresponding period.

The country had produced 29.3 billion cigarettes during last year’s corresponding eight-month period, the Persian economic daily Donya-e-Eqtesad reported, citing data from the Ministry of Industries, Mining and Trade.

Eighty million cigarettes were exported during the eight months to Nov. 21, registering a 47% decline compared with the corresponding period of last year, data by the Ministry of Industries, Mining and Trade show.

Imports were close to zero while smuggling stood at 8.16 billion, indicating a 42.6% decrease year-on-year.

A total of 43.33 billion cigarettes were smoked during the period under review, showing no YOY change, IRNA reported.

New Brands Come Under Fire

The Iranian Tobacco Planning and Supervision Center's recent approval of new cigarette and tobacco production brands has been slammed by the Health Ministry.

The center, affiliated to the Ministry of Industries, Mining and Trade, recently approved of permits for 15 new brands of cigarettes and 30 new brands of tobacco, requested by 28 tobacco companies.

Deputy Health Minister Alireza Raeisi said the decision is against the law and even shows contempt for Iran’s commitments to the World Health Organization.

“According to the guidelines of the National Tobacco Control Headquarters drawn up in its ninth meeting in [the Iranian year] 1393 [March 2014-15], adding flavor and taste to tobacco products and registering new brands is banned and amounts to cigarette advertising,” he said.

Note 3 of Clause 102 of the Fifth Five-Year Development Plan (2011-16) proposed the setting up of 20 tobacco factories to meet domestic demand.

“The Industries Ministry keeps on issuing new permits for tobacco production on the pretext of the hike in consumption and smuggling. Supervisory authorities fail to address health concerns and the ministry pursues its tobacco industry development policies,” Raeisi was quoted as saying by the Persian-language daily Etemad.

Raeisi also talked of influence peddling by big-money interests, the so-called cigarette mafia, to thwart the plans to raise tax on cigarettes.

“Iran has the cheapest cigarettes in the world. The lowest rate of tax is being imposed on tobacco products in Iran whereas there is definitive evidence that tobacco taxes reduce smoking. But thanks to the influence exercised by the powerful cigarette mafia in the country, our proposal to the parliament on raising cigarette tax by 10%, which could generate 200 trillion rials [$1.45 billion] for the country, was rejected. The United States has sanctioned imports of pharmaceuticals needed by our people, yet a couple of its major tobacco companies keep on selling cigarettes to us,” he said.