Tobacco Association Argues Against Raising Cigarette Tax

EghtesadOnline: As per the Iranian National Tax Administration’s data, the tobacco industry paid a total of 61 trillion rials ($230 million) in taxes over the 11 months ending Feb. 19, which accounts for 3% of the government’s total tax revenues during the period, says chairman of Tobacco Products Importers and Exporters Association.

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09 March 2022

“Tobacco industry pays a total of 40% in taxes and 25% in value added tax. That’s contrary to some parliamentarians’ claim that the industry pays less than 15% in taxes,” Mohammad Reza Tajdar was also quoted as saying by Mehr News Agency.

“There are between 12 and 15 million smokers in Iran,” he said, noting that the exponential rise in the prices of cigarettes would disrupt the economy.

“The Health Ministry has announced that cigarette consumption has decreased from 55 billion to 45 billion whereas statistics show the average age of smoking has decreased and the number of women who smoke is on the rise. Iran produces 60 billion cigarettes annually. In addition, there are all kinds of smuggled cigarettes in the market.”

According to the World Bank, higher excise taxes have proved effective in many countries in reducing cigarette consumption and raising government revenues.

A study in Indonesia shows that price is not a significant factor influencing decisions to smoke or not, but has a significant effect on the quantity of cigarettes smoked: each 10% increase in price would reduce total cigarette consumption by 6%. The reduction would be higher - nearly 7% - among low-income households, and lower – about 3% - among high-income households. Cigarette consumption increases as income rises: a 10% increase in household income would increase consumption by 6.5%, with a particularly strong effect among low-income households - a 9% increase - but little change among high income households - an increase of less than 1%.

Simulations show that a 10% tax increase that raised cigarette prices by 4.9% would reduce consumption by 3% and increase tax revenues by 6.7%, including assuming no significant switching among cigarette products with different prices and tax levels.

According to the Ministry of Industries, Mining and Trade, a total of 2,444 tons of tobacco were produced in Iran during the first half of the current fiscal year (March 21-Sept. 22, 2021), registering a 265.3% growth compared with the similar period of last year.

Cigarette production stood at 28.73 billion during the period, which figure is 14% more compared with 25.12 billion cigarettes produced in the corresponding period of last year.

The number of smuggled cigarettes declined by 46% YOY to 4.05 billion from 7.45 billion in the same period of last year, the ministry says, adding that consumption stood at 32.5 billion in H1, unchanged from last year's corresponding period.

A total of 24 domestic companies produced cigarettes in the first half of the current Iranian year, 9.1% (or 2 units) more compared to 22 in the last fiscal year's corresponding period.