One cent more per cigarette, that is, 20 cents more per pack, to finance a fund for access to innovative oncological drugs, managed by AIFA. The so-called purpose tax, promoted by some pharmaceutical companies and implemented by the Health Minister Beatrice Lorenzin, which would like to include it in the next Stability Law, should intend to raise 720 million euros. But will he really do it?
No, for a series of technical reasons, supported by studies and by the opinions of experts in the sector. The first is very simple: although an increase of just 20 cents per package may be unpleasant but not insurmountable to the consumer (“I think the Italians would understand”, Lorenzin said recently), the problem is precisely that the increase cannot be only 20 cents. In fact, the tobacco taxation system in Italy provides for a very high component proportional to the selling price (the highest in Europe): with each price increase in response to tax measures, the taxes themselves increase again, automatically.
ONE EURO MORE PER PACKAGE – To explain it is, among others, the professor Paolo Liberati, professor of Finance at the Roma Tre University: “Tobacco taxation is very particular and a tax increase of twenty cents per packet could mean a much higher increase in the final sale price which we have estimated at up to one euro per packet. It should also be kept in mind that tobacco products are subject to harmonized taxation in Europe and this increase of one cent per cigarette would be a separate, non-harmonised tax, different from the tax structure that other European countries apply”.
One euro more, and not just 20 cents: in short 5 times as much, for the final consumer, for products exceeding 4,40 euros per package, that is, a very large slice of the market. While, for all lower prices, the increase in the selling price becomes 30 cents per package: due to the fixed taxation on low prices, the tax multiplier for these prices is extremely small.
DROP IN CONSUMPTION – And this leads to the second problem: "Consumption - explains Professor Liberati - could move from more expensive products to less expensive ones or, even worse, turn to the counterfeiting and smuggling market, thus compromising the goal of reaching 720 million estimated revenue". However, the shift towards lower-end products creates two major contradictions: first of all, making cigarettes significantly less expensive than others contradicts the policies for limiting access to smoking, especially for young people. But above all, the inevitable shifting consumption towards lower-priced products that contribute less to tax revenue, will penalize precisely the same tax revenue.
LOSS OF REVENUE AND THE BLACK MARKET – The security experts speak of a loss of revenue of about half a billion euros (according to estimates considered by some to be low) only in the first year from the moment in which the provision is allegedly taken, and of about 1,8 billion in the first three years. In short, much more than the 720 million incoming funds planned, also considering the negative impact of the illicit market, which would certainly benefit from such an increase.
In fact, on packets of €4,40 and up, the price increase would be at least 18%, i.e. it would go over €5 and in many cases over €6 depending on the brand: already today, according to latest data from KPMG, illicit trade in Italy amounts to about 5,8% of total consumption, with a loss in terms of economic value close to 822 million euros in lost excise duties, and without considering the health risks given that illegal cigarettes, that arrive mostly from Belarusare without any control.
CONSEQUENCES ON THE SUPPLY CHAIN - A measure of this type would not only have a devastating impact on producers, consumers and state monopolies, but also on an entire agro-industrial production chain in the country. Tobacco growing in Italy employs around 55 people generating a tobacco production of about 48 million kg per year, of which about 18 million in Campania. Tobacco cultivation generates an annual economic value of around 200 million euros a year, 70 of which in Campania. If a measure like the one proposed were to pass, in the light of the significant drop in sales volumes of finished products in Italy following a similar price increase, according to some unofficial estimates, tobacco growing would lose over 50 million euros in 3 years (about 40 million in the first year alone), with a relative impact on employment.
EUROPEAN LEGISLATION - Finally, as also underlined by Professor Liberati, the choice on the part of the European legislator is to avoid the introduction of additional taxes which could compromise the harmonization of the excise system within the European Union. Furthermore, the process of reviewing the Tax Directive 2017/2011/EU will begin in 64: Italy, which is already the country with the highest taxation proportional to sales prices, would risk further hindering this harmonisation.
A PROPOSAL - Impossible then to generate new resources? Absolutely not. Economists point out that, from a theoretical point of view, it would be correct, for example apply the tax to the quantities sold and not to the sale price: if Italy progressively increased taxes on cigarettes, converging at the same time to the average structure of European taxation, an increase in revenue would be obtained over time, thus protecting consumers and generating additional revenue for the State.
