Increased EU Excise Duty Will Hit Bulgarian Smokers Hard
The excise duty on cigarettes sold in the European Union will rise significantly in 2014, when the taxation level will become EUR 90 per 1 000 cigarettes.
The rate of duty is currently set at EUR 64 per 1 000; the proportional increase in the tax rate will rise from 57% to 60% of the purchase price.
The European Council of Ministers has agreed these amendments to the Directive on excise duty on tobacco products, it has been announced on Tuesday.
The ministers have approved a transition period for Bulgaria, Greece, Estonia, Latvia, Lithuania, Hungary, Poland and Romania. These countries will fall in line on January 1, 2018.
In Bulgaria, excise duty has been increased at the beginning of 2010 to EUR 76 per 1 000, compared with the previous level of EUR 52.
At the end of December 2009, Finance Minister Simeon Djankov had stated that Bulgaria should follow the European average levels of taxation, and not the minimum. He also stated that the new tax level would remain in force in 2011.
Even if Bulgaria benefits from the grace period, it is estimated that, from 2018, cigarettes will double in price compared with current levels, with a likely average purchase price of BGN 4,68 for popular mid-range brands.
The state-owned cigarette monopoly Bulgartabac has already announced that the illegal trade in cigarettes will reach 40% of the total trade in 2010 over the recent increase in excise duty.
Bulgartabac reported in January that, after a survey made by the company, it was clear that smokers would look for an alternative source of cigarettes following the excise duty hike that came into force on January 1. They said that the current illegal trade in cigarettes amounts to 30% of the total - a doubling of the amount of illegal activity compared with 2008.
The Bulgarian Customs Agency has recently announced new restrictions on the number of duty-free cigarettes that may be imported to Bulgaria from non-EU neighbors in an effort to clamp down on the illicit trade. Prices of cigarettes in the region are generally significantly lower than in Bulgaria as a EU member state.
The Bulgarian government hopes that increased prices will cause more smokers to give up the habit, thereby easing pressure on the healthcare sector while also increasing state revenues from proportionally increased taxation rates.
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