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Opportunities and threats of the excise tax harmonization in the EU – Latvia’s approach

Opportunities and threats of the excise tax harmonization in the EU – Latvia’s approach. Māris Jurušs Deputy Director Tax Policy Department Ministry of Finance of Latvia 20 .0 9 .2006 PRAGUE. The main requirements of EU.

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Opportunities and threats of the excise tax harmonization in the EU – Latvia’s approach

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  1. Opportunities and threats of the excise tax harmonization in the EU – Latvia’s approach Māris Jurušs Deputy Director Tax Policy Department Ministry of Finance of Latvia 20.09.2006 PRAGUE

  2. The main requirements of EU • The minimum excise tax rate: 57% of the most popular price category (MPPC) and not less then EUR 64 per 1000 cigarettes • Combined excise tax rate: specific + ad valorem. The ad valorem rate is applied on retail price • Equal excise tax rate for all cigarettes • Fixing of maximum retail price (MRP) • Minimum tax (optional)

  3. Retail Price Structure (EU directives)

  4. Harmonisation of excise tax on cigarettes in Latvia with EU requirements • 1st step: 01.01.1999 Introduction of general EU requirements (tax warehouses, suspended tax payment procedure, guarantees etc). • 2nd step: 2001 - 2003 Introduction of equal excise tax rates. Introduction of combined tax rate. Introduction of MRP system. • 3rd step: 2003 - 2010 Gradual increase of excise tax rate to the minimum EU level: 57% of MPPC and not less then EUR 64 per 1000 cigarettes.

  5. GDP per Capita in EU, 2004

  6. Minutes worked to purchase 20 cigarettes

  7. Harmonization of excise taxwith EU requirements

  8. Currently established annual increase of excise tax on cigarettes

  9. Expected MPPC

  10. Opportunities of the harmonization of the excise tax in Latvia • Fiscal aspects: • yearly excise duty revenue increase: • in 2004: 20 Milo. EUR • in 2005: 30 Milo. EUR • in the first half of 2006: 18 Milo. EUR • about 90 -100 Milo. EUR in 2010 • more option for budget programmes • Social / health aspects: • decreasing of consumption • decreasing of smoking

  11. Threats of the harmonizationof the excise tax in Latvia • Smuggling • in 2005 arrested 7,36 Milo. units of cigarettes and 24,4 tons of tobacco; • in the first half of 2006 arrested 18,93 Milo. units of cigarettes; • Alternative products to cigarettes (smoking tobacco) • Excise tax rates in neighbouring countries • in Russia: 0,046 EUR per 20 cig.+8% (or 5-7 times less than in Latvia) • in Belarus: 0,036 EUR per 20 cig. (or 9 times less than in Latvia) • Inflation • in 2005: 6,7% ( 0,28 pp from tobacco products) • in the first half of 2006: 6,3% (0,21 pp from tobacco products)

  12. Changes in exchange rate of national currency - lats (LVL) 2002 – 2005

  13. Excise tax harmonization

  14. Excise tax harmonization Option 1

  15. Excise tax harmonizationOption 2

  16. Further harmonization of the excise tax – Latvia’s approach • Depends on: • Economical situation • Inflation rate • Situation in market • Smuggling activities • Further activities: • Report to the government • Negotiation with the Commission

  17. Thank you for your attention!

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