Translation from Romanian. The original article is HERE.

The effect of those policies is the failure to collect millions of lei in the state budget and - worse - the increasing threat to the public health. 

In the first four month of this year the imports of cigarettes without filter have grown about three-fold, a Finance Ministry report claims. At the same time the imports of cigarettes with filter have decreased more than 41%. The domestic production of cigarettes of any kind however has received the worst blow - it dropped 2.5-fold compared to the same period of 2016.

A hole of millions 

As a consequence the state of Moldova has missed already around 100 million lei, plus another 300-400 million lei by the end of 2017. One should blame the ambiguous tax policies, which under the excuse of protecting consumers and keep the prices low, targeted the cigarettes with filter rather than those without filter any time it was about increasing the duties. 

In attempting to curb down the invasion of imported cigarettes without filter, the authorities decided to revise the size of excises for these products. 

Currently Moldova applies a specific duty of 120 lei (6$) per 1,000-piece pack of cigarettes without filter, and a 3-fold larger duty in the case of filter cigarettes, 360 lei. In addition, an ad-valorem duty of 12% is levied from sales of filter cigarettes - which does not exist for cigarettes without filter. 

The draft paper on budgetary-fiscal policy for 2018 suggests an “accelerated taxation of cigarettes without filter starting year 2018.” In compliance with this document, the duty for cigarettes without filter would increase three-fold in 2018 compared with just 30% as planned earlier: from 120 up to 350 lei per 1,000-piece pack; it’s going to hit 540 lei in 2020. 

It is also suggested to introduce a 3% ad-valorem component for cigarettes without filter starting 2018 and in 2019 it could jump to 6% and in 2020 up to 9%.

At the same time the duties for filter cigarettes would continue to climb up to the minimum established in the European Union Directives - 90 euros (1,840 lei) for 1,000 cigarettes - and the need to secure a growth in the budget. The ad-valorem duty would increase by 1% to 13% and the fixed quota from 460 lei up to 540 lei per 1,000 cigarettes in 2020. 

The Finance Ministry estimates that these measures on tobacco products would pour an additional 239 million lei into the public coffers in 2018 - if the Parliament turns a deaf ear to the tobacco industry lobby. 

Filip Government: cigarettes without filter are “social products” 

Economists warned a year ago that the Government lead by Pavel Filip referred to cigarettes as “social products” rather than align itself to the size of duties at the level of the region. 

“The authorities in fact show that the cigarettes without filter are a kind of products of first need and therefore they must be accessible by costs.

“Also, in compliance with the obligations assumed by Moldova towards the E.U. by 2025 the excises per 1,000 cigarette pack should reach 90 euros. There’s credible evidence that the Moldovan Government has no plans whatsoever to take those obligations serious. The excise [for cigarettes] needs to grow around 8-9 euros per 1,000 pack every year in order to match those obligations,” says Dumitru Budianschi of Expert-Grup think tank in an analytic paper. 

Duties and effects 

Konstantin Krasovsky, a consultant with the World Health Organization, was quoted as saying in late 2016 in a study titled “The Tax Policy on Tobacco Products in Moldova” that the country enforced a very soft policy on tobacco excises in 2010-2013, a period when the average regional excise on tobacco products increased 10-fold. 

This policy has produced the following consequences:

1) revenues increased 8-fold in four years;

2) substantial decline of contraband from Moldova;

3) low access and consumption of tobacco products. 

“With all these since July 2013 Moldova has changed Moldova has changed its policy towards excises by adopting moderate gains. As a consequence, in 2014-2015 there had been almost no growth of revenues and the contraband with cigarettes began growing along with the access to tobacco products. In 2016 the excise again increased, though not too much. If the existing policy that encourages slow excise growth survives then the real revenues (adjusted to inflation) from excises will only rise if the consumption of tobacco products increases in Moldova and/or in the region (thanks to the contraband from Moldova),” the WHO expert goes on.

Mr. Krasovsky claimed that Moldova may re-activate the 2010-13 policy on tobacco excises in order to secure more revenues and diminish smoking. 

“If in 2017-25 the size of the specific excise grows by 20% a year and the size of the ad-valorem excise grows by one percentage point, in 2025 Moldova will hit the European Union’s minimum size of excise. For Moldova this move will be beneficial for the following reasons: 

• Additional revenues from the tobacco excises - around 750 million euros in nine years. 
• Substantial reduction of the cigarette contraband from Moldova with a little probability of any contraband growth into Moldova thanks to similar or higher prices. 
• Diminishing access to tobacco products given the declining consumption and improving public health,” the expert argued. 

However the Parliament passed a significant difference in duties among the types of cigarettes and the Government now finds that the outcome would be dangerous for the public budget. 

The decline of internal production 

According to Mr. Krasovsky’s estimates, during the period of 2003-2008, the total sales of cigarettes were rather stable (8-9 billion pieces) and the cigarettes made in Moldova were pushed gradually out of market by imported ones. In the next period, 2009-2010, the sales increased sharply up to 10.7 billion cigarettes a year that were sold in Moldova in 2010-2011.

The growth of cigarette sales in 2009-10 and the decline of sales later cannot be explained by the change in the access to tobacco products or other factors of internal nature. The best credible explanation is the flourishing contraband of cigarettes from Moldova, via the neighboring countries - Ukraine and Romania. 

Since 2012 Moldova has experienced a rapid decrease of sales of cigarettes in its market. The internal production of cigarettes has decreased five-fold: from 6.2 billion pieces in 2011 down to 1.1 billion pieces in 2015. 

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This article has been published thanks to the support of the National Endowment for Democracy as part of the Promoting Government Accountability Project and may be shared, republished or quoted without limitations. Reference to the source is mandatory.