Tuesday 25 February 2020
I wrote – Shaima Hefzy:
The Tax Authority announced in a statement yesterday, Monday, that sellers are required to have uniform prices for cigarette products. The announced price schedule included an increase in the price of cigarettes over the reported prices from smoke companies.
The Authority added that the prices it announced come in light of the actual prices at which cigarettes are currently sold in the market.
A source in the Tax Authority told Masrawy: “We did not raise the prices, but we only updated the price table to match the prices circulated in the market on the ground.”
The source added that the consumer will not feel any increase in prices “because the new prices are the same as the ones that merchants are currently selling.”
In its statement, the administration said that it had detected a difference in prices between stores that sell cigarettes, and that standardization of the price list aimed to protect the state’s right to collect taxes on tobacco products and cigarettes.
But the tax statement raised a state of confusion in the market, especially since it came before the issuance of a final law to amend the provisions of the Law on Value Added Tax and Table Tax on Cigarettes, which was discussed by the House of Representatives yesterday, and agreed in principle and sent it to the State Council for review before its final approval.
Sources in private companies for cigarettes confirmed to Masrawy that the prices announced by the Tax Authority included an increase in the official prices at which the companies were sold, and that the statement issued by the authority created confusion in the companies ’work.
“It is known that there is no tax except by law .. But after the announcement of the price increase schedule … we do not know what prices we sell in the market … and we do not know what price the tax will be applied to,” according to what an official source in one of the private cigarette companies said.
Have companies raised prices?
The Eastern Tobacco Company, which has a monopoly on the cigarette industry in Egypt, said it is still looking at the prices of its products after the House of Representatives agreed to amend the VAT law.
A source in the company told Masrawy that the declared prices from the Tax Authority are indicative, and that the prices of some cigarettes may exceed these numbers.
But the source pointed out that the new prices will be determined within the framework of the new tax approved by parliament yesterday, which means an increase in value-added tax on cigarettes and tobacco.
The same is the case with Japan Tobacco International (JTI), where Khaled Ismail, director of government relations, said that his company has yet to receive the new official cigarette prices from the Ministry of Finance or the Tax Authority.
Increase by financial decision
Cigarette prices in the local market are determined by a decision issued by the Minister of Finance, and this decision is according to two dimensions, the first of which is the cost of cigarette production, and the taxes or fees imposed on smoke and tobacco products.
With regard to the Tax Authority’s decision yesterday, the Authority announced the circulation of prices – which are already circulated in the market – for tax distributors to be held accountable for this price.
This means that cigarette companies are still waiting for the Minister of Finance’s decision to raise the prices of products and the amount of the increase, in order to be able to announce their new prices officially.
This is what the responsible source at the Tax Authority said to Masrawy, explaining that “amendments to the cigarette value-tax law will be approved in Parliament and then announced in the Official Gazette. After that, the Minister of Finance issues his decision to determine the prices of new cigarettes and the date of their application, on the basis of which the tax is calculated.” .
The House of Representatives yesterday approved amendments to the value-added tax law submitted by the government, which included an increased tax rate of 50 piasters for the first tranche, pounds for the second tranche, and 50 piasters for the third tranche.
The bill approved by Parliament included raising the price ceiling for all segments to cope with the natural price increases, which will be produced due to the proposed tax increase.
According to the natural course of such increases, the President of the Republic is scheduled to ratify the amendments to the law approved by the House of Representatives, and then to publish it in the Official Gazette.
After the law is published in the Official Gazette – which determines its entry into force – this will be followed by a decision by the Minister of Finance at the new prices for cigarettes and tobacco, after which the cigarette companies will start implementing it.
Why does the government raise the price of cigarettes?
Taxes are one of the public sources of revenue for the state, and the government is seeking to increase its tax revenues, especially taxes on cigarettes and tobacco.
According to the data of the state’s general budget project, for the current fiscal year, the government aims to increase the proceeds of cigarette and tobacco taxes (domestic and imported) to 67.1 billion pounds during the year 2019-2020.
According to the draft budget, which Masrawy obtained a copy of, the government intends to increase the proceeds of the tax on cigarettes and tobacco during the current fiscal year by 7 billion pounds.
During the first half of the current fiscal year, value-added tax revenues for local tobacco and cigarettes rose to about 32.6 billion pounds, compared to 29.8 billion pounds during the same period in the previous fiscal year.
The tax revenues of imported tobacco and cigarettes reached 4 million pounds, compared to 737 million pounds, in the same comparison period.
In its biannual report, the ministry said that achieving these results comes in light of the increased peremptory tax on tobacco and cigarettes.
In addition to increasing the tax revenue, the government previously imposed cigarette fees to finance the health insurance project.
Smoke companies announced an increase in the prices of some items in July 2018, with the Ministry of Finance beginning to collect 75 piasters on each cigarette pack sold in the market, and 10% on Al-Muasal, in favor of the comprehensive health insurance project.