Illegal Sale of Cut Tobacco Expanding in B&H

Illegal Sale of Cut Tobacco Expanding in B&H


By  Maja Tuljkovic – Sarajevo

The retail price of cigarettes in B&H, which is effective from 1 January, is significantly more than last year, so it is necessary to allocate around 1.40 Euros for the cheapest cigarettes, while smokers who are used to the most luxurious brands pay more than 2 Euros per pack.

The result is the decision on establishing a specific and minimum excise on cigarettes this year, which was adopted by the Governing Board of the B&H Indirect Taxation Authority (UIO). This decision stipulates that the proportional excise duty is paid on cigarettes at the rate of 42% of the retail price and a special excise tax in the amount of 0,46 Euros for a pack of cigarettes.

UIO B&H recalled that this decision is only the continuation of the harmonization of the policy of excise duties in B&H the excise policy in the EU.

In addition, the UIO adopted a proposal for amendment to the B&H Excise Law, which is in accordance with EU directives, and which is based on the introduction of specific excise duty on cut tobacco, and which this year amounts to around 40 Euros per kilogram. The intention was to prevent possible fraud in the tobacco market and tobacco products.

And as expected, the sale of cigarettes is replaced by the sale of tobacco, which is not burdened with the high excise, and in the legal sale the base of the VAT calculation is lower. However, along with this sale, there is also the illegal sale of cut tobacco. The mass emergence of illegal sale of cut tobacco is for the most part taking place in the flea markets, where payment obligations are avoided, and low quality tobacco is often offered.

Therefore, the governing board of the B&H Indirect Taxation Authority adopted and sent for further procedure a proposal to amendments to the B&H Excise Duties Law, which introduces special excise taxes on cut tobacco, and provides an increase in budget revenues derived from the excise tax base and increased VAT calculation, as well as the mitigation of price difference for the use of cigarettes and cut tobacco. This proposal complies with directives of the EU in this area, as well as the obligations undertaken by B&H to the International Monetary Fund (IMF) as part of the stand-by arrangement. It was decided to step up inspections of procedures and the introduction of cut tobacco and its sales from the overall labor market.

Tobacco and tobacco products is a very sensitive product from the aspect of the impact on human health, but at the same time is a highly accumulated product in the sense of ensuring public revenue. Unfortunately, as the overall primary agriculture, the manufacture of tobacco also presents a number of problems, so that year after year a negative balance marks it. Sown areas are constantly being reduced, with the result of a fall in the total production of tobacco: from 3.269 tons in 2007 to 1.494 tons in 2012. Al the raw material for production is imported; thus the primary production on the market puts an expensive product where the price is not interesting to the manufacturing industry.

Therefore, there are amendments to the Law on Excise in B&H, as well as an increase in inspection measures for the efficient solution of the problem. Otherwise, it would further motivate the illegal sale and make such a trade even more lucrative.