After last year’s experience, when the government indexed the exchange rate from two years before with the average inflation rate because the European Central Bank had published a lower exchange rate on October 1, the three large tobacco producers operating in Romania fear a similar move will raise excise duties on tobacco.
Adrian Popa, corporate regulatory affairs director with British American Tobacco (BAT), said the company fears the state will target maximizing budget revenue from the tobacco industry by raising taxes, as it did in 2010, after the election year 2009, when Romania held European Parliament and presidential elections.
Popa explained governments generally seek ways to raise tax collections to cover budget gaps after elections and said the Finance Ministry might again choose to raise the exchange rate used to calculate excise duties.
Gilda Lazar, Director Corporate Affairs & Communications with JTI Romania, Moldova and Bulgaria, said the Finance Ministry has given no clues so far as to the exchange rate to be used in excise calculations for 2015 nor as to whether the excise harmonization calendar negotiated until 2018 will be moved up or not.
According to the JTI official, considering the evolution of the exchange rate and the low inflation of the past year, any calculation formula used so far will lead to an exchange rate lower than that set for 2014, of RON4.738 to the euro.
Lazar believes one way to raise the excise would be for the Finance Ministry to freeze the rate at RON4.738/euro and further index it for inflation.
The head of the tax authority ANAF Gelu Diaconu said excise duty collections were 2% higher than targeted in the first eight months of the year. He said he was unable to say how excises would be calculated next year, adding the tax authority only puts tax legislation to practice and it is the Finance Ministry that makes the policies.
JTI, Philip Morris and BAT signed a collaboration agreement with the tax authority on Thursday in view of combating illegal cigarette trading. The agreement entails customs personnel and anti tax fraud personnel will benefit from the support and expertise of tobacco producers.
Producers say contraband is on the rise, reaching 17.5% of the cigarette market, following the increase of excise duties and, implicitly, prices at the beginning of the year. Before that, contraband levels had dropped from over 30% in 2010.
A new price hike for cigarettes as of January 1, 2015 would increase the pressure of contraband as the price of cigarettes in Romania is already 5-6 higher than in neighboring non-EU states.