Roman CHIRCA: "Alternative technologies that are less harmful should be subject to reduced tax burden."
Interview of InfoMarket agency
A few years ago, Moldova took the commitment to implement EU directive 2011-64 provisions, and thus increase excise taxes on cigarettes to at least 90 euros per 1000 pieces by 2025. That is why, each year, excise taxes on cigarettes gradually increase and reached in 2019 approximately 25 EUR per 1000 cigarettes. Budget revenues are also growing which is about 1 billion lei in 2014; 1.6 billion lei in 2015; 1.58 billion lei in 2016; 2.04 billion lei in 2017; 1.86 billion lei in 2018. Last year’s decline has an explanation, cigarettes are becoming more expensive, there are fewer smokers, many are switching to alternative ways to consume nicotine. On the eve of World’s "Say No Tobacco Day" which is celebrated on May 31 since 1998, the Director of the Market Economy Institute, Roman CHIRCA, answered InfoMarket agency questions related to state regulations.
InfoMarket: In five years with a minimum excise tax of 90 euros, a pack of cigarettes will cost between 90 and 100 lei (5 euros), which is comparable to prices in the European Union. Is it only the state concern about the health of the nation, or is there a serious economic subtext to this issue?
Roman CHIRCA: Indeed, the state is a little cunning when it speaks about health interests only, and thereby contributing to the rise in prices of cigarettes, and thus encouraging smokers to give up this habit. Excise taxes are a considerable source of income for the state budget. And this applies to all countries, not only Moldova.
Tobacco taxation in our country has two components: an excise tax per 1000 cigarettes plus a percentage tax of the value of the goods. Under this system, there is a big difference between prices of cheap and expensive cigarettes. Starting with 2017, following WHO recommendations, and to discipline competition and equalize the range of product offer, the minimum price mechanism has been introduced in Moldova. Such minimum price increases every year. Today it is 25 lei for a pack of filter cigarettes and 19 lei for non-filter cigarettes.
But the tax instrument has its limits; it is impossible to achieve zero tobacco consumption by an endless excise tax increase, because probability is high that an illegal tobacco market will develop, smuggling (through Transnistria) will happen, and home-made products and other types of products become available in a setting where cigarettes are unaffordable. The state should take a comprehensive approach to this, and not just a simplified view.
If in the past I evaluated the considerable price hikes as a problem for smokers, nowadays the situation is different – we are witnessing a shift in the phenomenon of nicotine consumption, and nicotine dependent people start having access to a variety of alternatives, most of which linked to the advent of technological devices.
With all the alternative ways to satisfy nicotine dependence available to consumers nowadays, in a way that is less harmful, I believe that the high tax burden on cigarettes is a good pressure for people to either quit or switch to alternatives. Even more so because such consumption is much less harmful because it does not contain impurities from the combustion process, and there is plenty of evidence from respected organizations, such as WHO and FDA in this sense. For example, I started using an alternative nicotine product more than seven years ago, when it was not mainstream yet, and I can say that I feel much better than during the 25 previous years when I smoked regular cigarettes. Of course, it would have been better if I quit altogether, but not all nicotine-dependent people can quit this habit.
InfoMarket: Rising prices in Moldova affect only cigarettes (filter and non-filter), but there is also the segment of loose tobacco that is apparently growing?
Roman CHIRCA: This is exactly what I have already outlined: with a constant increase in the price of cigarettes, the market finds opportunities to circumvent taxes, smokers buy tobacco and roll their own cigarettes. Taxation for this position of products is far behind: today it is 143,17 lei per 1 kg which corresponds to about 160-170 lei per 1000 cigarettes, whereas the excise tax on cigarettes this year is about 400-500 lei.
The problem of loose tobacco taxation in terms of EU countries is relevant, perhaps, to Bulgaria and Romania only, and there loose tobacco taxes are aligned to the level of excise taxes for cigarettes. And following examples of these countries, Moldova also needs to increase the quota of the minimum excise tax per kilogram, it should be even higher than for cigarettes, since loose tobacco, which is often used for pipes, is premium, often flavored tobacco. Thus, this niche where you can get away from tax pressure, will simply disappear. So far, the low level of excise tax on tobacco for rolling and pipes creates unfair competition conditions with regular cigarettes.
InfoMarket: What about other nicotine-containing products for alternative consumption that you mentioned, should excises for those products be equalized to cigarettes?
Roman CHIRCA: This would be fundamentally wrong! Our legislation does not apply customs duties when importing electric cars, same is valid in the entire world. Such an approach stimulates the desire to protect the environment, industry development, and air in cities becomes cleaner. Same here: innovations and new technologies used in devices for nicotine consumption — for those who cannot quit altogether — allow for a significant reduction of the harm. Innovations are a considerable support to nicotine dependent people, they help improve smokers’ quality of life, given that they are less harmful to health.
The old regulator approach based on the principle “we’ll set such high taxes that you either quit or pay” is fundamentally wrong in my opinion. If methods to makes people’s lives easier, they should be supported. These types of nicotine alternatives should be subject to reduced taxation compared to traditional cigarettes. Thereby, the state will create the right conditions for people to either quit or, for those who can’t quit, switch to alternative ways of consuming nicotine.
Many countries acknowledge this: in the UK doctors prescribe smokers to switch to alternative product as a step towards a total rejection of nicotine consumption. And if we want to talk numbers, excise tax per 1000 cigarettes in, for instance, our neighbor-countries Bulgaria and Romania is 90.5 euros and 104.8 euros respectively; while excise tax on tobacco products for heating is considerably less – 36.4 and 25.4 euros respectively. But the biggest difference is in the UK, where excise taxes are 354.3 euros and 44.4 euros respectively.
In other words, if there is the technological opportunity to switch to a less harmful way of nicotine consumption, tax incentives should also be there. The state should demonstrate it really helps people minimize the harm caused by tobacco by offering functional solutions. If the government knows how completely eradicate smoking, that would be great, but the reality is that not all smokers manage to quit smoking.
InfoMarket: At the same time, there is an opinion that new devices become mainstream and attract young people who have never smoked before, don’t you think so?
Roman CHIRCA: Scientific researches show that the percentage of those who take up nicotine consumption using alternative devices is extremely small, and consists of those consumers that would have otherwise started smoking. The role of the state is to constantly remind people that any nicotine consumption leads to addiction. And this is why there are various kind of restrictions, constant health warnings, implementation of unattractive packaging, etc.
The state should constantly remind consumers that such products are just a method to transition to a less harmful way of consuming nicotine, with the purpose of minimizing the harm caused by cigarettes. For people with a considerable dependence on nicotine, switching to alternative devices is a very effective way to improve quality of life. Even the most strict health protection organization in the world "Food and Drug Administration" has allowed all alternative devices within the US, and aims to regulate this market.
We could compare the methods of nicotine extraction in the Middle Ages, when tobacco leaves were wrapped in paper, set on fire and inhaled (which, overall, is not very different from traditional cigarettes today) and the modern way of delivering nicotine to the body, without smoke, without impurities – more innovative. Nevertheless, we talk dependence here. At this present stage of human development, if we are able to switch people to alternative devices first, and completely shut out of traditional cigarettes; then in the aftermath we could already consider new tactics of interaction in society in order to minimize the number of people consuming nicotine.
InfoMarket: Moldova is the country with the strictest smoking regulation in Europe adopted at the legislative level. When the anti-tobacco law package was adopted, considering the speed they were adopted, it was clear that someone was very interested in this...
Roman CHIRCA: It must be admitted that there is a global struggle of lobbyists, between pharmaceutical and tobacco companies: both are fighting for the same market, and they have different visions. Therefore, pharmaceutical lobbyists promote their interests through such small countries like Moldova. Indeed, nowhere in Europe you will find smoking bans such as here. Lobbyists were able to promote these ideas to create a precedent for its dissemination to other countries. After all, it is the same pharmaceutical companies that operate on the nicotine dependence segment, offering their recipes and products as transitional steps towards getting rid of nicotine dependence.
Alternative devices often give consumers tactile sensations similar to smoking, and many pharmaceutical companies, apart from the classical nicotine replacement patches, try to introduce new technological devices that by way of evaporation or spraying provide alternative ways to delivering the same nicotine through the lungs.
The greatest harm to health is caused not by nicotine itself, but by combustion byproducts. By the way, nicotine is not included by the FDA in the list of carcinogenic substances, unlike alcohol. There is also the concept of pharmaceutical nicotine, which is used both in medicine and alternative devices.
Therefore, the largest lobbyists – and competitors for tobacco companies – are pharmaceuticals looking to monopolize the huge market of fighting against smoking, but only in medical ways. Consumers though must always have a choice. The task of the state should be to stimulate smoking cessation and – for those who cannot quit this habit – transition to less harmful ways of satisfying nicotine dependence. The income received from taxation should be directed to anti-smoking campaigns and promotion of a healthy lifestyle, so that smokers understand that part of their spending on addiction is allocated to the benefit of the society. // 29.05.2019 - InfoMarket.