Ruling bloc’s discussion on tobacco tax picks up steam
December 01, 2017
The Yomiuri Shimbun
The government and ruling parties are progressing discussions on tobacco tax hikes for the purpose of promoting good
health and increasing revenues from tobacco taxes.
The ruling Liberal Democratic Party and its coalition partner Komeito held separate party committee meetings on the tax system on Thursday, with both parties confirming they would seek a tobacco tax hike.
The tax on heat-not-burn tobacco products, an expanding market, is lower than cigarettes.
The ruling bloc is considering increasing taxes on heat-not-burn products. However, opinions are divided over the amount and timing of an increase. Efforts to coordinate opinions are likely to continue until just before the compilation of a tax reform outline for fiscal 2018.
If a tobacco tax hike is realized in fiscal 2018, it will be the first in about eight years, since the increase of ¥3.5 per cigarette in October 2010.
Another purpose of a tobacco tax hike would be to promote good health, given that smokers are expected to smoke less if tobacco prices increase.
The government plans to introduce a reduced tax rate of 8 percent for certain items with the planned October 2019 consumption tax hike to 10 percent.
Hiking tobacco taxes has been considered a way of making up for lost revenue resulting from that reduced rate.
The government and ruling parties are focusing on a plan to raise the tobacco tax by ¥3 per cigarette over a period of four years, beginning in October 2018.
The tax would be raised by ¥1 per cigarette in 2018, 2020, and 2021, respectively. The government is not planning to increase the tobacco tax when the consumption tax is raised from the current 8 percent to 10 percent in 2019, in order to avoid a sharp increase in the overall tax burden.
Tobacco taxes generate about ¥2 trillion per year. The government is expected to receive an additional ¥200 billion to ¥300 billion per year by raising the tax by ¥3 per cigarette.
At a meeting of the LDP’s Research Commission on the Tax System on Thursday, some members called for a gradual tax increase.
On the other hand, some of the people on Komeito’s committee on the tax code, which emphasizes the promotion of good health, are of the opinion that tobacco tax should be raised by ¥4 per cigarette all at once.
Heat-not-burn tobacco products are a new type of cigarette that do not need a lighter. Philip Morris, British American Tobacco and Japan Tobacco Inc. sell heat-not-burn tobacco products.
The retail price for a pack of heat-not-burn tobacco ranges from ¥420 to ¥460, almost the same as a pack of ordinary cigarettes, which are ¥440. However, taxes per pack, including consumption tax, are about ¥277 for cigarettes — higher than the ¥68 to ¥226 for heat-not-burn products.
By law, heat-not-burn tobacco products fall under the category of pipe tobacco, which is taxed differently to cigarettes. The amount of tax for heat-not-burn products is calculated by equating 1 gram of the weight of a stick or capsule to one cigarette.
Therefore, the lighter the weight, the lower the tax. Amounts of tax vary among heat-not-burn products because of the varying weights of the sticks and capsules.
A tax hike on those products would also be aimed at rectifying the fact they are taxed less than cigarettes. At the LDP’s meeting on Thursday, there were calls for appropriate taxation to be applied.
The creation of a new category for heat-not-burn tobacco products, as well as how to increase the tax on them, will be discussed.
The number of smokers in the country is on the decline, and domestic tobacco sales have halved over the past two decades. The further spread of heat-not-burn products will lead to a further decline in cigarette sales.
It is necessary to increase the tax on heat-not-burn products to secure tax revenues from tobacco. However, some people claim it is too soon to raise the tax on these products because their health effects are not yet clear.