The economic crisis that has gripped the world makes governments simultaneously reduce expenses and taxes so that the citizens’ welfare would not deteriorate. The need for additional sources of budget receipts causes an increasing number of countries to raise excise taxes for tobacco goods. Draft law No. 3281, which would contribute four billion hryvnias to the budget, is supposed to be one of the budget amendments designed by the president and the prime minister of Ukraine. It has already been voted through in the first reading, but was blocked by the tobacco lobby.
Meanwhile, Lithuania raised the excise tax for tobacco goods on March 1. Lithuanian officials explained that they needed to do this in order to balance the budget. On average, a pack of cigarettes will cost 29 euro cents (3 hryvnias) more. Lithuania plans to raise the excise tax one more time on Sept. 1, 2009.
A month ago the cigarette excise tax was raised in Latvia, too: the retail price for cigarettes has gone up by 20 percent on average, but local politicians do not rule out a possibility of a repeat measure. Valdis Dombrovskis, a candidate for the post of prime minister, who was nominated to the office by the Latvian president after the former government resigned in late February, admitted that this will take place if the financial crisis deepens. “If it comes to bankruptcy, the [excise] taxes may be raised,” he said.
In early February, US President Barack Obama signed a bill increasing the federal excise tax for cigarettes from 39 cents to one dollar. The additional budgetary receipts of 32.8 billion dollars will cover the health insurance of four million children.
In mid-February, the Czech Ministry of Public Health stated that the money received from the future increase of the tobacco excise tax will go to the budget to cover the “hole” that will be caused by the reduction of medical insurance costs, one of the anti-crisis measures the government has taken in order to reduce the expenses of employees and increase the incomes of the citizens.
In a similar move, on Feb. 25, 2009, the government of Hong Kong decided to raise the excise tax for cigarettes by 50 percent, which immediately caused a surge of calls to the quit smoking hotline.
Therefore, the coalition of civic organizations “For Tobacco Smoke Free Ukraine” noted again that passage of bill No. 3 281 may bring to the budget over four billion hryvnias annually.
President Viktor Yushchenko of Ukraine and Prime Minister Yulia Tymoshenko have agreed to review this year’s budget in April or May. On February 3 Yulia Tymoshenko stated, “Our consistent position is that excise taxes for the goods that are harmful to health must be raised. In this respect our faction always voted for this and raises these questions as a way to protect the population’s health, and consequently, filling of the budget.”
Viacheslav Kyrylenko said: “The parliamentary group ‘For Ukraine!’ will do everything possible to raise the tobacco excise tax — the higher, the better.” MPs Lesia Orobets and Oleh Liashko made public appeals for a rapid and drastic increase.
Ukraine should follow the experience of other countries that are raising tobacco excise taxes to overcome the effects of the economic crisis, because this injects additional money into the budget and reduces the use of the deathly goods.
