Increased taxes and minimum price of cigarettes discourage consumption, but may encourage smuggling, experts say

The issue came to the fore again after a government decree determined that, starting September 1, the minimum price for twenty units (20 units) will be R$6.50. Since 2016, the price was R$5.

The value, in reais, of the IPI tax rate charged on a pack and box of cigarettes will increase from R$1.50 to R$2.25, starting November 1st.

A lawyer specializing in tax law, Ranieri Genari says that, in principle, the increase in taxes on cigarettes seems to be aimed at increasing revenue for the Executive, since the number of smokers in Brazil has not grown to the point of justifying an increase in taxes to discourage consumption.

“This is for tax purposes, because there are no studies that indicate an increase in the number of smokers; on the contrary. If we look at the timing, the government announced a cut (in resources) to the Ministry of Health. Going beyond the tax perspective, this is a way of trying to compensate for this tax problem, to try to bring in some money to cover the SUS.”

Health

According to the National Cancer Institute, between 80% and 90% of lung cancer deaths in Brazil are directly related to cigarette smoking. Tax lawyer Leonardo Roesler says that the measure adopted by the government has a revenue-raising bias, but is positive from a social point of view.

“The minimum price policy aims to prevent cigarettes from being sold at excessively low prices, which could encourage consumption. If we look at the public health argument, increasing taxes and the minimum price of cigarettes is consistent with the guidelines of the World Health Organization (WHO) in order to control smoking,” he says.

He warns that, however, the difference between the price of cigarettes sold legally and illegally will increase, increasing smuggling. “This difference creates a strong economic incentive for consumers to opt for smuggled products, which are not subject to the same taxation. After the IPI increase in 2016, there was substantial growth in the illegal cigarette market,” he recalls.

Tobacco in Brazil

According to Abifumo, Brazil is the world leader in tobacco exports, a position it has held for over 20 years. The sector’s production chain directly and indirectly employs 2.1 million people.

According to the WHO, tobacco consumption in Brazil has fallen by 35% since 2010. Vigitel (Surveillance Survey of Risk and Protection Factors for Chronic Diseases by Telephone Survey) indicates that the number of smokers aged 18 or over in the country was 9.1% in 2021.

Selective Tax

In the new tax system — approved by the National Congress at the end of last year — the Tax on Industrialized Products (IPI) will be eliminated, with the exception of the one that will be levied on items produced in the Manaus Free Trade Zone.

However, the Selective Tax (IS) will come into existence, the purpose of which is to discourage the consumption of products and services considered harmful to health and the environment.

Cigarettes, like alcoholic beverages, are among the items to which the new system intends to apply the so-called “sin tax”, making them more expensive.

This means that, when buying cigarettes, the consumer will pay CBS (which replaced PIS and Cofins), IBS (which replaced ICMS and ISS) and also the Selective Tax.

While the sum of the CBS and IBS rates is estimated at 26.5%, it is not yet known what percentage of IS will be levied on cigarettes.

On the other hand, the use of electronic cigarettes, such as vapes and pods, has grown 600% in the last six years in Brazil, according to the Ipec institute.

White August: Cigarette use is responsible for 90% of lung cancer deaths, according to Inca

Car, soda, beer: see what will be taxed by the “sin tax” in the tax reform