Tobacco Smuggling: Bill To Recover 80% Of Revenue Losses

The Government onWednesday estimated that it will recover 80 per cent, or $20 million, of the revenues it loses annually to tobacco smuggling via its Excise Stamp initiative, and disclosed it was looking at similar measures to combat illegal alcohol imports.Michael Halkitis, minister of state for finance, revealing that the Government lost $25 million per year in revenues to illegal tobacco (cigarette and cigar) imports, told the House of Assembly that the new requirements might also deter the smuggling of other contraband into the Bahamas.Kicking off debate on the long-awaited Excise Stamp (Tobacco Products) Control Bill, which was first flagged in the 2012-2013 Budget last May, Mr Halkitis said all tobacco-related imports, or products manufactured locally, would now be affixed with a Stamp to confirm due Excise Taxes had been paid.This would enable Ministry of Finance personnel, or other enforcement inspectors, to enter stores and determine instantly whether taxes had been paid.If tobacco products did not bear the Excise Stamp, vendors would be subject to further investigation and exposed to potential sanctions/penalties.“It has been estimated that $25 million per year in Excise Tax revenue was being lost to smuggling,” Mr Halkitis said. “That is the estimate of what was being lost to the authorities.“It is estimated by the experts that, let’s say $25 million is a conservative number, with effective implementation of the Excise Stamp that 80 per cent [of this sum] can be collected. That is, in this case, $20 million.“If the estimates are correct, and we effectively implement this Act, we’ll be looking at an extra $20 million amount into the Public Treasury. We are hopeful that is the case.”While some might consider $20 million to be a relative ‘drop in the bucket’ when set alongside the Government’s projected $550 million deficit for the 2012-2013 fiscal year, every little helps for a cash-strapped Treasury, and an administration that continued to be hard-pressed to meet all its bills.Meanwhile, Mr Halkitis said the Government was looking at “introducing legislation to reduce the smuggling of alcohol” products, chiefly beer, into the Bahamas.He suggested that the Government was looking at something similar to the Excise Stamps it plans to affix to all tobacco products, adding that it had been estimated that the Government was also losing “millions of dollars” to beer/alcohol smuggling.No data was provided on the level of alcohol smuggling, although Commonwealth Brewery’s initial public offering (IPO) document from May 2011 placed the ‘grey market’ and parallel imports as having a 15-20 per cent share of the total Bahamian market.Elsewhere, Mr Halkitis said the Government also aimed to crack down on smuggling/tax evasion that was facilitated by inter-island shipping.“We are also advised that there is a problem with the importation of goods into the Family Islands, and having them shipped into New Providence,” he added. “We are increasing our surveillance activities, and are looking at reporting those type of shipments to eliminate that loss.”Back on the tobacco angle, Mr Halkitis said the Bill fitted in with the Government’s strategy of improving revenue administration and collection, closing loopholes rather than increasing taxes or introducing new ones.“The cost of operating government continues to rise, so we must find new avenues, new revenue streams,” Mr Halkitis said.“It involves not imposing new taxes on the public, but improving the measures we have in place already to increase the flow of money into the Treasury. The demands on the Public Treasury continue to increase.”The Minister added that the Government was continuing to face pressure from public sector workers, and their trade unions, for wage and benefit increases despite the fiscal position.And the recession had also increased the burden on the public education and healthcare systems, as children were pulled out of private schools and health insurance either dropped or lost with unemployment.

#“We do not believe the solution is the imposition of new taxes,” Mr Halkitis said, “If you impose new taxes in recessionary times that might exacerbate the situation.”He added that, given “the structure of the economy”, the Government had “very little wiggle room” to make serious spending cuts. Achieving these would require public sector lay-offs and/or reduced benefits.Mr Halkitis also took a swipe at the former Ingraham administration, saying its response to the recession was “less than optimal”, with the national debt reaching levels “where there is serious concern”.Ryan Pinder, minister of financial services, in his contribution to the House debate said tobacco products – given that they are seen as socially harmful and detrimental to health – attract a 220 per cent Excise Tax rate.He added that exports, vital to companies such as Graycliff, which exports 70 per cent of its tobacco products, were not subject to Excise Taxes.Mr Halkitis said tobacco importers and manufacturers had agreed the Bill was “the way forward, is doable and agreeable to all stakeholders”.Under its requirements, all importers and manufacturers are required to register with the Ministry of Finance. To obtain registration, they must be up-to-date on Business Licence and National Insurance Board (NIB) payments.The diplomatic community and persons importing tobacco for their own use will be exempt from the Excise Stamp and registration requirements.To minimise supply chain disruptions and delays, Mr Halkitis said major Bahamian importers could pay their Excise Tax in advance, purchase the Stamps and send them to the manufacturer to be affixed at source.The Stamps’ design will be approved by the Ministry of Finance, which will be able to track them electronically to confirm the date tobacco products were imported, and when the tax was paid.No tobacco manufacturing equipment will be allowed into the Bahamas unless it is imported by a registered tobacco producer/manufacturer.

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