31.05.2018

Proposed Tobacco tax legislation could help fund Health care cost

The Ministry of VSA recently welcomed a meeting with representatives of Philip Morris and some local distributors on the topic of Tobacco safety labels and taxation legislation. Wholesalers are understanding and supportive provided there are also measures to combat parallel import of products, which also pose a health risk due to the uncontrolled market. Minister of Public Health, Emil Lee welcomed the dialogue, as it is in line with discussions held earlier in 2017 regarding possible funding mechanisms for NHI, and the local health care system. Taxation would include controls, which would better secure the safety of products being sold on the market to consumers. The Ministry of VSA intends to continue to explore the possibilities of taxation legislation, as is customary, in consultation with the respective tobacco industry representatives and stakeholders within the community.

“Prior to Irma we had discussions of the NHI and were looking for ways on how we can fund the health care system with the introduction of some sort of a tax on alcohol and tobacco, and actually we would like to include sugar drinks in that. The thinking is that an over consumption of these products increases your exposure to health risks, it is unhealthy for you. Therefore, it means it costs the health care system more money. Having a fee paid for the high consumption of these products through taxation, with the funds being put towards the costs of the health care systems… we believe that this is a good forward thinking option. It’s something that many countries have looked at already. For the private sector, we want to  ensure that that’s being done in a reasonable manner. We understand that Sint Maarten is a duty free destination and we want to make sure that we maintain our competitive position in the market place.” - Emil Lee, Minister of Public Health

Taxation would entail adding a layer of Health Tax. The wholesaler would pay the Health Tax for the product when sold to the retailer and the consumer would pay TOT for the product when purchased from the retailer.

Despite distribution agreements for tobacco products on the island, wholesalers are faced with a problem of parallel imports. Due to the lack of regulations, others can important similar products from other locations, not via the distributor, which is legal, but undermines the distribution organization that has been set up between the manufacturer and the distributor. This also poses a threat to health and safety concerns.

Although some brands may have similar packaging, not all cigarette brands are manufactured the same. Different countries offer different blends, the mix of tobacco is different and here pricing of the product can be influenced as well. The final product is different per market. Smokers can often tell the difference. This also means that the safety regulations differ. From a tourism perspective this could have implications as well, quality expectations of the consumer will be influenced. Tourists may think they are getting the same product at a cheaper price due to duty-free shopping, where this may not be the case.   

Distributors and wholesalers alike have expressed that by registering the products with a label, will help ensure that these are the only products sold on the market here. Products without a label would be identified as products that did not go through the preferred distribution channel, and would then be confiscated. These non-labeled products would then also be identified as non-compliant with the payment of the required level of taxes.

“The industry is thrilled about this to be honest. They think that it is a win-win solution. That means that our health care system can receive more money and that we can protect their distribution channels to ensure that we are getting the revenues that we need. And it also means that because the distribution channels are actually functioning then as they are supposed to, that the distributors actually would have more value. The paying of additional taxes for the distributors would then also secure that they are seeing more share of the business, as there would be more controls. The consumer also benefits because right now you have all different qualities in the market place and this would ensure that we have one harmonious level of quality in our market.” - Emil Lee, Minister of Public Health

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