[Intl-tobacco] EU exempts Poland from high tobacco tax until 2009

[Robert Weissman]

EU exempts Poland from high tobacco tax until 2009

by Marcin Grajewski
EUROPE/POLAND;
Source: Reuters, 2002-03-07
BRUSSELS, March 7 (Reuters) - The European Union on Thursday granted
Poland an exemption until 2009 from higher excise tax on cigarettes
to stave off possible social discontent in the heavy smoking east
European nation with its forthcoming EU entry .

Poland -- the biggest of 10 mostly ex-communist countries hoping to
join the EU in 2004 -- has been pressing for the concession, fearing
its 2003 membership referendum could be in jeopardy from looming
hikes of tobacco prices.

The decision to exempt Poland from a new EU bill, which sets the
minimum excise tax at 64 euro ($57) per 1,000 cigarettes, will also
be welcomed by international investors in Poland's lucrative tobacco
industry, such as Philip Morris.

By adopting the EU regulation right after accession Poland would
roughly double cigarette prices, which now range from 2.5 and seven
zlotys ($0.6-$1.69), mostly likely depressing sales and depriving
the cash-starved national budget of vital revenue.

Diplomats said that the concession was approved by ambassadors of
the EU's 15 member states after Germany and Britain dropped their
objections. Germany has been stalling Poland's demand, fearing
cigarette smuggling from Poland.

As a safeguard, a Pole entering other EU countries would be allowed
to carry only 200 cigarettes during the transition period. This
means that until the end of 2008, Poland and other EU states will
keep customs control on their borders.

``The breakthrough came thanks to a meeting in Berlin on Wednesday
between (German Chancellor Gerhard) Schroeder and (Polish President
Aleksander) Kwasniewski,'' one diplomat said.

The decision will officially be sealed during the March 21-22
negotiating session between the EU and applicant states.

The tobacco excise duty falls under the taxation ``chapter'', one of
31 policy areas where candidates must bring their laws in harmony
with EU legislation.

By closing this chapter, and possibly one on free movement of
capital, Poland will be able defy some diplomats who have suggested
it has fallen so far behind other applicants that it could be
excluded from the first EU enlargement wave.

Smaller but better prepared EU candidates, such the Czech Republic
and Hungary, could be bitter about the concession offered to Poland,
eastern Europe's political heaviweight.

The two countries closed the tax chapter last year, winning
exemptions from the high execise duty until the end of 2007.

Under a deal between Warsaw and the EU, Poland will also have until
the end of 2005 to adjust itself to another EU directive, under
which the excise tax must amount to 57 percent of the price of the
most popular cigarette brand.

This tax now amounts to 52 percent in Poland.

Another concession granted to Poland under the taxation chapter
include keeping a zero percent value added tax on book and a
preferential, seven percent rate on catering services until the end
of 2007.