[Intl-tobacco] Jamaica: Finance ministry says anti-tobacco legislation could hurt economy

[rob@essential.org]

Finance ministry says anti-tobacco legislation could hurt economy -
The Jamaica Observer
February 6, 2004

Balford Henry, Observer staff reporter

The finance ministry Wednesday raised concerns about the implications that
proposed anti-tobacco legislation could have on the government's revenue.
The ministry's written submission was discussed at a meeting of a select
committee of Parliament studying proposals for tobacco control. In fact, on
Wednesday when parliament's Select Committee on Human Resources and Social
Development, headed by Dr Donald Rhodd, looked at a submissions from several
government ministries, the submissions generally lacked support for the
stringent controls proposed by the Ministry of Health.

The Ministry of Finance and Planning said that the Ministry of Health's
tobacco control proposals suggested that implementation of legislation based
on those proposals would have budgetary implications. It also pointed out
that the Ministry of Health is to collaborate with other ministries and
agencies to look at the impact of the proposals on the economy.

Referring to government's expectation of a yield of approximately $1 billion
yearly from the imposition of a 23 per cent excise on tobacco, which will
help to finance the National Health Fund (NHF), the ministry noted:

"It is being proposed that an increase in the real price of cigarettes will
reduce consumption marginally and that increased taxation is expected to
increase revenue. While this may be so in the short run, when the desired
objective is achieved (marked reduction in demand and supply of tobacco) the
revenue will be adversely affected. It therefore means that the NHF for
instance, will have to seek alternative financing (probably from government)
to fill the gap or they may have to reduce the benefits offered."

".If another substantial tax package is imposed it is likely that the
company may be forced into diverting its operations solely into
distribution, thereby opening up the market to more players. This, in
itself, will likely have some impact on the revenues, if the Customs
Department is not able to effectively monitor imports," said the finance
ministry.

The ministry also warned that the revenue contribution to the Consolidated
Fund from cigarettes would be reduced and persons who are directly or
indirectly employed to the industry may lose their jobs. The finance
ministry said that this would create an additional burden on the government
to provide, for example, health care under the NHF for these persons.
"Alternative employment would have to be looked at for the many who earn
their livelihood by this means," it added.

The submission stated that the government would also have to provide funds
to finance the Ministry of Health's healthy lifestyle programme, which
educates the public about the dangers of smoking; provide tobacco-use
cessation programmes that have been proposed; and provide institutional
support for tobacco control, capacity building, applied research, routine
surveillance, monitoring and programme evaluation.

In addition, the ministry warned of the implications of budgetary provisions
to finance legal interventions in seeking to recover the cost of
smoking-related illnesses from the companies via litigation and in
implementing amended legislation against smuggling. In terms of the
proposal to prohibit the sponsorship of sporting and other events by tobacco
companies, the ministry said that this initiative would have a negative
effect on budgetary provisions in respect of community-based objectives.

According to the finance ministry, the Ministry of Health's efforts to
collaborate with other ministries and agencies to look at the impact of its
proposals on the economy, should look critically on the impact the proposals
would have on the country in monetary terms.

"It will be difficult to quantify the tax revenue effects of the various
control measures that the Ministry of Health has been proposing to reduce
tobacco consumption. They have not indicated the level of reduction desired,
nor have they indicated whether there should be complete closure of the
local manufacturer. If the intention is to reduce consumption at the expense
of closure of the manufacturer, then the full revenue loss from the company
will be partially made up from the import side. However, there is the
likelihood of some amount of fraud or illegal activity taking place."

Figures provided by the finance ministry showed that a total of $2.3 billion
was collected by the government in taxes on tobacco in 2002/2003 including;
$1.4 billion from the Special Consumption Tax; $641 million from General
Consumption Tax (GCT); $136 million from Corporate Income Tax; $50 million
from PAYE; and $11 million from Education Tax.

Meanwhile, the Ministry of Commerce, Science and Technology, in its
submission, warned against the movement of youngsters, in particular, from
smoking tobacco to the use of ganja and other illegal drugs.