Economy in Turkey: Big raise in cigarette prices on the way

If the new additional taxes become law, the package of cigarettes will be increased by 5 liras.The VAT rate applied to tobacco products was increased from 18 percent to 20 percent with the proposal of the law submitted to the Parliament to finance the earthquake expenditures.

According to a report in media, the effective VAT rate calculated on the sales price is also increased from 15.25 percent to 16.67 percent.

82.5 PERCENT TAX ON A PACK OF CIGARETTES

Thus, with the excise duty increase on July 5, the total tax burden on a pack of cigarettes at the average price level of the industry increased from about 81 percent to 82.5 percent.

The same report makes the following analysis on how the new tax rate will affect cigarette prices:

Due to the relative tax applied at a rate of 63 percent, by increasing the fiscal multiplier VAT to 20 percent, an even higher proportion of the total tax on cigarettes became price-related.

The financial multiplier, which was about 6.8 for cigarettes, increased to 7.5. Thus, the realized cost increases will be reflected in prices at the level of 7.5 times instead of about 6.8 times. For example, a cost increase of 1 TL will have to be reflected in the retail sales price as an increase of approximately 7.5 TL.

5 TL INCREASE IN RETAIL SALES PRICE OF A PACK OF CIGARETTES

It is calculated that the increases in excise duty and VAT in the cigarette sector and the increase in the financial multiplier to 7.5 will bring the need for an increase of more than 5 TL in the retail sales price of a pack of cigarettes at the average price level.