Benefits given to tobacco industry

Benefits tobacco industry received

WHO FCTC Article 5.3 guideline recommendation 7.3 states that “Parties should not provide any preferential tax exemption to the tobacco industry.”[1] Hence, the government shall not give privileges, incentives, exemptions or benefits to the tobacco industry. Benefits to the tobacco industry can be in various forms as elaborated in the 2020 ASEAN Tobacco Industry Interference Index[2] below:

Cambodia:

Pictorial health warning: In January 2017 – six months after sub-decree requiring graphic warnings on all cigarette packs went into effect, Health Minister issued a second warning to tobacco companies for not complying with the regulations, even threatening to take legal action.[3] The MOH stood firm in not giving any extension to the tobacco industry. When tobacco companies were unable to get any more extensions, they simply don’t comply with the law.[4]

There has been progress in PHW compliance from 2017 to 2019. However, approximately 29% of cigarette packs sold in the market do not carry PHW as determined by the sub-decree.[5]

There was a delay of another year in 2019 in the adoption of the Joint Prakas between Ministry of Finance and Ministry of Health on how to implement the penalty (fine). However, in July 2018 the joint Prakas between the MOH and Ministry of Justice was signed to give credential to 490 tobacco control inspection officers. Since 2018 there were series of training for the inspection officers throughout the country.

Duty exemption for tobacco leaf export to Vietnam: The duty-free exemption on tobacco came as part of a bilateral trade enhancement agreement signed in October 2016 that gave special preferential treatment for tobacco leaf exported from Cambodia to Vietnam.[6] The agreement was signed again in 26th Feb 2019. Under the deal, Cambodian tobacco producers could apply for license to export up to 3,000 tonnes of dried tobacco per year to Vietnam duty-free in 2019 and the same amount in 2020.[7]

Cambodia exported more than 1,000 tonnes of dry tobacco leaves to Vietnam in 2017, valued at more than $2 million. The figure marks a 24 per cent increase from 2016, according to the Ministry of Commerce.[8]

Kampong Cham province is where much of the country’s tobacco is cultivated. Besides exports, tobacco is supplied to Cambodia-based British American Tobacco Cambodia (BAT) under a “contract farming” system, said Kampong Cham agriculture department director Kim Savoeurn. The province has between 1,600 and 1,800ha of tobacco fields, according to him.

BAT received a gold certificate from General Taxation Department (GTD) for complying with taxation laws. This means they are exempted from audit for 2 years from 2018 to 2019. This certificate award is open to all companies as an encouragement for compliance.[9] 

Indonesia:[10]

The DG of Custom Ministry of Finance voluntarily defended the excise tax cancellation as way to sustain tobacco industry’s survival, and not being disturbed by excise tax simplification. Initial rejections on tax increase came from MPS even strengthened by an official of Coordinating Minister for Economics who blamed tax increase as being responsible for the growth of Tobacco Industry.

The Head of the Indonesian FDA’s proposal to ban E-cigarette was strongly opposed by MPs Commissions IX and VI; the Head of West Java Excise Tax Office agreed with the DG of Custom and Tax policy to impose excise tax on E-cig to legalize the sale of the products. The new Health Minister has not given his standpoint; he would consider all public aspirations and would not make any rash decisions on vaping as the issue still needs to be reviewed.

The DG of the Ministry of Industry was against enforcing banning online tobacco ads arguing that as long as the ads comply with the law where the display of cigarettes and their packaging is prohibited, they are legal and permissible.     

Lao PDR:

PHW implementation was delayed by 180 days (6 months) – score deteriorated from 1 previously. The tobacco industry cited the same old excuse that “they had a large stockpile of printed packets” and contrary to the law even requested a reduction in the size of the graphic image from 75 percent to 50 percent.[11]

Based on monitoring after 1 January 2018, popular and most widely sold cigarette brands, ‘A Deng’ (from Imperial controlled Lao Tobacco Company Ltd) and ‘Dok Mai Deng’ (from Lao-China Hongta Good Luck Company Ltd.) still don’t carry the required pictorial health warnings even after being granted three extensions of the implementation deadline. Lao Tobacco Company Ltd. (a subsidiary of Imperial Brands, a British multinational tobacco company) and Lao-China Hongta Good Luck Company Ltd. who together control over 80 percent of the cigarette market, have been violating the law by not printing PHWs on their cigarette packs.[12]

The 25-year Investment License Agreement (ILA) still in place. This agreement gives preferential treatment to the TI. Through this lop-sided contract, the Lao government has already lost about US$144 million in tax revenues between 2002 and 2017.[13]

New tobacco companies are consistently registered annually in Lao PDR. To date, there is a total of 23 new tobacco businesses registered with the Enterprise Registration and Management Department,[14] with most companies coming from China. In 2017, there were 3 new tobacco business registered, while 5 new tobacco businesses were registered in 2018:

  • Lao Tobacco Co (0100006357) 12 July 2018
  • Fu Xiang Tobacco Trade Sole Co (0100020088) 13 June 2018
  • Asia Integrated Tobacco Factory Co (0300002359) 12 February 2018
  • Golden Triangle New Silk Road Tobacco Company Ltd (0100021487) 26 June 2018
  • Lao International Tobacco Company (0100000358) 1 June 2018

In 2019 for first 5 months, there are already 4 new tobacco businesses registered. For all of these companies it says, “Tax information not available for this business”.

Chinese tobacco industry’s plan for Lao PDR is to establish Lao as tobacco growing country to supply Chinese companies. In 2017, executives from Lao visited Yuxi, China on study visit to know more about planting concepts and management methods to take back to Laos to “produce the tobacco leaf with high quality and high yield, promote the sustainable development of tobacco planting of Laos Liaozhong Hongta Company” and “build Laos into a tobacco planting base of China Tobacco Yunnan Industrial Co., Ltd.”[15]

In 2018, Deputy Director of China State Tobacco Monopoly Administration (STMA) visited Lao-China Hongta Good Luck Tobacco Co., Ltd. (Laos Hongta) to implement China Tobacco’s strategy and implement “the Chinese Central Government’s spirit of the Belt and Road Initiative and implement the development strategy of China Tobacco through joint efforts and build Laos Hongta into a Southeast Asian spice center and a Southeast Asian spice center for China Tobacco (Yunnan) contribute to the Laos people and bail them out of poverty and become prosperous.”[16]

In August 2019, Deputy Director of STMA visited Laos Hongta and described it as the “best overseas entity in the industry” and that although Laos Hongta was not very large in scale, it had achieved a high local market share, that it possessed a whole tobacco industry chain and supporting facilities; and its level of profitability had gradually increased. The trip included executives from STMA, Tobacco Labor Union Office, China Tobacco International Inc., Foreign Affairs Division of STMA, Production Management Department of China Tobacco and Yunnan Tobacco International Co., Ltd.[17]

On 20 December 2019, Laos Hongta reported their 600,000th case of cigarette went into production, and set a new record in the annual output of the company.[18]

Malaysia:

While the Ministry of Health strengthened its smoke-free measures (FCTC Article 8) in 2019, several other tobacco control policy decisions pending since 2016 did not make progress in 2019: plain packaging preparation, licensing of retailers and ban on e-cigarette.

  • In February 2016 the MOH announced they will start preparation on plain packaging of cigarettes. The statements suggested that the ministry had an implementation plan and strategy for plain packaging. The tobacco industry and lobby groups cautioned the Government through statements in the media that introducing plain packaging would violate international trade laws. The MOH back-tracked on its decision, the Health Minister claimed they want to talk to the tobacco companies on intellectual property rights. In 2018, IDEAS (funded by PMI and JTI) ran newspaper articles opposing plain packaging, claiming it did not bring smoking down in Australia but instead curbed decline in smoking and that it was five years of failure,[19],[20] The plan has since been put on hold.
  • The Ministry of Primary Industries and the National Kenaf and Tobacco Board have delayed a decision on licensing of tobacco retailers claiming they are still consulting with stakeholder.In January, the Minister of Primary Industries announced, “Actually it is still in the process of internal discussion. We will make an announcement once there is a concrete decision.”[21] No explanation was provided for the further delay. Meanwhile pro-tobacco industry front groups such as the Malaysia Singapore Coffeeshop Proprietors’ General Association (MSCSPGA) and the Malaysian Indian Restaurant Owners Association (Primas), opposed any stringent tobacco control measures. See answer in Q3.
  • Contrary to recommendations from the Health Ministry to ban e-cigarettes, non-nicotine e-cigarette will be allowed and three ministries will be responsible for regulating these products. Although the Ministry of Health recommended a ban on e-cigarettes, the vaping industry lobbied the Ministry of Domestic Trade and Consumer Affairs to allow its sale. On 28 October, 2018 the Cabinet decided, e-cigarette with nicotine will be banned – under the jurisdiction of MOH. However, the Ministry of Domestic Trade and Consumer Affairs (KPDNKK) will be responsible for regulating and enforcing safety standards for electronic cigarette devices and batteries and vaping devices under the Consumer Protection Act 1999 (Act 599). It would also regulate and enforce the marking and labelling of electronic cigarette devices and nicotine-free liquid and vapes through the Trade Descriptions Act 2011 (Act 730); Act 599; the Price Control and Anti-Profiteering Act (Act 723) and the Weights and Measures Act. Five states, Johor, Kedah, Penang, Kelantan and Terengganu have already banned e-cigarettes. Health Ministry study found ecigarettes were currently used by 300,000 students and had been tried by 710,000.[22]
  • Heated tobacco product: There is confusion around whether heated tobacco products are classified as tobacco products, so that they are subject to Control of Tobacco Products Regulations. In 2017, PMI started to sell its IQOS heated tobacco product without pictorial health warnings and there has been no enforcement to apply the PHW.[23] Following PMI, in 2019, BAT has also started selling its brand of HTPs- glo – without pictorial warnings.

Part of MIDA (Malaysian Industrial Development Authority)’s policy is to increase investments for exports – Incentives for Investment [Book 3 Guide] for Malaysian manufacturer. Under this policy, incentives are provided for the manufacturing sector – the incentives include tax incentives and duty exemptions on raw materials, components, machinery and equipment; tax exemption on the value of increasing exports; exemption of duties includes tobacco – over and above ATIGA. Import duties on cigarettes and tobacco leaves less than 5% under ATIGA (AFTA). MIDA promoted news items on BAT on its website showing support for tobacco business.[24],[25]

Malaysia continues to allow an allowance of 200 sticks of duty-free cigarette to be brought into the country by international travelers. Both Singapore and Brunei have withdrawn duty free status on cigarettes.

Myanmar:

For second and third year of PHW implementation, the second picture should appear on cigarette packs from 2017 Dec to 2018 Nov 30th, while the third picture should appear on tobacco products from 2018 Dec to 2019 Nov 30th. To date, not all tobacco products are carrying the required pictures and old pictures can still be found in the market. No government action was taken against the companies for these violations.

The Myanmar government is open and welcoming to foreign investment including BAT, JTI and most recently Burma Tobacco Trading Co. (BTTC) for cigar production. The BTTC is owned by the Huang family, a prominent Chinese-American group of business owners. Together with Robaina family, they grow cigar tobacco on 80 acres, in Pyin Oo Lwin and the tobacco is described to be similar to the tobacco farmlands of Pinar del Rio, Cuba.[26] By 2018, BTTC announced they have increased the tobacco growing acreage from 80 acres to about 125 acres.[27]

The Union Tax Law of 2019 made tax exemption to tobacco industries of cheroots, cigars and raw tobacco if their annual product cost does not exceed MMK 20 million (kyats).

Philippines:

Under the ASEAN Trade in Goods Agreement (ATIGA), tobacco leaf and other tobacco related additives imported into the Philippines enjoy zero import duties.[28]

The Philippines allows international travelers to bring 400 sticks of cigarettes into the country without paying any duties or taxes. This is higher than what other countries in Southeast Asia allow. This is double the amount allowed in Malaysia. Other countries like Singapore, Brunei, and Hongkong only allow one pack or 20 sticks of cigarettes.[29] An amendment of the policy is necessary so that the Philippines can lower the number of sticks allowed to be brought in duty-free or prohibit this altogether.

Thailand:

No benefits were given to the tobacco industry. However, there is still a tax exemption for rolling tobacco.[30]

Vietnam:

International travelers coming into Vietnam can bring in duty free: 200 cigarettes, or 20 cigars or 250 grams of tobacco.[31]

 

[1] Guidelines for implementation of Article 5.3 of the WHO Framework Convention on Tobacco Control on the protection of public health policies with respect to tobacco control from commercial and other vested interests of the tobacco industry, https://www.who.int/fctc/guidelines/article_5_3.pdf, page 8.
[2] J. L. Reyes. SEATCA Tobacco Industry Interference Index: Implementation of Article 5.3 of the WHO Framework Convention on Tobacco Control in ASEAN Countries, 2020. November 2020. Southeast Asia Tobacco Control Alliance (SEATCA). Bangkok, Thailand. https://globaltobaccoindex.org/
[3] http://www.phnompenhpost.com/national/minister-vows-action-against-tobacco-firms
[4] https://www.khmertimeskh.com/news/36647/still-no-warnings-on-some-tobacco-packs/
[5] Royal University of Phnom Penh, Tobacco Control Law Compliance survey, 2019
[6] http://www.khmertimeskh.com/news/33863/export-licenses-for-vietnam/
[7] ARRANGEMENT ON BILATERAL TRADE ENHANCEMENT BETWEEN THE GOVERNMENT OF THE KINGDOM OF CAMBODIA AND THE GOVERNMENT OF SOCIALIST REPUBLIC OF VIET NAM, dated 26th Feb 2019
[8] Cheng Sokhorn. Tobacco worth over $2M exported to VN last year, The Phnom Penh Post; 6 Sep 2018 https://www.phnompenhpost.com/business/tobacco-worth-over-2m-exported-vn-last-year
[9] ‘GOLD’ Certificate of recognition given to BAT exempted for 2 years of audit and then detailed audit.
[10] Indonesia Tobacco Industry Interference Index 2020. https://globaltobaccoindex.org/country/ID
[11] http://news.xinhuanet.com/english/2016-10/10/c_135741440.htm
[12] Southeast Asia Tobacco Control Alliance. (2018). Tobacco companies violate tobacco control in Lao PDR [factsheet] SEATCA [online]. https://bit.ly/3ggqdqq
[13] The News Lens. Tobacco Companies Making a Fortune in Southeast Asia, The News Lens [online]. 3 March 2018. https://bit.ly/2XqkZQm
[14] http://www.erm.gov.la/index.php/en/search
[15] 1 China Tobacco. Laos Liaozhong Hongta Tobacco Planting Team Visits Yuxi for Exchanging and Studying. 9 August 2017 https://bit.ly/3edWgFF
[16] China Tobacco. Deputy Director of STMA Zhao Hongshun Paid a Visit to Lao-China Hongta Good Luck Tobacco Co., Ltd. 2 July 2018 https://bit.ly/2zvAIWa
[17] China Tobacco. Deputy Director of STMA Yang Peisen Investigates Lao-China Hongta Good Luck Tobacco Co., Ltd. 11 October 2019 https://bit.ly/2zvhbFx
[18] 4 China Tobacco Lao-China Hongta Good Luck’s Annual Output Exceeded 600,000 Cases, Reaching a Record High. 27 February 2020. https://bit.ly/3glU6FW
[19] https://www.malaymail.com/news/what-you-think/2018/03/23/plain-packaging-five-years-of-failure-ideas/1605509
[20] https://www.freemalaysiatoday.com/category/nation/2019/01/24/ideas-took-money-from-tobacco-firms-and-opposed-anti-smoking-plans-says-uk-daily/
[21] Kenneth Tee. “No decision yet on licensing for tobacco product sales yet,” says Teresa Kok. Malay Mail. January 26, 2019 https://www.malaymail.com/news/malaysia/2019/01/26/no-decision-yet-on-licensing-for-tobacco-product-sales-says-teresakok/1716762
[22] http://www.thestar.com.my/news/nation/2016/12/31/subra-up-to-states-to-ban-sale-of-ecigs-and-vapes/#tZAxQYkSCtQWU3h9.99
[23] https://www.thesundaily.my/local/tobacco-product-firms-call-for-regulations-on-smoking-alternative-devices-DH768489
[24] The Star. BAT to consider opening another Malaysian factory. April 19, 2019 https://www.mida.gov.my/home/8737/news/bat-to-consider-opening-another-malaysian-factory-/
[25] Bernama. BAT seeks to introduce alternative tobacco products. April 18, 2019 https://www.mida.gov.my/home/8725/news/bat-seeks-to-introduce-alternative-tobacco-products/
[26] https://prn.to/37aWhI1
[27] https://bit.ly/3dK7jGC
[28] https://www.asean.org/uploads/archive/documents/atiga/Annex2-Philippines.pdf
[29] https://www.iatatravelcentre.com/PH-Philippines-customs-currency-airport-tax-regulations-details.htm
[30] Thailand – country summary, Global Tobacco Industry Interference Index 2020. https://globaltobaccoindex.org/country/TH
[31] https://www.iatatravelcentre.com/VN-Viet-Nam-customs-currency-airport-tax-regulations-details.htm