Cigarette prices are set to go up as part of Government plans to raise indirect taxation by €23.9 million in next year’s Budget, this newspaper has learnt.
Though no further details were available yesterday, sources warned that if the Government opted for a hefty increase, the measure could backfire badly and result in a loss of revenue. They said that exaggerated increases exceeding the tax elasticity were likely to encourage the black market industry.
A Finance Ministry spokesman declined to comment when asked about this matter, saying that details would only be revealed in the Budget speech set for November 4.
In anticipation of higher prices, the Customs Department recently imposed a limit on the distribution of cigarettes to retailers. The sources said that the aim was to avoid confusion between old and new stocks once the increase in excise duty would come into force.
The Finance Ministry spokesman said that “as is the norm every year during the month prior to Budget Day, the Customs Department may apply its discretionary powers to ensure an orderly market”.
Until yesterday morning wholesalers were complaining that the quota set by Customs was too low to cover the demand. They feared that this could lead to a significant drop in sales and, consequently, impact negatively on their business.
The issue was addressed by the evening following the intervention of the Chamber of Small and Medium Enterprises – GRTU, which represents tobacco wholesalers.
GRTU president Paul Abela told Times of Malta that, following written submissions to the Finance Ministry, an agreement was reached to allow wholesalers to keep replenishing their stock normally.
In submissions to the European Commission, the Government has outlined its intention to increase indirect taxes as part of its commitment to cut the deficit to below the three per cent threshold. This target is of crucial importance within the context of the Government’s efforts to come out of the excessive deficit procedure the Commission initiated last May.
The Prime Minister’s repeated denials that the Government will not increase value added tax has left few options open to the Finance Ministry beyond increasing excise duty on certain products like tobacco and, possibly, alcohol.
As for the cost of living allowance for next year, the Finance Ministry spokesman said that a detailed communication was transmitted to the chairman of the Malta Council for Economic and Social Development yesterday.
The sources confirmed that the weekly wage increase will be of €3.50, as had been reported by the media earlier this month.