EXCISE DUTY SYSTEM AND TAXATION OF TOBACCO IN TURKEY IN TURKEY Cüneyt AKSOY Revenue Expert Presidency of Revenue Administration 2011.

EXCISE DUTY SYSTEMEXCISE DUTY SYSTEM

ANDAND

TAXATION OF TOBACCOTAXATION OF TOBACCO

IN TURKEYIN TURKEY

Cüneyt AKSOYRevenue Expert

Presidency of Revenue Administration

2011

1

LIST NO: IEnergy

Products

LIST NO: II

Motor Vehicles

LIST NO: IIIAlcoholic

Beverages And Tobacco Products

LIST NO: IVOther

Consumption Goods

GOODS WITHIN THE SCOPE

2

Excise Revenues 2010

Total (Thousand TL)

Total (Thousand $)

Share in Total Excise Duty

Revenues (%)

Share in Total Tax Revenues

(%)

Energy Products (I)31.697.178 19.935.332 55,3 15

Motor Vehicles (II) 6.192.786 3.894.834 10,8 2,9

Alcoholic Beverages (III-a) 2.868.288 1.803.955 5 1,3

Tobacco Products (III-b) 14.784.461 9.298.403 25 7

Cola Soda Pops (III-c) 221.356 139.218 0,3 0,1

Other Consumption Goods (IV) 1.521.043 956.631 2,6 0,7

TOTAL 57.285.112 36.028.372 100 27

*Total Tax Revenues in 2010: 210.532.315 TL (132.410.261 $)

4

3

TAXATION OF

VEHICLES

4

GOODS WITHIN THE SCOPE IN LIST (II)

VEHICLES

Subject to entry and registration(cars,minibus,midibus,bus,

trucks, motorcyles, airplane,helicopter, traveller and tourships, yachts)

Not Subject To Entry and Registration(golf cars, jet-ski, vehicles

specially designed for travelling on snow).

Proportional tax

5

First acquisition is the taxable event for vehicles which are subject to entry and registration.

First acquisition is the taxable event for vehicles which are subject to entry and registration.

The term “first acquisition” means;importation, acquisition by auction,acquisition from the persons trading motor vehicles,started to be used or capitalized by persons trading of motor vehicles or registred in the name of them, for the purpose of being used of only those goods which have not already been entered and registered in Turkey

The term “first acquisition” means;importation, acquisition by auction,acquisition from the persons trading motor vehicles,started to be used or capitalized by persons trading of motor vehicles or registred in the name of them, for the purpose of being used of only those goods which have not already been entered and registered in Turkey

TAXABLE EVENT(Vehicles Subject to Entry and Registration)

There is no liability on the importation of vehicles with commercial purposes, but liability arises on delivery of motor vehicles to buyers who will use these vehicles in Turkey.

There is no liability on the importation of vehicles with commercial purposes, but liability arises on delivery of motor vehicles to buyers who will use these vehicles in Turkey.

6

Taxable event for motor vehicles not subject to entry and registration is,

their importation,delivery by manufacturers,sale by auction before excise duty is applied.

Taxable event for motor vehicles not subject to entry and registration is,

their importation,delivery by manufacturers,sale by auction before excise duty is applied.

TAXABLE EVENT(Vehicles not Subject to Entry and Registration)

7

Vehicles Not Subject To Entry and RegistrationTax return is submitted to the tax office in place of the transaction before completion of transaction related to first acquisition Duty is paid on the same day on which return is submitted.Vehicles Not Subject To Entry and RegistrationTaxation period is each monthly period of calendar year Tax return is submitted to the tax office until 15th day of the month following the end of the taxation period. The duty is paid within the period of submission.

Vehicles Not Subject To Entry and RegistrationTax return is submitted to the tax office in place of the transaction before completion of transaction related to first acquisition Duty is paid on the same day on which return is submitted.Vehicles Not Subject To Entry and RegistrationTaxation period is each monthly period of calendar year Tax return is submitted to the tax office until 15th day of the month following the end of the taxation period. The duty is paid within the period of submission.

DECLARATION, ASSESSMENT and PAYMENT OF DUTY

8

GOODS WITHIN THE SCOPE IN LIST (II)

VEHICLES

designed for transport of persons

designed for transport of goods

motor vehicles for special purposes

9

Vehicles principally designed for transport of persons: CN CODE NO Type of Vehicle87.02 Bus, Midi bus, Mini Bus87.03 Motor cars 8703.10.11.00.00 Specially designed for travelling on snow 8703.10.18.00.00 Golf cars and similar vehicles 87.11 Motorcycles 88.02 Helicopters, Aeroplanes, Spacecraft 8901.10.10.00.11 Cruise ships not exceeding

18 gross tonality 8901.10.90.00.11 Traveller and tour ships89.03 Yachts and other vessels for pleasure or

sports, rowing boats and canoes Vehicles principally designed for transport of goods:CN CODE NO Type of Vehicle8701.20 Wreckers for semi-trailers87.04 Motor vehicles for the transport of goods 87.09 Self-propelled vehicles, not fitted with lifting

or handling equipment, of the type used in factories, warehouses

Motor vehicles for special purposes:CN CODE NO Type of Vehicle87.05 Motor vehicles for special purpose

breakdown lorries, crane lorries, concrete-mixer lorries, road sweeper lorries, e.t.c. (Only for those subject to entry and registration) ((Other than fire-fighting vehicles)

10

TAX RATES

Cars RatesOf a cylinder capacity not exceeding 1600 cm3 37 %Of a cylinder capacity exceeding 1600 cm3 but not exceeding 2000cm3 80 %Of a cylinder capacity exceeding 2000 cm3 130 %Cars with only electric engine Of a engine power not exceeding 85 Kw 3 %Of a engine power exceeding 85 Kw but not exceeding 120 Kw 7 %Of a engine power exceeding 120 Kw 15 %Of a cylinder capacity not exceeding 3200 cm3 having 9 seats including the driver 15% Only with electric engine 10% Minibus 9 % Midibus 4 % Bus 1 %

11

TAX RATES

Golf cars and similar vehicles 6,7 %

Vehicles specially designed for travelling on snow 6,7 %

Jet-ski and similar vehicles not subject to entry and registration 8 %

Trucks 4% Motorcycles Of a cylinder capacity not exceeding 250 cm3 22% Of a engine power not exceeding 20 Kw 3% Of a cylinder capacity Above 250 cm3 37% Of a engine power exceeding 20 Kw 37% Airplane-Helicopter 0,5% Traveller and tour ships 6,7% Yachts 8%

13

11

TAXATION OF

TOBACCO PRODUCTS

AND

ALCOHOLIC BEVERAGES

12

GOODS WITHIN THE SCOPE IN LIST (III)

LIST (III)

TABLE (B)TOBACCO PRODUCTS

(cigars,cigarillos,cherots,cigarettes,smoking tobacco,chewing tobacco,snuff)

TABLE (A)

COLA SODA POPS ALCOHOLIC BEVERAGES

BEER FERMENTED BEVERAGES(wine, sparklıng wıne,etc.)

DISTILLED SPRITS(Vodka,gin,liqueurs,rakı,wisky,etc)

13

CN CODES Type of Product

2402.10.00.00.11 Cigars containing tobacco

2402.10.00.00.12 Cheroots containing tobacco

2402.10.00.00.19 Cigarillos containing tobacco

2402.20 Cigarettes containing tobacco

2402.90.00.00.00 Others (Cigars made of ingredients deemed as a tobacco, cigars,

cheroots and cigarillos)

2403.10 Smoking tobacco (whether or not containing tobacco substitutes in

any proportion)

2403.10.10.00.19 Others (in immediate packings of a net content not exceeding 500 g)

2403.10.90.00.19 Others (in immediate packings of a net content exceeding 500 g)

2403.99.10.00.00 Chewing tobacco and snuff

* Leaf tobacco is not subject to excise duty.

CN CODES OF TOBACCO PRODUCTS

14

Proportional taxation method is used in calculating excise duty on cigarettes and other

tobacco products.

Tax on cigarettes and other tobacco products calculated on

proportional basis can not be less than tax amount calculated according to minimum specific tax amounts.

TAXATION OF CIGARETTES AND OTHER TOBACCO PRODUCTS

Units for minimum Units for minimum specific tax amountspecific tax amount

each piece of cigarettes

taking place in a unit of a pack supplied to

market

Cigarettes Other tobacco products

each gram of product

in a unit of a pack supplied to market

15

Proportional Tax Rate

CIGARETTES CIGARETTES

16

Minimum Specific Tax Amount

1 piece of cigarette 0,1450 TL (≈ 0,076 $)

1 package (20 piece) 2,90 TL (≈ 1,526 $)

65 %

Proportional Tax Rate

OTHER TOBACCO PRODUCTSOTHER TOBACCO PRODUCTS

17

Minimum Specific Tax Amount

1 gram 0,1450 TL (≈ 0,076 $)or

0,0375 TL (≈ 0,197 $)

65 %

18

LIST (III) TABLE (B) ANNEXED TO LAW CN CODES Type of Product Rate% Min. Sp. Tax(YTL)

2402.10.00.00.11 Cigars containing tobacco 65 0,1450 TL (≈ 0,076 $)

2402.10.00.00.12 Cheroots containing tobacco 65 0,1450 TL (≈ 0,076 $)

2402.10.00.00.19 Cigarillos containing tobacco 65 0,1450 TL (≈ 0,076 $)

2402.20 Cigarettes containing tobacco 65 0,1450 TL (≈ 0,076 $)

2402.90.00.00.00 Others (Cigars, cheroots and cigarillos,

and cigarettes made of ingredients deemed as a tobacco )

-Cigars, cheroots and cigarillos made of ingredients 65 0,1450 TL (≈ 0,076 $)

deemed as a tobacco,

-Cigarettes made of ingredients deemed as a tobacco 65 0,1450 TL (≈ 0,076 $)

2403.10 Smoking tobacco (whether or not containing

tobacco substitutes in any proportion) 65 0,1450 TL (≈ 0,076 $)

2403.10.10.00.00 Others 65 0,0375 TL (≈ 0,197 $)

(in immediate packings of a net content not exceeding 500 g)

2403.10.90.00.00 Others 65 0,0375 TL (≈ 0,197 $)

(in immediate packings of a net content exceeding 500 g)

2403.99.10.00.00 Chewing tobacco and snuff 65 0,1450 TL (≈ 0,083 $)

19

Taxable Event for tobacco products is their importation,delivery by manufacturers,sale by public auction before implementing excise duty.

Taxable Event for tobacco products is their importation,delivery by manufacturers,sale by public auction before implementing excise duty.

EXEMPTIONSNo specific exemption to tobacco products.

EXEMPTIONSNo specific exemption to tobacco products.

Taxpayer of duty for tobacco products is their importers, manufacturers, sellers by public auction before applying excise duty.

Taxpayer of duty for tobacco products is their importers, manufacturers, sellers by public auction before applying excise duty.

TAXABLE EVENT, TAXPAYER, EXEMPTION

TAX BASE AND AUTHORITY OF THE COUNCIL OF MINISTERS

TAX BASETax base for tobacco products is retail selling price of these goods to final customers

including VAT. Tax base for duty to be paid to customs office on importation of tobacco products is also

retail selling price of these goods.

AUTHORITY OF THE COUNCIL OF MINISTERS REGARDING TAX RATES

The Council of Ministers has the authority to;

decrease rates down to zero for each products,increase up to 50% of the determined rates,decrease minimum specific tax amounts determined by Law

down to zero for each products,increase up to one fold for tobacco products.

20

DECLARATION AND PAYMENT

Taxation period is each one monthly period of calendar year,

Tax return is submitted to the tax office until the 15th day of the

month following the end of the taxation period.

The duty is paid within period of submission of the return.

21

22

EXAMPLE

Retail selling price for a pack of cigarettes including 20 pieces of cigarettes is 4 $. Excise duty to be paid for 2000 packs ofcigarettes:

Proportional Tax Rate :65 % Specific Tax Amount for each piece of cigarettes

:0,076 $ Specific Tax Amount for 2000 packs of cigarettes :3040 $

(20 X 0,076 $ X 2000= 3040 $) Tax amount calculated on proportional basis :5200

$(4 $ X 0,65 X 2000=5200 $)

5200 $ > 3040 $ excise duty to be paid :5200 $

23

EXAMPLE

Retail selling price for a pack of cigarettes including 20 pieces of cigarettes is 2 $. Excise duty to be paid for 2000 packs of cigarettes:

Proportional Tax Rate :65 % Specific Tax Amount for each piece of cigarettes :0,076 $ Specific Tax Amount for 2000 packs of cigarettes :3040 $

(20 X 0,076 $ X 2000= 3040 $) Tax amount calculated on proportional basis :2600

$(2 $ X 0,65 X 2000=2600 $)

3040 $ > 2600 $ excise duty to be paid :3040 $

24

EXAMPLE

Retail selling price for a pack of cigar including 10 pieces of 5 gram

of cigars is 10 $. Excise duty to be paid for 2000 packs of cigars:

Proportional Tax Rate : 65% Specific Tax Amount for each gram of

cigar containing tobacco : 0,076 $ Specific Tax Amount for 2000 packs of cigars : 7.600 $

(5 X10 x 0,076 $ X 2000= 7.600 $) Tax amount calculated on proportional basis : 13.000 $

(10 $ X 0,65 X 2000=13000 $ )

13000 $ > 7.600 $ excise duty to be paid : 13.000 $

25

SHORT HISTORY OF TOBACCO TAXATION

Until 2002 VAT + seven different types of taxes, fees and funds

Between 2002

and 2005

VAT + Excise duty

Different types of ad-valorem and specific excise taxes depending on price category, tobacco blend

Since 2005 VAT + Excise duty

The ad-valorem tax with minimum specific tax.

MINIMUM SPECIFIC TAX OF A PACK (20 CIGARETTES)

SINCE 2005

26

1,20

1,401,50 1,55

2,05

2,65

0,00

0,50

1,00

1,50

2,00

2,50

3,00

2005 2006 2007 2008 2009 2010

(TL)for

a pack

Proportional Tax Rate

≈ 1,667 $

58% 58% 58% 58% 58% 63%

27

CIGARETTES SALES

106.717 107.455 107.859 107.555107.90893.354

0

20.000

40.000

60.000

80.000

100.000

120.000

2005 2006 2007 2008 2009 2010

Pie

ce (m

illio

n)

28

EXCISE REVENUE FROM TOBACCO TAXATION

0,7 1,1

2,0

4,5

6,1

7,1

8,9 9

,6

10,9 11,5

14,8

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Excise Duty Collection (Billion TL)

TAX BURDEN AND PRICES

Tax Burden on Tobacco Products

VAT : % 18 (0,1525 of retail price)

Excise Duty : % 65

TOTAL : % 80,25

Total Excise Duty Burden for 1000 cigarettes (50 package) is minimum 145 TL (≈ 76,31 $)

29

Average price of a pack of cigarette is aprx. 5,4 TL (≈ 2,84 $)Average excise duty for a pack is aprx. 3,4 TL (≈ 1,78 $) in 2010.

GOODS WITHIN THE SCOPE LIST NO: (III)

TABLE (A) TABLE (B)

- Cola Soda Pops (1 CN Code) - Tobacco Products

- Alcoholic Beverages (18 CN Code)

30

TAXATION OF ALCOHOLIC BEVERAGES

AND COLA SODA POPS

2203.00 Beers (made from malt)22.04 Wine of fresh grapes 2204.10 Sparkling wine22.05 Vermouth and other wine of fresh grapes 2206.00 Other fermented beverages (e.g: cider, perry, mead)

mixture of fermented beverages and mixture of non-alcoholic beverages with fermented beverages

22.08 Undenatured ethyl alcohol of an alcoholic strengthby volume of less than 80% vol.

2208.20 Beverages acquired from distillation of grapes.2208.50 Gin2208.60 Vodka2208.70 Liqueurs2208.90 Others2208.90.48.00.11 Rakı2208.90.71.00.11 Rakı

* Pure ethyl alcohol is not subject to excise duty

31

TAXATION OF ALCOHOLIC BEVERAGES

AND COLA SODA POPS

Minimum Specific TaxFor alcoholic beverages, minimum specific tax amounts aredetermined in 3 different categories. These are;

1st category per alcohol degree in 1 liter of product 2nd category 1 liter of product 3rd category per liter of pure alcohol contained.

32

TAXATION OF ALCOHOLIC BEVERAGES

AND COLA SODA POPS

Proportional Tax ; On cola soda pops 25 %On beer 63,3 %On others 0 %

- Proportional Tax > Minimum Specific Tax Tax to be paid Proportional Tax

- Proportional Tax < Minimum Specific Tax Tax to be paid Minimum Specific Tax

33

EXAMPLE1000 bottles of 33 cc beer is sold with a price of 3 TL for each bottle.Alcohol degree of beer is 4. Excise duty to be paid is:

Minimum specific tax for beer: 0,53 TL (0,27 $)4 x 0,53 x (1000*0,33) = 699,6 TL

Proportional tax for beer : 63%3x1000x0,63 = 1890 TLTax to be paid is 1890 TL

EXAMPLE1000 bottles of 70 cc wine is sold with a price of 20 TL for each bottle. Alcohol degree of wine is 12. Excise duty to be paid is:

Proportional tax for wine : 0 %Minimum specific tax for wine: 2,94 TL (1,54 $)1000 x 0,70 x 2,94 = 2060,94 TL

34

EXAMPLE1000 bottles of 70 cc vodka is sold with a price of 20 TL for each bottle.Alcohol degree of beer is 40. Excise duty to be paid is:

Minimum specific tax for beer: 70,35 TL (37 $)0,40 x (1000 x 0,70) x 70,35 = 19698, TL

Proportional tax for beer : 0 %

Tax to be paid is 19698 TL

EXAMPLE1000 bottles of cola with 33 cc is sold with a price of 3 TL for each bottle. Excise duty to be paid is:

Proportional tax for cola soda pops : 25 %3 x 1000 x 0,25 : 750 TLMinimum specific tax for wine: 0 TL

37

35

TAXATION OF

OTHER CONSUMPTION

GOODS

36

Application of proportional excise duty (Tax rates applied are 6,7%, 20% and 25%)

Some of other consumption goods laid down in List No (IV) are:Caviar, Furs, Precious stones, Cosmetics, White Goods and Other Electrical Household Machines,

Mobile phones , Revolvers

There are 107 CN Codes in List No: (IV).

LIST (IV)

One application of minimum specific tax for CN Code 8517.12.00.00.11(mobile phones) with a temporarily provision added to Law.

(100 TL [52$] for each)

Cüneyt Aksoy

Revenue Expert

Tel: 0312 415 33 76

e-mail: [email protected]