EU seeks steady tobacco tax rise

RIGA - Latvia will continue to be a haven for smokers, should the country be given a transition period by the European Union in order to gradually increase the excise tax on cigarettes.

The European Commission, the EU's executive arm, supports a transition period for increasing tariffs, which will increase cigarette prices. The debate now is over how long the transition period should last.

Maris Jurus, head of the Finance Ministry's excise tax division, said his office had developed a plan to bring Latvian tobacco excise taxes up to EU levels, but it would take time.

"It will take a long time for Latvian tobacco taxes to reach EU levels," Jurus said. "We have submitted our proposal to the European Commission, but we haven't received an official answer yet."

The current tobacco tax in Latvia is 5.10 lats ($7.93) per 1,000 cigarettes. The European Parliament has proposed an EU standard of 60 euros ($52.36) per 1,000 cigarettes.

Latvia will not be able to fully comply with EU levels until 2010, according to the State Revenue Service.

Jurus said Latvia's relatively low consumer purchasing power would prevent the country from raising the tax any quicker.

Eduards Stiprais, head of the Foreign Ministry's EU negotiations secretariat, said the time frame is still being debated.

"It's clear we cannot raise the excise tax overnight," he said. "We have asked for a respite until Jan. 1, 2010, but the (European Commission's) initial demand is by Jan. 1, 2007."

Tobacco industry representatives are already bracing themselves for the tax hikes.

Spokesman for U.S. tobacco giant Philip Morris' Latvian division Maris Graudins said the company had been consulting with the government to ensure that consumer purchasing power, government revenues and industry stability were maintained during the transition period.

"A transition period is necessary in order to maintain a legal market without an influx of cheap counterfeit and contraband products," he said.

Raimonds Ozols, director of sales at House of Prince's branch in Latvia, said cigarette smuggling would increase along with the imminent price increase. He also said Latvian politicians were hiding this information from the public until after national elections, tentatively scheduled for next fall.