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

1 LIST NO: I Energy Products LIST NO: II Motor Vehicles LIST NO: III Alcoholic Beverages And Tobacco Products LIST NO: IV Other 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) ,315 Motor Vehicles (II) ,82,9 Alcoholic Beverages (III-a) ,3 Tobacco Products (III-b) Cola Soda Pops (III-c) ,30,1 Other Consumption Goods (IV) ,60,7 TOTAL *Total Tax Revenues in 2010: TL ( $)

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. 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.

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 (Vehicles not Subject to Entry and Registration)

7 Vehicles Not Subject To Entry and Registration Tax 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 Registration Taxation 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 Vehicle 87.02Bus, Midi bus, Mini Bus 87.03Motor cars Specially designed for travelling on snow Golf cars and similar vehicles 87.11Motorcycles 88.02Helicopters, Aeroplanes, Spacecraft Cruise ships not exceeding 18 gross tonality Traveller and tour ships Yachts and other vessels for pleasure or sports, rowing boats and canoes Vehicles principally designed for transport of goods: CN CODE NO Type of Vehicle Wreckers for semi-trailers 87.04Motor vehicles for the transport of goods 87.09Self-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 Vehicle 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 Rates Of a cylinder capacity not exceeding 1600 cm337 % 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 Kw3 % 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 POPSALCOHOLIC BEVERAGES BEER FERMENTED BEVERAGES (wine, sparklıng wıne,etc.) DISTILLED SPRITS (Vodka,gin,liqueurs,rakı,wisky,etc)

13 CN CODES Type of Product Cigars containing tobacco Cheroots containing tobacco Cigarillos containing tobacco Cigarettes containing tobacco Others (Cigars made of ingredients deemed as a tobacco, cigars, cheroots and cigarillos) Smoking tobacco (whether or not containing tobacco substitutes in any proportion) Others (in immediate packings of a net content not exceeding 500 g) Others (in immediate packings of a net content exceeding 500 g) 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 specific 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 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 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 CODESType of Product Rate% Min. Sp. Tax(YTL) Cigars containing tobacco 65 0,1450 TL (≈ 0,076 $) Cheroots containing tobacco 65 0,1450 TL (≈ 0,076 $) Cigarillos containing tobacco 65 0,1450 TL (≈ 0,076 $) Cigarettes containing tobacco 65 0,1450 TL (≈ 0,076 $) 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 $) Smoking tobacco (whether or not containing tobacco substitutes in any proportion) 65 0,1450 TL (≈ 0,076 $) Others 65 0,0375 TL (≈ 0,197 $) (in immediate packings of a net content not exceeding 500 g) Others 65 0,0375 TL (≈ 0,197 $) (in immediate packings of a net content exceeding 500 g) 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. EXEMPTIONS  No specific exemption to tobacco products. 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 BASE  Tax 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 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: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: $ (5 X10 x 0,076 $ X 2000= $)  Tax amount calculated on proportional basis: $ (10 $ X 0,65 X 2000=13000 $ ) $ > $ excise duty to be paid : $

25 SHORT HISTORY OF TOBACCO TAXATION Until 2002VAT + 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 2005VAT + Excise duty The ad-valorem tax with minimum specific tax.

MINIMUM SPECIFIC TAX OF A PACK (20 CIGARETTES) SINCE Proportional Tax Rate ≈ 1,667 $ 58% 58% 58% 58% 58% 63%

27 CIGARETTES SALES

28 EXCISE REVENUE FROM TOBACCO TAXATION

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

Beers (made from malt) 22.04Wine of fresh grapes Sparkling wine 22.05Vermouth and other wine of fresh grapes Other fermented beverages (e.g: cider, perry, mead) mixture of fermented beverages and mixture of non- alcoholic beverages with fermented beverages 22.08Undenatured ethyl alcohol of an alcoholic strength by volume of less than 80% vol Beverages acquired from distillation of grapes Gin Vodka Liqueurs Others Rakı Rakı * Pure ethyl alcohol is not subject to excise duty 31 TAXATION OF ALCOHOLIC BEVERAGES AND COLA SODA POPS

Minimum Specific Tax For alcoholic beverages, minimum specific tax amounts are determined 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 EXAMPLE 1000 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 TL Tax to be paid is 1890 TL EXAMPLE 1000 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 EXAMPLE 1000 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 TL EXAMPLE 1000 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 TL Minimum 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 (mobile phones) with a temporarily provision added to Law. (100 TL [52$] for each)

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