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TAXATION OF TOBACCO PRODUCTS

GENERAL DIRECTORATE OF REVENUE POLICIES

(28/08/2012)

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TASKS OF TURKISH MINISTRY OF FINANCE IN TERMS OF REVENUES

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CURRENT STRUCTURE OF TOBACCO TAXATION

There are two types of tax on tobacco products: value-added tax (VAT) and excise taxes.

All tobacco products are subject to VAT.

Leaf tobacco is not subject to excise duty.

Products obtained from leaf tobacco is subject to excise duty.

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CURRENT STRUCTURE OF TOBACCO TAXATION

Excise tax is levied on the following tobacco products:

cigars, cheroots and cigarillos containing tobacco

cigarettes containing tobacco

other cigars, cheroots, cigarillos and cigarettes made of ingredients deemed as tobacco

smoking tobacco whether or not containing tobacco substitutes in any proportion

others, in net content of less than 500 g packages (CN code: 2403.10.10.00.19);

others, in net content of more than 500 g packages (CN code: 2403.10.90.00.19);

chewing tobacco and snuff

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EXCISE SYSTEM

The ad-valorem tax with the specific tax floor.

Currently, the ad-valorem tax is 65 % and the specific tax floor per package is 2,90 TL.

Companies pay the greater of the ad valorem or the specific excise which is calculated on the retail price of the product.

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TAX BURDEN ON CIGARETTES (PER PACK)

Excise tax burden is 65 %, VAT burden is 15,25 %, Total burden of indirect taxes is 80,25 %.

Excise taxes (structure at end of the year)

VAT ( burden(%)

Total tax burden (%)

Ad valorem (%)Minimum specific tax per pack

2002 49,5 15,25 64,82003 55,3 15,25 70,62004 28 plus 0,35-1,00 TL 15,25 71,62005 58 or 1,20 15,25 75,52006 58 or 1,20 15,25 74,62007 58 or 1,55 15,25 73,52008 58 or 1,55 15,25 73,32009 58 or 2,05 15,25 74,12010 63 or 2,65 15,25 78,72011 65 or 2,90 15,25 80,3

2012 65 or 2,90 15,25 80,3

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SHARES OF THE TOBACCO EXCISE TAX IN TOTAL TAX REVENUE (2011)

4,1 % of the total revenue,5,3 % of the total tax revenue, 12,8 % of the total indirect tax revenue, And 23,6 % of the total excise tax is from

tobacco excise tax.

Total revenue from tobacco excise tax is 15,9 million TL ( 8,8 million $).

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MOST RECENT CHANGES IN TAX POLICY

Harmonization With The EU Acquis

In view of harmonize its legislation in the area of tobacco taxation with the EU Acquis, Turkey has amended the Excise Tax Law as of 15th of June 2012.

With this amendment tobacco excise tax system has been changed: namely, ad valorem with a specific floor system has been replaced by mixed specific and ad valorem excise with a specific tax floor.

Council of Ministers is authorized to set the specific excise amounts but it has not set the specific excise amounts yet.

Periodic Increases

Specific tax will be increased automatically in every six months so as to keep up with the inflation and maintain their real value.

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CIGARETTE PRICES

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