Tobacco companies have dozens of legal loophole that has helped them to avoid more than $ 1.1 billion in the U.S taxes.
Their secret: using fillers, such as clay found in cat litter or beef products with a tobacco, to tip the scales in their favor. The heavier weight allows companies to bypass 2653-percent increase in the federal excise tax, using a 2009 law that spared so-called big cigar.
There were 22 companies producing small cigars a year before the law, a new tax structure, according to the Ministry of Finance and the Alcohol tobacco tax and trade bureau. Twelve of these companies, none of which the government will call or activate or increase the production of large cigars a year, under the law offices found.
“It shows that the length of the tobacco companies will go to avoid tax and regulatory measures that were aimed at improving the health of the population, regardless of their customers,” Danny McGoldrick, vice president for research at Campaign Tobacco Free kids in Washington, said in a telephone interview. “They need to equalize the tax to stop the fraud.”
The practice has contributed to a doubling of sales outweighed tobacco and slowed decade decline in tobacco consumption. The Centers for Disease Control and Prevention in the Aug. 2 report blamed the sharp growth of adult consumption of pipe tobacco and cigarettes, cigars, as from 2008 to 2009, the law “, which created the tax differences between the types of products.”
The government Accountability Office of the April report estimated that “the market moves from a roll of tobacco and from small to large cigars reduce federal revenues by a range of” $ 615 million to $ 1.1 billion from April 2009 to September 2011.
U.S. Sen. Dick Durbin, Illinois Democrat, introduced legislation on January 31, to close the loophole. Bill to equalize the tax structure, so there would be no incentive for the product management, generating $ 3.6 billion in new tax revenues over 10 years, Christina Mulka, a spokeswoman, said by e-mail.
The loophole appears to mainly benefit small companies’ tobacco. Reynolds American Inc (RAI), the second-largest U.S. tobacco company, does not work in this market, David Howard, representative of Winston Salem, North Carolina-based Company said in an e-mail.
Altria Group Inc (MO), the largest seller of tobacco in the U.S., said that his company John Middleton unit was large sales of cigars with black and soft lines to changes in the law. The company does not need to make changes in how it formulates cigars, which are mainly wooden or plastic tip and come as singles or in packs of two or five, David Silva, a representative of Richmond, Virginia-based Altria, said by telephone.
Prime Time International Trade, closely held tobacco company, is selling some of its large cigars and flavored cigars in the 20 packets, similar to regular cigarettes. Closely held Cheyenne International LLC, based in Grover, North Carolina specializes in the smaller cigars that have a similar look and feel of cigarettes.
Jack Wertheim, chairman of the Phoenix-based Prime Time, said the changes in the “large” cigars on the market response to customer requests. The company sells large and small cigars, to satisfy customers who prioritize quality and taste and appease those who want a cheap product, he said.
Prime Time is not saving on taxes, and any savings will be passed to the customer, Wertheim said.
Current rules require rolled tobacco weighing at least 3 kg in 1000 to be labeled as “high” or “premium” cigars, category, where taxes are increased by only 155 percent.