Tax system on cigarettes changed: SCT rate reduced, hike cancelled

The government has made a significant change in the taxation policy applied to cigarette products, publishing a new regulation with a Presidential Decision. According to the decision published in the Official Gazette, the Special Consumption Tax (ÖTV) rate levied on cigarettes was reduced from the previous 45 percent level to 42 percent, taking a step to preserve the financial balances of the sector. This change in taxation was balanced by updating the fixed tax amounts along with the reduction in rates, with the aim of restructuring the system.

Within the scope of the regulation, the minimum fixed tax amount was set at 2,2953 lira and the fixed tax amount at 23,7404 lira, revising the tax architecture. Not only were rates changed, but necessary updates were also made to fixed tax amounts to balance the impact of this decline in the ad valorem tax rate. This move aims to ensure the sustainability of tax revenues collected from cigarettes and to balance price mechanisms in the sector.

The most striking part of the decision was the postponement of the expected automatic tax increase; the ÖTV mechanism, which normally increases in July every year by the rate of Yİ-ÜFE, was disabled for cigarettes. Accordingly, the automatic update based on the producer price index, made semi-annually, will not be applied to cigarette products for the second half of this year, the July-December period. In this way, consumers will be temporarily exempt from inflation-based automatic hikes during this period.

While this temporary exception remains limited to cigarettes, other tobacco and alcoholic beverage groups will continue under the current practice. For other tobacco products such as cigars, pipe tobacco, and hookah tobacco, as well as alcoholic beverages, the ÖTV increase at the Yİ-ÜFE rate will continue to be applied during the July-December period. This temporary change in the cigarette sector stands out as an improvement directed solely at this specific product group, without disrupting the general structure of the tax system.

With the decision published in the extra issue of the Official Gazette and entering into force, the ÖTV rate for cigarettes was redetermined, confirming that the automatic tax update to be applied in the second six-month period would not be made. The government, reviewing the operation of the tax system and financial regulations for the tobacco sector, made a temporary concession in the tax increase mechanism with this decision. Authorities regarding the issue stated that this step was taken to provide stability in cigarette prices and to make tax revenues predictable.