Excise tax on dried cannabis for vaporization or smoking is a topic that is recurring more and more often in the cannabis industry. Some time ago, an article on this topic appeared on our portal, explaining how the situation looks at the moment. After the text was published, we heard back from people who have been experts in the excise tax topic for nearly two decades, explaining to us how much of a threat excise tax can be to our industry, and why it should be accepted while taking steps to keep excise taxes as low as possible. Here's more information.
Excise tax on dried hemp a threat to the industry?
The lack of specific regulations for the taxation of dried hemp has led to a situation where hemp products for vaporization or smoking are mostly traded without paying excise tax. The current regulations are imprecise and allow for large discrepancies in interpretation.
For the time being, administrative authorities are not even interested in challenging the sale of these products without excise tax.
This situation, however, may soon change, which will result in the accrual of taxed domestics and sanctions under the Fiscal Penal Code related to the trade of products not marked with excise marks (banding) Article 63 of the Fiscal Penal Code.
Currently, the taxation of dried tobacco stems from Article 98(8) of the Excise Tax Law, which includes taxation of smokeable products. This is taxation as for smoking tobacco in the case of dried tobacco and as for cigarettes in the case of pre-rolls, you can read more about this in our previous article on the subject T U T A J.
The important thing is that both categories are taxed at both a specific rate and a percentage rate which is 32.05%. This form of taxation works well for tobacco, which has a relatively small value resulting in a weighted average retail price of tobacco of PLN 467.73 per kg resulting in an excise tax of PLN 316.75 per kg. After deducting VAT (23%), this leaves PLN 63.53 i.e. about 6 cents per gram.
However, the value of dried cannabis inflorescences is much higher and the seller, in order to obtain a net price (without taxes) of PLN 20 per gram, will have to pay PLN 10,825.24 in excise taxes per kg, or more than PLN 10 per gram. As we reported in our previous text, the situation is slightly different in the case of dried food sold 'for vaporization'. Then the qualification is different, and the excise tax is much lower. However, as experts explain, in this case it is purely a matter of interpretation. What does this mean in practice? It means that if the dry can be both vaporized and smoked without any problem, the authority will certainly qualify the product in the category I wrote about above, and instead of a few dozen pennies, the excise tax will be more than 10 PLN/gr.
Taking into account the current wholesale prices of hemp CBD dried (about 5,000 PLN /kg), the emergence of a gray market in this matter is almost certain. It's worth noting that excise taxes on tobacco (and, by extension, other smoking products) in both of our southern neighbors are fully quota-based, at €76 per kg in Slovakia and €100 per kg in the Czech Republic.
The only way to sort out the tax situation for dried hemp is to separate the category of other smoking tobacco and include dried hemp in that category. Such a category should be taxed only by a specific tax at a level not lower than the average fine-cut tobacco.
One should not strive for the complete absence of excise tax on dried hemp because this simply will not work and may bring quite the opposite result. Sooner or later (rather sooner) our state will impose excise taxes on this sector, other thinking is wishful thinking.
The Polish hemp industry should come to terms with the issue of imposing an excise tax, as it is inevitable. At the same time, the industry should strive for hemp to be subject to precise regulations with no room for interpretation, and the excise tax category to be specific and as low as possible. Completely opposing excise taxes on dried hemp can lead to quite the opposite effect and a situation of imposing the highest possible taxes on hemp, including excise taxes. One should sit down at the table with regulators and lobby for placing hemp in the category of niche products such as pipe tobacco.
Treatments such as putting information on the packaging of the dried product that it is not for consumption is also the wrong way to go and an action that can expose not only the entity in question to fiscal and punitive consequences, but put the entire industry at risk.
Such attempts have already been made by numerous entities in the tobacco industry. A decade ago there were outlets selling whole tobacco leaves (not defined by regulations at the time), there were also situations where tobacco was sold as pigeon bedding - none of these attempts were successful.
Therefore, instead of fighting with the regulators and trying to figure out how to avoid excise taxes here, it is better to sit down with them for talks and accept excise taxes while doing everything to keep them low and quota-based.
An additional element that hinders the legal sale of dried hemp is the validity of excise stamps. In Poland, there is a law limiting the validity of excise bands to the end of February of the following fiscal year (Article 136. Paragraph 6 of the Excise Tax Act). These are provisions that were introduced so that tobacco companies could not bring large stocks of cigarettes to market before the excise tax increase. Unfortunately, the inclusion of niche products in these regulations, including dried hemp, leads to the fact that products that do not rotate as quickly as cigarettes of well-known brands can not function normally in the market. And here there is the issue of separating the category of other smoking tobacco and including hemp dried in this category, as well as using a different band for all products in this category, which will not expire at the end of February.
Currently, only electronic cigarette liquids and novelty products are not covered by the regulations limiting the validity of banding. Since an exception has been made for these products, nothing should prevent niche products including dried hemp from receiving the same treatment.
Below is a summary of the regulations on taxation of dried hemp:
The Excise Tax Law of December 6, 2008, in Article 98 [Tobacco Products, Dried Tobacco, Electronic Cigarette Liquid and Novelty Products] defines which products in this group are covered by the law. The provisions defining the status of pre-rolls and dried hemp are as follows. The relevant provision arising from paragraph 8 is.
(1) Tobacco products within the meaning of the Law include, regardless of CN code:
1) cigarettes;
2) smoking tobacco;
3) cigars and cigarillos.
(2) Cigarettes are considered to be:
1) rolled tobacco suitable for smoking in this form, which is not cigars or
cigarillos within the meaning of paragraph 4;
2) rolled tobacco that by simple non-industrial processing is
placed in cigarette paper tutus;
3) rolled tobacco, which by simple non-industrial processing is wrapped in cigarette paper tutus.
(5) Smoking tobacco shall be considered̨:
1) tobacco that has been cut or otherwise divided, twisted or pressed into blocks and suitablę for smoking without further industrial processing;
2) tobacco waste that is the residue of tobacco leaves and by-products obtained during tobacco processing or the manufacture of tobacco products, put up for retail sale, not being cigarettes, cigars or cigarillos, and suitable for smoking.
(8) Products consisting in whole or in part of substances other than tobacco, but otherwise meeting the criteria established in paragraphs (2), (3) or (5), shall be treated as cigarettes and smoking tobacco. However, products that do not contain̨ tobacco and are used exclusively for medical purposes shall not be treated as tobacco products.
Article 99 establishes excise tax rates:
(2) excise tax rates for tobacco products shall be:
1) for cigarettes, subject to paragraph 10 - PLN 228.10 for each 1,000 pieces and 32.05% of the
of the maximum retail price;
2) on smoking tobacco, subject to paragraph 10 - PLN 155.79 for each kilogram and
32.05% of the maximum retail price;
3) for cigars and cigarillos - PLN 433.00 for each kilogram.
(3) For cigarettes or smoking tobacco not subject to excise tax marking and not marked with the maximum retail price, the excise tax rates are:
1) on cigarettes - PLN 378.38 for each 1,000 pieces;
2) for smoking tobacco - PLN 252.25 for each kilogram.
(4) The minimum excise duty on cigarettes shall be 100% of the total amount of the
excise tax, calculated on a price equal to the weighted average retail selling price of cigarettes.
5a. The weighted average retail selling price of cigarettes or the weighted average retail selling price of smoking tobacco shall be the quotient of the total value of all cigarettes or smoking tobacco, respectively, outside the excise suspension procedure, and the number of these cigarettes or the quantity of smoking tobacco, respectively.
(6) The maximum retail price shall be the price designated and printed by the manufacturer, importer or entity making intra-Community acquisition on the unit package of cigarettes or smoking tobacco, subject to paragraph (9).
(7) The manufacturer, importer or entity making intra-Community acquisition of cigarettes or smoking tobacco for sale in the territory of the country shall be obliged to determine and print the maximum retail price on the unit package of such products.
Pursuant to Article 114. the obligation to mark with excise tax stamps is subject to excise goods
Excise goods specified in Appendix No. 3 to the Law.
Item 10 of the list in Annex No. 3 lists cigarettes, cigars and cigarillos.
Pursuant to Article 136. para. 6, excise tax marks affixed to unit packages of tobacco products or tobacco products in a given calendar year shall remain valid until the last day of February of the following calendar year.
Article 63 of the CCC
Issuance, importation and sale of excise goods without excise marks
§ 1.
Whoever, contrary to the provisions of the Act, issues excise goods for which the procedure of suspension of excise duty collection has been completed, without first marking them with excise marks,
shall be subject to a fine of up to 720 daily rates or imprisonment, or both.
§ 2.
The same punishment shall be imposed on anyone who, contrary to the provisions of this Act, imports excise goods into the territory of the country without having them previously marked with excise marks.
§ 3.
The same punishment shall be imposed on a person who, producing outside a tax warehouse excise goods referred to in Art. 47 production of excise goods in a tax warehouse, storage of goods under the procedure of suspension of excise duty, paragraph 1 item 1, 2, 4 or 5 of the Excise Duty Act of December 6, 2008, issues from the warehouse of finished goods excise goods without their prior marking with excise marks.
§ 4.
The same penalty shall be imposed on anyone who removes from a tax warehouse under a permit to remove as a taxpayer excise goods from another person's tax warehouse outside the procedure of suspension of excise duty, excise goods without first marking them with excise marks.
§ 5.
The penalty specified in § 1 shall also be imposed on a person who commits the prohibited act specified in § 1-4 with respect to excise goods that have been marked with incorrect or inappropriate excise tax marks, in particular with damaged, destroyed, forged, altered or invalid marks.
§ 6.
If the excise tax due is of small value, the perpetrator of the criminal act specified in § 1-5 shall be subject to a fine of up to 720 daily rates.
§ 7.
If the excise tax due is below the statutory threshold, the perpetrator of the criminal act specified in § 1-5 shall be subject to a fine for a fiscal offense.
