Tobacco Industry War: What’s Hiding Behind Talks of Closure of Kanfanar Tobacco Factory?

Total Croatia News

As Dnevnik/Ivan Forjan writes on the 29th of October, 2020, although they threatened to leave Croatia, British American Tobacco (BAT) hasn’t yet made a final decision. They don’t want to confirm whether they’re leaving or not, but they’re complaining to the state about the level of excise duties placed on tobacco products. Negotiations are underway with the Croatian Government, and Dnevnik checked what lies behind the whole story.

British American Tobacco threatened to shut down their machines at their Kanfanar tobacco factory/plant rather openly about a month ago. At the end of September, the five-year period expired in which they undertook the obligation not to relocate production from Croatia after buying the factory.

BAT didn’t respond to Dnevnik’s question about the negotiations with the Croatian Government and whether they’re now any closer to reaching a solution. In addition, they don’t want to answer whether they’re being bothered by the unequal tax treatment of tobacco products, ie classic cigarettes and heated tobacco products.

“The government is conducting a dialogue not only with BAT but also with other market players, and I’m sure that we’ll reach a solution that will enable the survival and retention of jobs at that factory in Istria,” said Prime Minister Plenkovic. BAT in Istria employs 1,600 workers, and their union warns that the departure of BAT would be a big blow to the economy and would mean a wave of layoffs.

On the other hand, the subcontractors of BAT’s factory see the situation somewhat differently. They’ve warned that BAT imports about 90 percent of its raw materials from abroad, and also sells more than 80 percent of its products abroad.

“Excise duty is paid in the importing country, not in Croatia”

“Practically speaking, tobacco excise duties in Croatia for BAT and their business are in some way neutral, if you export 80 percent of your tobacco products abroad, then you pay excise duty in the importing country, not in Croatia,” explained Zeljko Aragovic from the Krupan List Tobacco Producers Association.

In the five years since BAT has been operating in Croatia, Aragovic says that tobacco production in the country has fallen by 36 percent.

“The fact is that not only are they blackmailing the government, they’re blackmailing tobacco producers in some way or another, blackmailing the local community, blackmailing, so to speak, some of their business partners, because if they announces their departure and if they’ve made some agreements regarding that, then then it’s blackmail,” believes Aragovic.

In addition to BAT, Philip Morris, Japan Tobacco International and Imperial Tobacco also operate here on the Croatian tobacco market. The second largest market player being Philip Morris.

“There is no European country in which these products aren’t taxed differently than cigarettes are, or significantly lower. However, we don’t see cigarette factories closing across Europe because of this.

The level of excise duties placed on heated tobacco products can’t be the real reason for the potential closure of this cigarette factory in Croatia. It would be truly incredible if a company in Croatia succeeded in shifting the responsibility for its own failure to the state,” they said from Philip Morris.

Japan Tobacco stated that they welcome the state’s announcements about the introduction of an excise calendar, which would greatly facilitate their business planning. The final word on everything will, of course, be had by the Government, which, judging by the Prime Minister’s statement, isn’t going tp give in so easily to this pressure.

“It’s the government that pursues the excise policy, to be quite precise,” the Prime Minister said. The producers’ association also says that the departure of BAT wouldn’t mean the end of tobacco production in Croatia. As an alternative, they primarily see turning to a much wider and larger European market.

For more on this story, watch the Dnevnik news report which aired on Croatian national television.


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