1 vending machine nets 1.5 billion Yen for city

BY MASAYOSHI CHIBA,THE ASAHI SHIMBUN

2009/11/2

OSAKA--A cigarette retailer is exploiting a legal loophole to earn massive kickbacks from a municipality for drastically increasing its tobacco tax revenue.

The retailer owns just one cigarette vending machine in Izumisano, Osaka Prefecture. But by ordering most of its cigarettes in the city, including those it sells elsewhere, it generates vast tobacco tax payments to the city government.

In turn, the city government pays out 10 percent of tax revenue over 30 million yen to any company that can generate that much in a year.

The retailer's solitary vending machine is set to bring the city government about 1.5 billion yen in municipal tobacco taxes this fiscal year, according to sources.

The retailer, based in Toyonaka, Osaka Prefecture, received about 60 million yen from the municipality in fiscal 2008. It is expected to receive 150 million yen for this fiscal year.

About 10 people use the vending machine a day at the most. But based on the tax revenue it generates, it is supposedly selling more than 60,000 packs of cigarettes daily, the sources said.

The president of the retailer admitted to The Asahi Shimbun that even though the company had been placing most of its cigarette orders through the Izumisano operation, it had been selling them to pachinko parlors throughout the Kinki region.

There is no law to prevent or punish the practice.

Mitsuo Iteya, chief of the Izumisano government's section in charge of commerce, industry, labor and tourism, acknowledged in an interview with The Asahi Shimbun that the city established the incentive system to increase tobacco tax revenue: "We wanted to secure as much tax revenue as possible without breaking the law."

The city government launched the scheme in fiscal 2008. The vending machine was installed in fall 2008.

At least three other municipalities are known to be increasing tobacco tax revenue in a similar manner: Settsu in Osaka Prefecture and Ryuo and Takatsuki, both in Shiga Prefecture.

By offering the incentives, Izumisano and these municipalities are essentially taking tax revenue away from other municipalities.

An official at the internal affairs ministry's municipal tax planning division said it was clear that "(the system) departs from the purpose of the law." "We'd like to find out what's happening," he said.

In fiscal 2008, the municipal tobacco tax received by the Izumisano government almost doubled to 1.46 billion yen from 760 million yen the previous year.

For the current fiscal year through March, the tax is expected to balloon to 2.3 billion yen.

Under the local tax law, Japan Tobacco and related companies pay tobacco tax to municipal governments based on orders from retailers.

Overall, a little more than 8.7 yen is taxed on each cigarette--about 4.4 yen for the central government, 3.3 yen for a municipal government and 1.1 yen for a prefectural government.(IHT/Asahi: November 2,2009)