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Sunday, July 19, 2020

Italian tax spat reveals Big Tobacco’s clout


ROME — A surprise move by the Italian government is protecting heated tobacco's privileged tax status.

But it's also drawing fire in the wake of the coronavirus pandemic, which brought into sharp relief the extra health risks that smokers face.

At issue is a proposal that would have hiked taxes on heated tobacco — over which Philip Morris International (PMI) has a near monopoly — so that it would be close to par with conventional cigarettes. In Italy, taxes on heated tobacco are only a quarter of the standard rate on conventional cigarettes.

Health NGOs and lawmakers across parties supported the measure, which would have channeled the revenue into home nursing care. That windfall is estimated at €60 million in 2020 and €120 million in 2021, according to Raffaele Trano, the lawmaker who heads the Finance Commission in the lower house of parliament, which examined the amendment.

But the government declined last week to give its backing, prompting lawmakers to withdraw the amendment. Now, critics are asking why the center-left coalition in power has such cozy ties to Big Tobacco.

A lesser vice?

The tax discount mainly benefits Philip Morris, producer of the best-selling product IQOS.

With a 98 percent market share, IQOS enjoys de facto monopoly status and has seen sales doubling year-on-year. This year, it's expected to account for 9 percent of all tobacco product sales.

Supporters of the preferential tax treatment say that heated tobacco products avoid burning the tobacco and thereby reduce the amount of harmful chemicals released. (Smokers heat a battery-powered device to 350 degrees Celsius, rather than the 600 degrees Celsius that is typical for cigarettes, to convert nicotine into aerosols, so this product is often called "heat not burn.")

This is the view taken by the Philip Morris, said a spokesperson for the Italian division of the company in a written statement. He implied that the proposed amendment is discriminatory because the tax hike singles out heated tobacco and excludes cigarettes and other smoking products.

The U.S. Food and Drug Administration has given some backing to this argument, declaring on July 7 that heated tobacco is indeed less risky. PMI's products, marketed with the right information, "could help addicted adult smokers transition away from combusted cigarettes and reduce their exposure to harmful chemicals, but only if they completely switch,” said Mitch Zeller, director of the FDA’s Center for Tobacco Products, in a statement.

But Italy’s health ministry has declined to go that far, saying that the data available is too limited to draw any firm conclusions.

Roberta Pacifici, director of the National Center for Addiction at Italy's Istituto Superiore di Sanità — the technical-scientific body that advises the health ministry — led a team of experts that analyzed studies provided by PMI.

"It’s not possible to classify this as a reduced risk product," she told POLITICO. “We need long-term studies, because you can’t determine [safety] for a product that has been on the market for four to five years.”

The problem for Pacifici is that her report never saw the light of day. Ex-Health Minister Giulia Grillo has claimed that it never landed on her desk. Finished in December 2018, a summary was made public only last month.

Pacifici admitted that she's troubled by the trend of next-generation products growing in popularity.

“There’s a reduced awareness of the danger," she said, adding that the years of Big Tobacco campaigning have caused "a step backwards."

Still, the proposal isn't quite dead yet. Its backers plan to bring it up again in August or in the fall budget.

Europe's 'Marlboro Country'

Italy is the EU’s biggest tobacco producer, and successive governments have protected the industry’s interests, mindful that tobacco can be produced more cheaply elsewhere.

“A politician's priority is to prevent job losses," said MP Erasmo Palazzotto, of the Italian Left party. “If a tobacco producer closes in Italy, it becomes a deterrent to other multinationals.”

With production supporting an estimated 50,000 jobs, PMI is also important to the Italian economy. Last month, it promised €500 million in investment over five years.

For its part, the center-left Democratic Party (PD), which is in a governing coalition with the populist 5Star Movement, has historic ties to tobacco.

In 2016, for example, PMI chose Emilia Romagna, the heartland of the left, as the site for the world's biggest heated tobacco factory. Then-Prime Minister Matteo Renzi attended the opening. And the PD's regional governor, Stefano Bonaccini, has repeatedly cited Philip Morris when playing up the region's economic draw.

It was also under a PD-led national government, in 2014, when IQOS first came on to the market, and was given the tax discount on grounds it's less harmful than cigarettes.

As for the 5Star Movement, it has also proven to be a friend to heated tobacco: It increased the tax discount when it came to power in 2018.

Web of influence

Giovanni Fattore, professor of health economics at Bocconi University, argues the decision to give preferential tax treatment to heated tobacco products isn't based on any solid piece of scientific or policy reasoning. Instead, it will only incentivize risky behavior and could lead to even more dangerous habits such as regular cigarettes.

It's a "symbolic" move as well, he said.

"Saying you’ll tax it less is like a stamp that signals the safety and acceptance of the behaviour," explained Fattore, who also serves as a member of the scientific committee against smoking at Fondazione Umberto Veronesi, a research and advocacy institute.

Economic research has broadly shown that raising taxes on tobacco products dampens consumption.

According to Antonio Gaudioso, who leads Cittadinanzattiva, the advocacy group that came up with the proposal, the reason they picked heated tobacco was that they could target it as "undertaxed." The broader goal, however, was to find money for home nursing care — "an extremely important issue during the COVID-19 crisis,” he noted.

Gaudioso said he's still waiting for an explanation from the economics ministry and senior officials on why they scuttled the measure — but for now, there's radio silence.

“Philip Morris will pursue its own interests," he said. "But I'd expect the Italian government to have a wider interest at heart — that of the public."

Others remain disconcerted by the move.

"We don’t understand why every time there's a need for resources, the sector of heated tobacco seems untouchable," said Trano, the lawmaker.

The role of the 5Stars — founded as an anti-establishment movement — is also under more scrutiny.

Nicola Biondo, a former 5Star communications staffer, believes the party has fallen under the influence of Big Tobacco. Its opaque structure makes it easier for industry groups to wield power behind the scenes, in his view.

For example, Italian media have claimed that Philip Morris paid Casaleggio Associati— the web consultancy company that set up the party's online portal — €500,000.

Both PMI and Casaleggio Associati have refused to confirm the allegation.

“There are pressures everywhere," said Lorenzo Fioramonti, a former 5Star MP who backed the tax hike. "There are decisions taken at the top levels and then these decisions are enforced at every level.”

MPs' desire to find more lucrative lobbying work after politics could also play a role, he said. The party limits lawmakers to holding two terms.

Biondo agrees: “Having brought so many people into parliament without a defined career, there's the risk that they become lobbyists.”

More broadly, however, PMI’s penetration of Italy's political establishment goes beyond individual political parties.

Marco Hannappel, Philip Morris Italy’s CEO, speaks at events such as the Ambrosetti conferences on Lake Como — Italy’s equivalent of Davos, attended by the likes of Henry Kissinger and Joe Biden. The company flies in top chefs and DJs for parties for the elite, including in Italy’s national museum of modern art.

The company also has close ties with the powerful Agnelli family through sponsorship of its Formula One team.

“Heavy lobbying is part of what the tobacco industry has to do — and where possible legal and political donations are going to happen,” said Anca Toma Friedlaender of the SmokeFree Partnership.

She blamed loopholes in regulations that allowed these activities to happen, despite limits placed by the World Health Organization's Framework Convention on Tobacco Control, which Italy ratified.

For now, the amendment’s supporters have vowed to try again at the earliest opportunity.

After the pandemic, "politicians cannot turn away from their duty to improve the health system. We have seen the impact COVID has on vulnerable respiratory systems," Palazzotto said. "This is a battle not against PMI but for the health of the citizens. We need to make courageous choices."



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