Brokering Law Firm

Tobacco taxation in Chile

In Chile, regarding tobacco products, there are three legally regulated categories:
 
a) Cigars: The tax for Cigars is 52,6% on its consumer sale price, taxes included, of each package, box or envelope, considering every fraction of the tax inferior to a Chilean peso as a whole number.
 
b) Manufactured Tobacco: Manufactured tobacco, in strand, tablet, pastes or ropes, granulated, sting or powdered, pays a tax of 59,7% over the consumer sale price, tax included, for every package, box or envelope that is expended, considering every fraction of the tax inferior to a Chilean peso as a whole number.
 
c) Cigarettes: Packages, boxes or envelopes of cigarettes pay a specific tax, that is divided into two components:
 
a. Fixed component: A tax of 0.0010304240 UTM per cigarette contained on the package. The UTM is calculated monthly, and must be taken in consideration at the moment the tax is determined.
b. Variable component: A tax rate of 30% over the final consumer sale price, including VAT (19%), over every package, box or envelope sold, considering every fraction to a Chilean Peso as a whole number.
 
How is it calculated?
 

a) Cigar’s tax

In accordance with article 3 of the Decree Law 828, the cigar’s tax is 52.6%. This tax is applied to the consumer sale price, taxes included (the tax applied to manufactured tobaccos and VAT).
 
On the other hand, considering the regulation of article 15 of the Decree Law 825, the taxes included in the Decree Law 828 must be also considered in the taxable base of the VAT.
 
1. Determination of the variable component of the specific tax on the cigar’s sales:
 
Specific tax = SPC x Cigar’s tax
Where:
SPC = Sale Price to the Consumer (taxes included)
 
2. Determination of the VAT
VAT = SPC
——- x 0.19
1.19
 
Where:
SPC = Sale Price to the Consumer (taxes included)
Example:
Net Price per package: $1,854
VAT: 19%
Specific Tax Rate: 52,6%
Sale Price to the Consumer: CLP$ 5,900 (including VAT and specific tax)
 
Specific tax
Specific tax = CLP$ 5,900 [Consumer Sale price] x 52.6%
Specific tax = CLP$ 3,104*
 
(*) Every fraction inferior to one Chilean peso is considered as a whole number.
 
VAT
VAT = Consumer Sale Price/1.19 [To reduce the VAT already applied] x 0,19 [VAT Rate]
VAT = (CLP$ 5900/1.19)*0.19
VAT = CLP$ 942
 
Composition of the price by package of cigars:
 

Detail Amount
Net price by package CLP$ 1,854
Specific tax CLP$ 3,104
VAT CLP$ 942
Sale price to the consumer CLP$ 5,900

 
b) Manufactured tobacco’s tax
 
In accordance to article 5 of the Decree Law 828, the specific tax applied to manufactured tobacco is 59.7%
 
1. Determination of the variable component of the specific tax on sales of manufactured tobacco
 
Specific tax = SPC x Tax of manufactured tobacco
 
2. Determination of the VAT
VAT = Consumer Sale Price/1.19 [To reduce the VAT already applied] x 0,19 [VAT Rate]
 
Example
Consumer sale price for each package: CLP$ 2,990
Specific tax rate: 59.7%
 
Specific tax
Net Price per package: CLP$ 727
Specific tax = CLP$ 2,990 x 59.7%
Specific tax = CLP$ 1,785.03 -> CLP$ 1,786*
(*) Every fraction inferior to one Chilean peso is considered as a whole number.
 
VAT
VAT = Consumer Sale Price/1.19 [To reduce the VAT already applied] x 0,19 [VAT Rate]
VAT = (CLP$ 2900/1.19)*0.19
VAT = CLP$ 477
 
VAT = CLP$ 477
 
Composition of the price by package of tobacco
 

Detail Amount
Net price per package CLP$ 727
Specific tax CLP$ 1.786
VAT CLP$ 477
Sale price to the consumer CLP$ 2.990

 
c) Cigarettes’ tax
The tax applied to cigarettes is based on a specific tax of 0.0010304240 UTM per cigarette and a tax of 30% over the sale price to the consumer, tax included, per package.
 
1. Determination of the fixed component of the specific tax on the sales of cigarettes:
Fixed component of the specific tax = 0.0010304240 UTM x cigarette
 
2. Determination of the variable component of the specific tax on cigarettes sales:
Variable component of the specific tax = SPC x cigarettes tax
 
Where:
SPC = Sale Price to the Consumer (taxes included)
 
3. Determination of the VAT
 
VAT = Consumer Sale Price/1.19 [To reduce the VAT already applied] x 0,19 [VAT Rate]
 
Example:
 
Sale price to the consumer per package of 20 cigarettes: CLP$ 2,000
Net Price per package: CLP$ 120
UTM as of May 2017: CLP$ 46.647
Specific tax to the variable component: 30%
Specific tax to the fixed component: 0.0010304240 UTM
 
Fixed component of the specific tax
Specific tax = 0.0010304240 x 46,646 [UTM] x 20 [Number of cigarettes]
Specific tax = CLP$ 961
 
Variable component of the specific tax
Specific tax = CLP$ 2,000 x 30%
Specific tax = CLP$ 600
 
VAT
 
VAT = Consumer Sale Price/1.19 [To reduce the VAT already applied] x 0.19 [VAT Rate]
VAT = (2000/1.19) x 0.19
VAT = CLP$ 319
 
Composition of the price per cigarettes package
 

Detail Amount
Net price per package CLP$ 120
Fixed component of the specific tax CLP$ 961
Variable component of the specific tax CLP$ 600
VAT CLP$ 319
Sale price to the consumer CLP$ 2,000