1. This clause changes the basis for calculating the ad valorem element of the duty on cigarettes from the date of Royal Assent.

2. Subsection (1) provides that section 5 of the Tobacco Products Duty Act 1979 shall be amended in accordance with the following subsections.

3. Subsection (2) amends section 5(1) by substituting new paragraphs (a) and (b). Paragraph (a) determines the retail price of cigarettes for duty purposes to be the higher of the recommended retail price and any retail price(s) shown on the cigarette packaging at the time duty becomes payable. Paragraph (b) is to apply where there are no prices recommended or shown. In such circumstances, the retail price of cigarettes for duty purposes is to be the highest price at which cigarettes of that description are normally sold by retail in the United Kingdom at the time duty becomes payable.

4. Subsection (3) amends section 5(3) as a consequence of the change of paragraph lettering made by subsection (2).

5. Subsection (4) amends section 5(4) as a consequence of the change of paragraph lettering made by subsection (2).

7. The excise duty on cigarettes has two elements; a specific duty amount which is calculated by number of cigarettes and an ad valorem duty amount which is calculated as a percentage of the retail price.

8. In certain circumstances, cigarette manufacturers and importers have been able to calculate and pay the ad valorem duty element based

on published recommended retail prices despite packs being marked with higher prices at which the products are intended to be put up for sale. The system has been used as a means to avoid paying the higher amount of ad valorem duty due following an increase in price.

9. The Government is committed to the prevention of tax avoidance. This change provides for calculation of the ad valorem element of duty on cigarettes to be based on whichever is the higher; either the published recommended retail price or any price marked on the cigarette packaging by the manufacturer or importer.