Marijuana as a business model and as a budget aidALTax
At least 52 different countries around the world have legalized cannabis (marijuana) at different levels. In most cases it is legalized for medical use by being produced and marketed under special authorizations licensed by the government. In some countries it is completely legalized. Meanwhile, several other countries have legalized cannabis for pharmaceuticals.
The Dutch, who are held as a symbol for the legalization of cannabis, have in fact legalized only retail sales, not wholesale production or trade, without including marketing or other activities related to this product.
It is an indisputable fact that a legalization with a tendency to medical use would help with all its impacts the already weak budget of Albania. Although the need for money is urgent, this approach, which mainly aims to help the revenue budget. Another aim is to influence the tourists who are attracted to this product. Undoubtedly this is an approach that is intended to be implemented in an informal economic environment with high levels of unemployment, and paid with low wages.
Fortunately, the amount of options is not limited to maintaining the status quo or trying towards a legalization similar to the tobacco industry.
There are many intermediate options, including restricting production and sales to small, nonprofit communities whose cards force them to meet only existing demand and not promote greater use. But this approach is in contradiction with the aim of export of cannabis to Europe. Anyhow, the experience from Northern Macedonia is not so optimistic, because the Europe doesn’t import this special product with the current standards of Western Balkans.
Taxes are among the most prominent topics in these debates. Although many different countries have created a certain experience in the administration of this very special business, it seems that no one knows how to tax cannabis with the special care that this specific commodity requires.
The research studies in some countries suggest that taxes, especially cannabis taxes or taxes on activities that are considered harmful, such as gambling, alcoholic beverages, which change consumer behavior are quite different in the way and form they are applied.
Taxing cannabis is not easy!
Legalization by the government, allowing for-profit businesses to sell cannabis is likely to spur a dynamic market that will evolve unpredictably and with the potential for aggressive tax lobbying, the price fluctuations will spill over into a spiral where they will begin to competes with the informal market.
We need to be sure of that!
Informality will begin to operate in this new activity as well, as it is a mentality that does not leave informal economy of some countries so easily even with the heavy penalties that are expected to be imposed on all violators of the law that is expected to be approved in the first 6 months of 2020.
All of this will create complicated side effects.
Countries that have previously implemented the taxes on cannabis have approved legalization fees, as well as approved value-added tax (gross sale tax). But it seems that this practice, which has been implemented to date, even though it has generated some income, due to the high demand for cannabis, has already affected the market prices, which have fallen due to the large supply. Given the expected legalization of its production, it seems that the expectation to establish authorized businesses will be in those areas where the cost of its production, so the labor force is cheap and thus will have more profits per unit product.
Therefore, the production costs of this activity will be driven by rules and taxes, and not by the cost of production that will be based on land for planting and to build storage’s, as well as the cost of labor. Given this cost analysis, and also the need of income distribution across the country, but also the big interest from each local area of the country it would be quite honest to have a fair competition or distribution of the quantities of the authorization to do business with cannabis.
Since this idea has been launched right now in Albania, but not yet accompanied by a draft for public consultation and discussion with experts, it seems that undoubtedly, at least the principles of taxation will work in this case as well.
These principles that can help to model the cannabis taxes to avoid possible effects and problems are the principle of (a) equality, (b) impartiality, (c) simplicity (d) distance from politics.
Together, these principles imply that tax policy will have to adapt dynamically to changing circumstances. In fact, there’s a problem because this type of tax policy is what some important politicians are known not to support in Albania.
In general, taxes will have to be adjusted to respond to unforeseen trends. Perhaps a taxation model may be designed similar as to the taxation of tobacco products, which are also taxed on excise duty, in the context of special goods that do not distorts the market demand and supply.
Taxes will have to be nearly uniform for all cannabis qualities. Income taxes will need to cover a wide variety of qualities and cannot be flat, as they need to grow progressively over time.
At the time of legalization, the Parliament will have several legislative options that will need to allow tax revenues from cannabis to increase over time while maintaining flexibility.
Another possible plan would be to slow down tax increases over time.
The next step, the administrative one, In the fiscal and regulatory control context that will have to be done after approval of law by legislators, requires a very high level of integrity, as well as a high experience, professionalism and institutional cooperation that applies to actions of a similar nature.
But is it a visionary move to legalize cannabis for medical purposes, when there are other forms that can better serve the public interest?
Let’s monitor and see what will be the secondary impact.
It is a fact that no country has ever legalized a profitable cannabis industry as much as the tobacco industry. Given this reality, we simply do not know what is coming with this partial legalization.
Without a changing of the mentality in the attitudes of the public regarding the implementation and penalties for tax evasion, price and quality abuses is likely to make this non-traditional activity quite unstable.