HomeNewsBriefWhy Reports of Uruguay's 'Tax Free' Marijuana are Misleading
BRIEF

Why Reports of Uruguay's 'Tax Free' Marijuana are Misleading

MARIJUANA / 20 MAY 2014 BY CHARLES PARKINSON EN

A new report stating that Uruguay will not tax the sale or production of marijuana has received widespread attention, yet the depiction of the legalization legislation focusing on undercutting the black market and not raising revenue is inaccurate.

According to a May 19 report from Reuters, the tiny South American nation -- which became to the first in the world to legalize the drug in December 2013 and released details of the legislation in early May -- will exempt marijuana from production and sales taxes as it attempts to undercut the black market economy.

"The principal objective is not tax collection. Everything has to be geared toward undercutting the black market," Felix Abadi, a contractor helping develop Uruguay's marijuana tax structure, told the news agency.

Abadi also pointed out to Reuters that while alcohol and cigarettes are heavily taxed, the official marijuana trade will operate virtually tax-free.

InSight Crime Analysis

Fear of the black market undercutting Uruguay's legal marijuana have swirled around the legalization, with Paraguay's anti-drugs chief last year suggesting it would drive production in his own country -- the largest marijuana producer in South America.

And it is true that marijuana will avoid the non-essential goods taxes that drive up the price of alcohol and cigarettes. It will also be considered a raw agricultural product and, as a result, be exempt from agricultural tax (pdf).

However, according to terms of the legislation published by the President's Office on May 12, the up to six commercial growers that will be authorized to produce marijuana will be expected to pay income tax. They will also have to pay both a fixed and variable fee to obtain a growing license.

SEE ALSO: Uruguay: Marijuana, Organized Crime and the Politics of Drugs

Like much of the legislation, the exact details of the variable fee remain undefined, though the press release states it is intended to provide "the most flexible taxation regime possible" in order to guarantee competitiveness with the illegal product. In other words, not classifying these fees as a "tax" is semantics.

According to El Observador, commercial growers will also have to foot the bill for mandatory security provided by the country's military, though sources close to InSight Crime have suggested the employment of private security is a more likely final scenario.

So while the government may be pursuing a favorable tax regime to encourage the development of the legal marijuana economy, the idea that the entire trade will escape any financial contribution to the state is simply not accurate.

share icon icon icon

Was this content helpful?

We want to sustain Latin America’s largest organized crime database, but in order to do so, we need resources.

DONATE

What are your thoughts? Click here to send InSight Crime your comments.

We encourage readers to copy and distribute our work for non-commercial purposes, with attribution to InSight Crime in the byline and links to the original at both the top and bottom of the article. Check the Creative Commons website for more details of how to share our work, and please send us an email if you use an article.

Was this content helpful?

We want to sustain Latin America’s largest organized crime database, but in order to do so, we need resources.

DONATE

Related Content

CHILE / 20 JAN 2022

Authorities in Chile have reported a string of massive maritime seizures of marijuana, indicating traffickers are searching for new smuggling…

MARIJUANA / 13 DEC 2022

The legalization of marijuana at the state level in the US has forced organized crime groups in Mexico to adapt…

ARGENTINA / 1 FEB 2022

In 2021, most countries in Latin America and the Caribbean experienced a marked increase in murders. Resurgent violence was to…

About InSight Crime

THE ORGANIZATION

Escaping Barrio 18

27 JAN 2023

Last week, InSight Crime published an investigation charting the story of Desafío, a 28-year-old Barrio 18 gang member who is desperate to escape gang life. But there’s one problem: he’s…

THE ORGANIZATION

Europe Coverage Makes a Splash

20 JAN 2023

Last week, InSight Crime published an analysis of the role of Amsterdam’s Schiphol Airport as an arrival hub for cocaine and methamphetamine from Mexico.  The article was picked up by…

THE ORGANIZATION

World Looks to InSight Crime for Mexico Expertise

13 JAN 2023

Our coverage of the arrest of Chapitos’ co-founder Ovidio Guzmán López in Mexico has received worldwide attention.In the UK, outlets including The Independent and BBC…

THE ORGANIZATION

InSight Crime Shares Expertise with US State Department

16 DEC 2022

Last week, InSight Crime Co-founder Steven Dudley took part in the International Anti-Corruption Conference organized by the US State Department’s Bureau of Democracy, Human Rights, & Labor and…

THE ORGANIZATION

Immediate Response to US-Mexico Marijuana Investigation

9 DEC 2022

InSight Crime’s investigation into how the legalization of marijuana in many US states has changed Mexico’s criminal dynamics made a splash this week appearing on the front page of…