Taxation: Tobacco Products

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Below is the list the most recent tobacco tax changes across the world. Note that there is a separate write-up on e-cigarette taxation.

March 2024

UK: The UK Government will introduce a new duty on vaping products1 from 1 October 2026 with registrations for the duty opening from 1 April 2026. The rates will be £1.00 per 10ml for nicotine free liquids, £2.00 per 10ml on liquids that contain 0.1-10.9 mg nicotine per ml and £3.00 per 10ml on liquids that contain 11mg or more per ml. A 12-week consultation will be published on the policy design and technical details alongside the Spring Budget. Recognizing the role vapes play in helping people quit smoking and in order to maintain the price differential between cigarettes and vapes, the Government will also introduce a one-off tobacco duty increase of £2.00 per 100 cigarettes or 50 grams of tobacco from 1 October 2026.

Feburary 2024

UK: The UK government is considering to introduce a vape tax and raise the tobacco duty at the Budget announcement on March 6. The potential move could come as part of a wider package that aims to reduce overall taxation (i.e. lower income tax or national insurance deduction).

Vapes are currently subject to VAT, but not to a separate excise tax. It is speculated that the new duty will be levied on the liquid in vapes – with higher tax rates for products with more nicotine. Tobacco duty will also be increased accordingly to ensure the price differential versus vaping. Treasury sources suggest that the new vape tax and tobacco duty increase could raise around £500Mn a year for the government.

With £1.5 hike (for 20-pack) being considered on March 6, the average cost of cigarettes (20-pack) could increase to almost £16 (from £14.4). In 2023, the UK cigarette market experienced a record high decline of 17% in one year. Japan Tobacco and Imperial Brands (8% of net revenue) are the most exposed to the UK tobacco market. BAT and PMI have a minimal exposure.

November 2023

UK: As announced at Autumn Statement 2023, the duty rate on all tobacco products increases2,3 by the tobacco duty escalator of 2% above RPI (Retail Price Index: 5.4%) from 22 November 2023. The duty rate for hand-rolling tobacco is increased by an additional 10% (i.e. 12% above RPI inflation) in order to narrow the gap versus the cigarette duty. It is estimated the tax hike will only bring in £40Mn extra for the Treasury in 2024. Taxing tobacco is an important revenue-raiser for the government with £10.7Bn collected in 2022.

The current revision follows the 12.1% duty hike that went into effect in March 2023 and will result in £0.66 increase in the average retail price for a pack of 20 cigarette. Accordingly, average RSP will increase from £12.8 in January 2023 to £15.4 in November 2023 (- a whopping 20% increase in less than a year).

October 2023

Portugal: According to the 2024 Budget proposal4, ad valorem excise tax will decrease from 12% to 1% while specific excise tax will increase from €112.5 to €151.9 per thousand cigarettes (€3.04 per pack). Accordingly, a pack of 20 cigarettes will increase from €5.00 to €5.30 – or to €5.40 if the manufacturers use the option to add €0.10 margin (i.e. 6%-8% RSP increase). Budget proposal also includes a paradigm shift in taxation by indexing the excise on other tobacco products (cigarillos, roll-your-own as well as RRP/NGPs) to the cigarette excise: heated tobacco (now ~20% of the market) to be taxed at 50% of the cigarettes while e-cigarettes to be taxed at 25% (or, 12.5% if nicotine-free).

In addition, the budget proposal introduces a clause stating that Portugal’s average tax burden on tobacco cannot be lower than that of the EU and, thereby, providing a mechanism to automatically update the tobacco excise tax in the future.

Ireland: The Irish Government announced that it will increase the excise duty on a pack of 20 cigarettes by 75 cent, bringing the pack price to €16.755. Ireland already has the highest cigarette price in the EU. Moreover, Irish Minister of Finance stated that next year’s budget will include a new domestic tax on e-cigarettes as the revision of the EU TPD Directive is being delayed. The Irish Heart Foundation called for a 10 cent tax per ml of e-liquid, which would increase the cost of single-use vapes by €2.

September 2023

In a re-balancing act, Sweden is planning to reduce the snus excise tax by 20% while increasing the cigarette excise tax by 9%6. “The health-damaging effects of smoking are significantly more noticeable than snus”, explains a ruling party spokesperson. The modifications will take effect on November 1, 2024.

September 2023

The French government is planning to increase the cigarette price (pack of 20) to €12 as of 2024 and to €13 by 20277. Anti-smoking lobby calls for €16 by 2027. France has the highest cigarette prices in continental Europe (ex-UK & Ireland). Almost half of the illicit cigarette trade in the EU takes place in France.

September 2023

Effective Sept 1, 2023, the New York State excise tax on cigarettes increased by $1 to a total of $5.35 a pack8 – marking the first increase since July 1, 2010 when the excise tax was increased from $2.75 to $4.35 a pack. In addition, NY City has a local excise tax of $1.50 a pack (i.e. $6.85 a pack total excise plus 8.875% sales tax).

Following this increase, New York became the state with the highest cigarette tax in the US9. Currently, Missouri has the lowest cigarette tax in the US – just $0.17 per pack. More than half of all states have not increased their taxes on cigarettes in the last ten years.

August 2023

In Australia, a pack of 25 cigarettes is going up in price to AU$50 (US$32) from Sept as a result of higher taxes10. Meanwhile, Australian supermarket sales are being squeezed by the growing illicit tobacco trade – a situation described as the “single biggest issue” for the store owners.

March 2023

The average cost of 20 cigarettes is set to soar past £14 in the UK as the Government confirms that tobacco tax will increase with the rate of inflation11. Currently, the average cigarette price (for a pack of 20) is £12.84 in the UK.

Background:

The tobacco excise tax (“sin tax”) is a levy imposed on tobacco products (supposedly) to reduce tobacco consumption and to generate funding for the healthcare programs linked to tobacco use. Excise taxes constitute a large share of cigarette prices in most countries. For instance, in the EU, excise duties make up 64% of the average cigarette retail selling price (RSP). The total tax rate reaches 82% of the RSP when the value-added tax (VAT) is included. Accordingly, both cigarette prices and the industry profitability are highly dependent on the progression of excise tax structures/levels.

Footnotes:

  1. https://assets.publishing.service.gov.uk/media/65e8581eea2f36001a3c8970/E03057752_HMT_Spring_Budget_Mar_24_TEXT_20pt_LP_PRINT__2_.pdf ↩︎
  2. Increases to tobacco duty rates from 22 November 2023 – GOV.UK (www.gov.uk) ↩︎
  3. https://www.legislation.gov.uk/ukpga/1979/7/schedule/1 ↩︎
  4. Tobacco packet will rise by at least 30 cents in 2024 – ECO (sapo.pt) ↩︎
  5. https://www.irishtimes.com/your-money/2023/10/10/cigarettes-to-increase-by-75c-a-pack-and-vapes-to-be-taxed-next-year/ ↩︎
  6. https://nordictimes.com/economy/tax-on-snus-to-be-reduced ↩︎
  7. https://www.euractiv.com/section/health-consumers/news/french-anti-smoking-lobby-plans-for-e12-pack-lack-ambition ↩︎
  8. https://www.tax.ny.gov/bus/cig/cigidx.htm ↩︎
  9. https://www.forbes.com/sites/kellyphillipserb/2023/09/05/new-york-now-has-the-highest-cigarette-tax-as-rates-stay-flat-in-most-states ↩︎
  10. https://www.afr.com/companies/retail/illegal-tobacco-rising-cigarette-prices-dent-supermarket-profits-20230731-p5dsll ↩︎
  11. https://www.dailymail.co.uk/news/article-11863147/Cost-cigarettes-rise-taking-average-price-20-13.html ↩︎

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