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Tax Gap of Heated Tobacco Products in Germany
On January 1st, 2022, the Tobacco Tax Modernization Act (TTMA) entered into force, setting a statutory tax rate for heated tobacco and tobacco used in hookah. Previously, heated tobacco and tobacco used in hookah were taxed like pipe tobacco. Cigarettes are subject to a mixed excise system, with a minimum excise.
Since January 1st, 2023, the statutory tax rate for heated tobacco is a combination of the tax rate for pipe tobacco and an additional amount equal to 80% of the difference between the tax on cigarettes and that of pipe tobacco. The tax on pipe tobacco is EUR 15.66 per kg plus an ad valorem of 13.13% of the retail sale price (RSP), but no less than EUR 26 per kg. The tax in cigarettes is EUR 111.5 per 1000 cigarettes plus an ad valorem of 19.84% of the RSP, but no less than EUR 228.88 per 1000 cigarettes. The law uses a conversion rate of 6 grams of tobacco per cigarette pack. Given this, we calculate the effective tax on a pack of 20 heated tobacco sticks priced EUR P as:
Where:
A = represents the tax per pack of heated tobacco that would apply if it was taxed as pipe tobacco,
k = the assumed quantity of tobacco contained in one tobacco sticks, and
B = represents the tax per pack of heated tobacco that would apply if it was taxed as cigarettes,
Using the above formula for a pack of 20 HEET sticks sold at EUR 6.8 (as reported by PMI in April 2023), this implies a tax of EUR 3.06 per 20 sticks of heated tobacco in 2023.
The TTMA also introduced a gradual tobacco tax increase, which was the first time the taxes were increased since 2015, for all tobacco products. The tax schedule is as follows:
- Starting January 1st, 2025: The tax will remain the same for pipe tobacco, but the tax will increase for cigarettes, at EUR 117.1 per 1000 sticks plus an ad valorem of 19.84% of the RSP, but no less than EUR 241.63 per 1000 sticks.
- Starting January 1st, 2026: The tax will remain the same for pipe tobacco, but the tax will increase for cigarettes, at EUR 122.8 per 1000 sticks plus an ad valorem of 19.84% of the RSP, but no less than EUR 251.06 per 1000 sticks.
Sources:
Last updated Sept. 1, 2023