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Tax Gap of Heated Tobacco Products in Italy
Heated tobacco products were introduced in Italy in November 2014. Per Legislative Decree 188/2014 which entered into force on December 24th, 2014, heated tobacco products were categorized in the tax code a tobacco product, but subject to only 50% of the excise tax applied to “equivalent” quantity of cigarettes. A few years later, Legislative Decree 119/2018 went into effect starting January 16th, 2019, further reducing the excise duty on heated tobacco sticks from 50% to 25% of the tax on the “equivalent” quantity of cigarettes,” resulting in a large tax discount for heated tobacco as compared to cigarettes, and a rapid growth of the Italian tobacco market. The tobacco market grew 30 times in 2019, while the cigarettes market dropped by 10.3% (Blue Book, 2019).
Under pressure of health authorities to finance Italy’s health care system, the government voted to increase the tax on heated tobacco, starting January 1st, 2021 (Amendment Det-498043-20). The excise duty was increased to 40% of the “equivalent” quantity of cigarettes” in 2023.
The methodology for determining the tax on the “equivalent” quantity of cigarettes was established by the Customs and Monopolies Agency (Agenzia delle dogane e dei Monopoli, ADM). The method is based on the average time required to consume a sample of best-selling brands of conventional cigarettes that were determined similar to heated tobacco sticks. The Agency establishes the list of heated tobacco product consumables, their market price, and applicable excise rate, and updates this list on a regular basis.
Italy is the first, and so far, only country to compare quantities of heated tobacco sticks and cigarettes on the basis of consumption time (as opposed to the number of sticks or the weight of tobacco). Time of consumption varies considerably between heated tobacco stick brands. Once determined, the additional discount of 75% of the “equivalent quantity of cigarettes” results in significant differences in the tax burden on HTPs and cigarettes.
The 2023 Budget Law approved in December 2022 maintains the same levels of taxation as in 2022, and the ADM issued circular listing the new tax rates (Prot.: 632241/RU, December 29th, 2022).
Net excise rates for heated tobacco sticks (which 40% of the tax applied to “equivalent” cigarettes) were last updated by an official communication published in October 2020, with a list of heated tobacco consumables on the market and the applicable price. The maps use the “HEETS Amber selection” brand, for which the price and tax are listed as follows: from January 2023, a retail sales price (RSP) of EUR 250 per 1000 sticks and a total excise of EUR 56.41 per 1000 sticks.
Cigarettes in Italy are subject to a mixed excise system including, for fiscal year 2023, an ad valorem excise of 47.5% of the RSP and a specific excise: 36 EUR per 1000 cigarettes. There is also a minimum excise duty of EUR 156.7 per 1000 cigarettes. For fiscal years 2024 and 2025, the specific tax is scheduled to be EUR 36.5 and EUR 37 per 1000 cigarettes, respectively.
Sources:
- Legislative Decree 188/2014
- Legislative Decree 119/2018
- Budget 2023
- Customs and Monopolies Agency (ADM)
- Cigarettes prices
- Official Gazette (setting minimum price), special series - n. 318-1-2023 No. 159 (Jan 18, 2023)
Last updated Sept. 1, 2023