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Tax Gap of Heated Tobacco Products in Japan
Philip Morris International (PMI) launched IQOS in Japan in 2014, the first country in the world in which IQOS was available. Heated tobacco considered under the tax category of “pipe tobacco” and was taxed at a much lower rate than that of cigarettes.
Until 2017, “heat-not-burn” tobacco was automatically classified as "pipe tobacco" under the Tobacco Tax Law. However, with the 2018 tax reform, a new category of "heat-not-burn tobacco" was established (Heisei), effective October 1st, 2018.
Under the new system, the excise tax on heated tobacco sticks has been progressively taxed towards that of cigarettes. The formula to determine equivalent quantities of heated tobacco sticks and cigarettes is defined in the tax reform. The formula is similar to a mixed excise system, in that it takes both quantities of tobacco and the retail sales price (RSP) into account but changes every year from 2018. It appears like a pure specific excise was implemented by the fiscal year starting October 1st, 2022, which still applies today. Therefore, for fiscal year 2023, the “equivalent quantity of heated tobacco sticks per pack is 20 sticks of equivalent cigarettes, yielding the same excise tax rate per pack of cigarettes and heated tobacco. The specific excise rate includes several components that add up to JPY 15,244 per 1000 sticks in 2023, as displayed in the table below.
Sources:
- National Tax Agency: Review of tobacco taxation under the 2018 tax reform
- Ministry of Finance: documentation for calculating the excise tax on heated tobacco
Last updated Sept. 1, 2023