Last year, the state received 56 billion crowns in excise duty on tobacco products, exactly as it did four years ago. In the meantime, the tax rate has risen by a third. The decline in revenue is probably more due to failed tax changes, especially in 2020, showed an analysis of excise duty published at the Department of Economic and Social Policy, Faculty of Economics, University of Economics.
“While the tax rate has risen by a third in four years, the state’s income from it has not risen by a koruna,” concludes economist Štěpán Křeček. “The reason is to be found in the rapid rise in prices, especially for cigarettes, which was caused by too high an increase in the rate of excise duty in too short a time. There has also been a significant change in the internal structure of excise duty rates on individual tobacco products, which has led to a consequent increase in the popularity of cheaper tobacco products, especially heated tobacco, ”explains the economist.
According to the author of the study, the increase in the tax in 2018 significantly moved the prices in the Czech Republic to the prices of Polish and Slovak cigarettes and at the same time brought them significantly closer to German and Austrian ones.
Historically, up to a third of cigarettes sold in the Czech Republic were bought directly at the border by consumers in Germany and Austria. It offers to explain the decline in border sales by travel restrictions due to the pandemic. “However, long-term trends adjusted for seasonal fluctuations confirm that the real reason is to eliminate the price attractiveness of tobacco products in the Czech Republic,” added Křeček.
The difference in price compared to Poland is extreme. The cheapest legal cigarettes in Poland cost half of what in the Czech Republic. The packaging of premium cigarettes is 37 crowns cheaper in Poland. Similarly in Slovakia, where the price is about 20 percent lower than in the Czech Republic.
“Domestic consumption of tobacco products has remained the same or even increased, only moving to less taxed categories and purchases of Slovak and Polish products are taking place, with the current shortage of German and Austrian purchases,” the study’s authors point out.
Czechs are changing their smoking habits. The transition from cigarettes to alternatives continues
In recent years, the Czechia has undergone an unprecedented change in the case of tobacco products, which can be compared to a silent revolution. More and more technologically modern alternatives – devices for heated tobacco or electronic cigarettes and vaporizers – are being promoted at the expense of classic cigarettes. This is especially true for people under 35.
According to the study, changes in excise duty in 2020 disrupted the tax structure and market balance. “Increasing the fixed and percentage amounts of tax by 18.1 percent while increasing the minimum tax by only ten percent has made the minimum tax so minimal that it is irrelevant to all existing cigarettes. However, as rates for smoking tobacco, cigars and heated tobacco derive from this minimum tax, these rates have risen less than for cigarettes, widening tax and price differences and increasing consumer incentives to switch to cheaper and less taxed categories of tobacco products. , ”The study states.
Lukáš Kovanda: Rewrite history, Czechs spent less on tobacco last year than before
Last year, for the first time in history, people in the Czech Republic reduced their tobacco spending. At the same time, spending on alcohol continued to grow, exceeding 100 billion crowns this year.
Smokers switched to heated alternatives
Depending on the material, this has affected, for example, the amount of tobacco heated. While in 2020 consumers bought 1.6 billion cigarettes to heat up, last year it was 2.3 billion. Because these heated products pay only 20 to 25 percent of the cigarette tax, the state budget lost a tax of more than six billion crowns in 2021, the study said.
According to Křeček, it will be necessary to continue tax-advantaged less harmful variants of smoking, but according to him, the current benefit should reach the level of about 50 percent of the cigarette tax. “In the case of heated tobacco, there is another problem that the weight of the tobacco in the cigarette is given, not the individual pieces of cigarettes to be heated,” he warned.
“The Czech Republic should definitely focus more on taxing the fixed component of excise duty. It should return to the practice of setting a minimum tax from 2013 to 2016 and use it to discourage new users from smoking, ie make the cheapest cigarettes more expensive, ”said Křeček. According to him, it is necessary to maintain the tax balance with the surrounding countries.
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