The Czech Government’s New Proposal to Increase Vape Taxation
In an ambitious move to bolster economic standing, the Czech Government has proposed a significant increase in the excise tax on tobacco and vape products. This bold strategy, part of their consolidation package, aims to tax not just traditional tobacco more heavily, but also heated tobacco and electronic cigarettes.
The proposal is to increase the excise tax by ten percent next year, followed by a five percent increase annually between 2025 and 2027. Heated tobacco, in particular, is in the crosshairs for a 15 percent increase next year and a consistent rate until 2027.
These changes in tax would result in a noticeable price hike for smokers. The average increase in the price of a pack of cigarettes could be by at least eight to nine crowns next year, and heated tobacco by three to four crowns. Nevertheless, the final price will be largely dependent on individual manufacturers.
Over the last few years, the excise tax has been steadily increasing as part of the tax package introduced by the previous government. From 2021 to 2023, it rose by about five percent annually. The most significant price hike was in 2020 when the tax increased by ten percent. Despite this, the revenue from the excise tax on tobacco fell short of the state’s expectations last year.
Heated tobacco, currently taxed at about a fifth of the level of traditional tobacco, will see a substantial increase in tax by 2024 – to 29 percent. The new excise tax on electronic cigarettes will be modeled on the European Tobacco Directive, introducing a standardized regulation for these products.
The government’s plan has been termed ambitious by industry insiders. JTI International spokesperson Jiří Sochor pointed out the collection of excise tax has stagnated and even declined in recent years, leading to a convergence of cigarette prices in the Czech Republic and Germany. This has affected the volume of cigarettes sold at the Czech border to German consumers, decreasing from a third of the market four years ago to a mere ten percent today.
An interesting contrast can be observed between the Czech Republic and Poland, where cigarettes are up to 50 crowns cheaper. Last year, Polish cigarettes made up over four percent of Czech consumption, a figure set to rise in the current year.
While the state sees an opportunity for increased revenue, tobacco companies like British American Tobacco Czech Republic caution that further tax increases may not necessarily translate into more money for the state. The past three years have seen a decline in cigarette sales in the Czech Republic, as consumers are moving towards less harmful alternatives like heated tobacco.
The proposed increase in the excise tax on tobacco by the Czech Government is a complex issue. While it aims to increase state revenue, the potential impact on consumers and the market dynamics need to be considered. Only time will tell if this bold move will yield the expected benefits or lead to unforeseen consequences.