Soaring revenue from tobacco taxes in the year 2025
In the initial months of 20XX, the state saw a surprising jump in tobacco tax income, raking in €240 million during January and February — a hike of €80 million compared to the same period last year. The increase defied expectations as there was a notable shift from conventional tobacco to heated tobacco, which came onto the market in January. But despite this shift, the revenue from conventional tobacco unexpectedly soared, jumping from 176 million cigarettes in January 2024 to a staggering 471 million this year.
Professor Guilherme Waldemar d'Oliveira Martins, a Finance expert at the Faculty of Law of the University of Lisbon (FDUL) and a former Secretary of State, however, maintains that this shift in consumption patterns hasn't affected the overall revenue or tobacco consumption.
The surge in tax revenue can be attributed to revenue hikes in conventional tobacco, an increase in the new stamp duty, and price hikes by major tobacco companies. Statistics from "JTI Ibérica" reveal that an increase in the price of a pack would lead to an uptick in the minimum tax of 1.4 percent.
Throughout 2024, tobacco tax revenue amounted to €1,525 million, a dip of 2.5 percent from the €1,563 million collected in 2023.
The steady increase in tobacco tax revenue, given the shift towards heated tobacco, can be explained by various factors:
- Elevated tax rates on tobacco products: Many states have increased excise tax rates on traditional cigarettes, bumping up the revenue per unit sold. Exceptionally high rates, like New York's €10.49 ($12.25) per pack, help offset volume declines caused by reduced consumption of conventional tobacco.
- Persistent taxation of new tobacco products: Although consumers are leaning towards heated tobacco, states often apply similar or even higher excise taxes to these devices and consumables, maintaining a stable tax base.
- Increase in cigarette imports and the illicit market dynamics: Burgeoning cigarette imports and the thriving illicit market can impact tax revenue streams. However, rising imports (a 23% jump to 8.4 billion sticks in one recent year) can indicate higher overall demand or temporary stockpiling due to tax increases, temporarily boosting legitimate tax revenues before smuggling effects fully manifest.
- Strategic tax policy and enforcement: Some states might be tightening enforcement or adjusting tax structures to better capture revenues from all tobacco categories, including heated tobacco. This could involve plugging loopholes, applying tariffs on tobacco imports, or enforcing customs taxes more effectively, which have substantially increased government revenues of late.
In a nutshell, the increase in tobacco tax revenue despite the shift towards heated tobacco is likely due to higher excise tax rates, similar taxation of new tobacco products, and potentially a temporary increase in consumption or imports that followed tax changes. These factors combine to create a situation where revenue collection continues to grow despite declining traditional tobacco consumption.
The unexpected surge in conventional tobacco revenue, despite the shift towards heated tobacco, can be attributed to elevated tax rates on traditional cigarettes and persistent taxation of new tobacco products. Additionally, an increase in cigarette imports and the illicit market dynamics might have had a temporary boosting effect on legitimate tax revenues due to tax increases.
