Drastic price increases possible: Federal government also wants to levy tobacco tax on e-cigarettes

For the first time in six years, the federal government wants to turn back on the tobacco tax. She is aiming for additional income in the double-digit billion range over a period of five years. Contrary to previous information, the federal government does not want to wait for the EU Commission's proposal on taxing e-cigarettes, which is expected by the end of the year.

Now Federal Finance Minister Olaf Scholz wants to include e-cigarettes, in which nicotine-containing liquids are vaporized, in the tobacco tax on a national basis. In addition, so-called less harmful tobacco products (“heat not burn”), such as Philip Morris’ Iqos, are to lose their tax privileges and be taxed in the same way as filter cigarettes. The CDU, CSU and SPD agreed on this in their last coalition round. Financial politicians of the Union have given up their resistance, it is said.

However, the details of the next tobacco tax round have not yet been determined. A draft bill with the letterhead of the Federal Ministry of Finance is circulating, which is said to have come from October. According to this, the first tax step should come as early as the beginning of April, in which the tax on filter cigarettes, fine-cut and conventional tobacco products will be moderately increased, the tax on less harmful tobacco products will be significantly increased and, for the first time ever, tobacco tax will be levied on e-cigarettes.

A good eleven billion euros in additional revenue

This package is intended to bring in additional tax revenue of 11.290 billion euros by the end of 2025. The classic tobacco tax is to bring in an additional 6.6 billion euros, almost three billion the new tax on e-cigarettes and almost two billion euros the additional tax on less harmful products. In 2020, the revenue from the tobacco tax totaled 14.6 billion euros.

According to information from the Tagesspiegel, the Chancellery has decided to postpone the reform until the beginning of 2022. There is no longer enough time until April to pass the law by then. In addition, the industry needs more time for the changeover. So far, the tobacco tax department in the Federal Ministry of Finance has always ruled out tax steps during the year.

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There are question marks behind the proposed tax increases. The announced tax steps would make e-cigarettes drastically more expensive. The nicotine-containing liquid of 10 milliliters, which currently costs five euros, would become four euros more expensive in the first tax step. In the second step, which should come in 2024, the tax share would then even rise to up to eight euros for a bottle (ten milliliters) with nicotine-containing liquid for vaping.

Are e-cigarettes more expensive than regular cigarettes?

It would be very surprising if the coalition would drastically increase the tax on the consumption of e-cigarettes. Finally, there is consensus among scientists that the health risks associated with vaping are significantly lower than with cigarette smoking. The background is that by-products of the combustion process in classic filter cigarettes are highly carcinogenic, which is not the case when inhaling vapor from e-cigarettes. Dustin Dahlmann from the Alliance for Tobacco-Free Enjoyment warns: "With the planned tax, the much less harmful e-cigarette would become significantly more expensive than tobacco products."

Less harmful tobacco products such as Philip Morris' Iqos are also expected to rise sharply in price. A box of 20 sticks currently costs six euros and, according to plans, would increase to eight euros from 2022 due to the tax increase. According to the plans, the tax share for each box of filter cigarettes containing 20 pieces is to increase by a little more than eight cents every year.

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Jan Mücke, head of the German Cigarette Association, warns: "Further tax increases will push even more price-sensitive smokers into the fine cut and make them resort to smuggled and counterfeit cigarettes." According to surveys by the association, the proportion of cigarettes not taxed in Germany rose to 17 percent in 2020 . Even more cigarettes had been smuggled in from low-tax countries, and even more smokers had resorted to the counterfeits. Fine cut has also increased by ten percent.