SAS economists propose to tax tobacco products
No tax burden was applied in Slovakia by 2024 on tobacco products, meaning: electronic cigarette refills, nicotine pouches and other nicotine products. Research by SAS economists pointed out the disproportion in applying tax instruments for substitute products to tobacco products and the possible negative impact of the said regulation on public health. Creating a national platform for professional discussion helped speed up the elimination of the mentioned condition.
"In our studies, we have drawn attention to the fact that the consumption of traditional cigarettes, mainly due to limited availability, is slowly decreasing, while the popularity of alternative products such as electronic cigarettes and heated tobacco is increasing, especially among young people. These new forms of nicotine use are often perceived as more attractive and less harmful, which fundamentally changes consumer behaviour and market dynamics," say Martin Hudcovský and Karol Morvay from the Institute of Economic Research SAS.
Such developments bring new challenges in the field of public health, especially given the incomplete knowledge about the long-term effects of alternative products. Therefore, there is a need for adequate regulations that would take into account the specifics of the new products and their potential risks, and, simultaneously, reflect the growing popularity among consumers. Unlike traditional tobacco cigarettes, these alternatives were not subject to the same monitoring at the time of the study, which has fuelled their rise among young people due to greater affordability, while often seen as a safer alternative to smoking.
"The fiscal impact of these changes is also important because traditional tobacco products are a significant source of income from excise taxes. With the declining consumption of classic cigarettes, it is necessary to consider how to effectively adapt the tax policy to the new market conditions, in which the share of alternative products is growing. An isolated increase in taxes on traditional cigarettes could lead to a shift of consumers to alternatives that are often less burdened by a consumption tax, thereby weakening the fiscal effect of the original taxation," explain the economists.
SAS economists emphasize the need for a comprehensive approach to the taxation of tobacco products, including traditional cigarettes, electronic cigarettes, heated tobacco and nicotine pouches. A separate increase in taxes on traditional cigarettes could lead to the substitution of one form of addiction for another, which would weaken the goals of public health policy. At the same time, a coordinated approach to the taxation of these products could contribute to more effective regulation of consumer trends and ensure that measures in the field of public health and fiscal policy adequately respond to current market challenges.
The research was carried out by the Institute of Economic Research SAS in cooperation with experts from the University of Illinois Chicago (UIC) in 2023 and provided important data for re-evaluating the approach to taxation of tobacco products and their alternatives in Slovakia.
Type of social impact:
Stabilizing public budget revenues and potentially improving public health
The period of the research on which the social impact is based:
January 2023 - December 2023
The period in which the declared social impact occurred:
2024
Edited by Monika Tináková
Foto: canva.com