Tobacco tax
is an excise duty levied by the customs administration and paid into the federal budget.
After mineral oil tax, tobacco tax is the most profitable excise tax.
“The tobacco tax model was first implemented in the period from 2011 to 2015. It provided for a moderate annual increase in tobacco tax on cigarettes and fine-cut tobacco. This model is now being relaunched in the Tobacco Tax Modernisation Act. Within five years, starting in 2022, the tobacco tax will be adjusted in four steps in a moderate way that can be planned for all involved .”
taxed
tax increases
forecast
The most important changes and innovations of the Tobacco Tax Modernisation Act:
- The tobacco tax model* will be continued from 1 January 2022 with a 4-stage tax increase over 5 years from 2022 - 2026.
- Cigarettes, fine-cut tobacco, cigars/cigarillos and classic pipe tobacco will be subject to only moderate tax increases that are at the upper limit of the tax burden.
- Water pipe tobacco will be taxed at the same rate as the tax for cigarettes from 1 January 2022.
- For tobacco heaters, a supplementary tax will be introduced from 1 January 2022, so that the tax on these products will be 80% of the tax burden on cigarettes. .
- Substances for the use in e-cigarettes such as liquids (so-called substitutes for tobacco products) will be subject to tobacco tax in future from 1 July 2022. Until now, only turnover tax had to be paid. All consumables intended for vaping will be taxed: Bases (propylene glycol, glycerine), nicotine and flavourings.
- A differentiated taxation of novel products (e-cigarettes, tobacco heaters) with regard to harm reduction was not considered. These products are subject to a relatively high tax burden.
Which products are taxed?
Tobacco tax is levied on the following products with different tobacco tax rates:
- Cigarettes
- Cigars and cigarillos
- Fine cut
- Pipe tobacco
These include classic pipe tobacco, water pipe tobacco and tobacco heaters - also called heat not burn products.
No tobacco tax is yet levied on small niche products such as snuff or chewing tobacco. E-cigarettes are also not subject to tobacco tax in Germany so far. This will change for e-cigarettes on 01.07.2022.
Substances, e.g. liquids, for use in e-cigarettes (so-called substitutes for tobacco products) will in future be subject to tobacco tax from 1 July 2022. Until now, only turnover tax had to be paid. All consumables intended for vaping will be taxed: Bases (propylene glycol, glycerine), nicotine, flavouring substances
When and how often taxes will be increased?
Tobacco tax for most product categories will be increased in 4 steps over 5 years from 2022-2026. For cigars/ cigarillos and pipe tobacco, only the minimum tax will be increased in 2022 and 2023.
E-cigarettes will be subject to tobacco taxation for the first time. The first step will be only introduced on 1 July 2022.
Which products are taxed and how?
Current estimates of annual tobacco tax revenue 2022-2026.
Cigarettes
Fine-cut tobacco
Cigars and Cigarillos
Pipe tobacco
Water pipe tobacco
is subject to the tax rate for pipe tobacco, but is subject to additional taxation. This additional taxation is intended to protect young people and health. Products that do not contain tobacco, e.g. steam stones, smoke pastes, are also considered water pipe tobacco. According to the customs administration, the additional tax rate also applies to these substitute products.
Heat-not-Burn-products
Heated tobacco is subject to the tax rate for pipe tobacco, but is subject to additional taxation. The additional tax is 80% of the cigarette tax minus the pipe tobacco tax. In the draft law for the increase, this is justified by the fact that these products are consumed in the context of existing nicotine addiction and substitute cigarettes.
E-Cigarettes
are also considered substitutes for tobacco products and are therefore subject to tobacco tax for the first time. Liquid substances with nicotine and without nicotine are taxed. Not only ready-mixed liquids but also basic substances such as bases like propylene glycol (PG), glycerine (VG) as well as flavours are subject to a fixed (specific) tax rate. What are taxable items or tobacco substitutes is also explained on the customs authorities’ website.
Current estimates of annual tobacco tax revenue 2022-2026
The monthly report of the German Federal Ministry of Finance of July 2021 forecasts a total of € 14.5 billion in additional revenue from the implementation of the Tobacco Tax Modernization Act:
- Re-implementation of the tobacco tax model: a total of around € 10 billion
- Introduction of additional taxation on heated tobacco: a total of about € 1.5 billion
- Introduction of an additional tax on water pipe tobacco: in total about € 2 billion
- Introduction of taxation on substitutes for consumption in e-cigarettes: in total around € 1 billion
- The expected additional revenue for e-cigarettes was revised downwards by almost € 1 billion in the BMF monthly report. The amendment of the Finance Committee (document of the Bundestag no. 19/30490) still indicated an amount of € 1.947 billion. Since e-cigarettes will be taxed for the first time, it will be difficult to estimate the consumption behaviour and thus the tax revenue. Evasive reactions are to be expected.
