Tobacco Market Data
Below you will find information on the taxation of tobacco, sales of tobacco products and smuggling. Robust figures on e-cigarettes are expected to be available in autumn 2020 and will be published here.
The tobacco tax is an excise tax that is levied by the customs administration and accrued to the federal budget. The tobacco tax applies to the following products with different tobacco taxation rates:
- Cigars and cigarillos
- Fine cut
- Pipe tobacco
- This includes pipe tobacco, hookah tobacco and tobacco heaters, also called heat-not-burn products.
There is no tobacco tax on small niche products such as snuff or chewing tobacco. E-cigarettes are also not subject to a tobacco tax in Germany.
In 2019, the federal government earned over 14 billion euros in tobacco tax with cigarettes generating the majority of revenues.
Smuggling is a serious problem for all of society. Not only does the state lose taxes, smuggling also damages the economy, and consumers receive inferior goods or even endanger their health.
A wide spectrum of products, particularly luxury goods such as watches, clothes, cosmetics and pharmaceutical products, are smuggled, which are offered at considerably lower prices in the countries of origin. Counterfeiting of products is closely linked to smuggling because it can generate even higher profit margins.
Smuggling and counterfeiting cigarettes is particularly lucrative because low production costs enable high profits.
Cigarette prices vary widely within the EU and are much lower in neighbouring countries of the EU (e.g. Ukraine, Algeria), which promotes smuggling. In the EU, high tax rates generally apply to tobacco products. For example, the total tax burden including VAT is around 70% in Luxembourg and goes up to over 90% in the UK when taking the weighted average price of cigarettes.
Germany directly borders countries in which cigarettes are much cheaper.
Due to massive tobacco tax increases after 2000, there were significant domestic slumps in cigarette sales. To investigate whether this decline was due to a reduction in cigarette consumption or whether consumers obtained their supply of cigarettes elsewhere, the so-called “disposal study” was initiated. The study aims to estimate the number of cigarettes consumed but not taxed in Germany. Representative cigarette packets are collected from the waste of waste sorting systems or packets thrown away on the street.
Foreign cigarette packets may be brought into Germany legally when people travel or go shopping close to the border if they are purchased in the legally permissible quantity for personal use. A large proportion of cigarettes that are not taxed in Germany are brought into the country illegally in small quantities or through organised smuggling.
According to the estimate of a Europe-wide Study, which also works with the data of the German waste disposal study, cigarette smuggling generates a loss of tax revenue of EUR 10 billion for EU countries.
In an Action Plan to fight the illicit tobacco trade, the EU focuses, in addition to law enforcement, political measures and consumer education, on two key areas:
- At the international level, on the Protocol to Eliminate Illicit Trade in Tobacco Products to the World Health Organisation's Framework Convention on Tobacco Control (“FCTC Protocol”)
- At the EU level on the track and trace system for tobacco products. Since 20 May 2019, the route of tobacco products along the supply chain from the manufacturer to the first point of sale has been monitored with this track and trace system in all EU countries.
However, it is questionable whether the labour intensive and expensive traceability system that controls the legal supply chain is actually the right instrument to combat smuggling.