It was supposed to be different, but it’s like always

In no case.

I will give an example from this year, or rather from the last few weeks. It concerns the excise map, the adoption of which everyone was very happy about three years ago. The project has been expected for many years. Excise tax is a tax whose rate will always change. And business knows that. However, this time, specific increases in excise tax rates on alcohol and tobacco products have been planned until 2027. This has made it much easier to plan operations for the coming years. In the case of tobacco, this tax was to increase by 10 percent annually. However, this year, i.e. halfway through the validity of the road map, the government decided to revise it. On August 2, a draft amendment to the regulations appeared, according to which excise tax on cigarettes is to increase by 25 percent from March 2025, by 20 percent in 2026, and by 15 percent in 2027. Only 14 days were provided for submitting comments. This was not an optimal time, considering that the increase was significant and the proposal for changes appeared during the holidays.

I will start with the most obvious ones. And this is the increase in the costs of doing business and disruption of the planning rhythm. Please remember that by September 1 of each year, companies report their demand for excise stamps, which they must apply to products introduced to sale in the following year. The change in excise duty means that the sales assumptions they made for next year may be out of date. Companies can indeed make a correction to their demand by September 30, but only by 5%. However, new regulations have not yet been passed and it is doubtful that they will appear before the fall. Therefore, companies have nothing to base it on.

Since the new tax rates are to come into effect in March 2025, the time to sell products with the old stamp has been extended by two months. Usually, companies have until the end of February each year to do so. Now, they will be able to do so until the end of April.

I think so, because the budget is being patched up at its expense. Especially since, in addition to the higher excise duty, it will have to face a completely new levy. The government also wants to impose a tax on vaping devices from March 2025, which is an unprecedented idea in EU countries. The aim is to eliminate disposable e-cigarettes from the market. It gives two months to sell devices without excise duty and excise duty. Meanwhile, such devices are slow-moving. And this means that companies will once again have to buy excise duty and pay excise duty of around PLN 40 for devices already manufactured and in circulation. So in fact, this involves planning additional expenses.

If we are to base our opinion on the current wording of the draft amendment to the Excise Duty Act, this is not the only risk. Although, according to the justification for the Act, the aim is to eliminate disposable e-cigarettes, manufacturers of reusable devices may also lose out – both those for e-liquids and those for heating tobacco. The price of their products will increase by PLN 40. This may be a barrier to purchase. In addition, there is a risk that the export of such devices from Poland will become impossible. Manufacturers order devices in Asia. After the introduction of the new regulations, before they reach the country, they will have to be marked with a stamp. Even if they are intended for export. However, in order to receive a refund of excise duty for devices sent abroad, it will be necessary to remove the stamp. The new regulations therefore create additional obligations and also mark the devices, because after removing the stamp, there will be a trace. Recipients from abroad may no longer want such products. In this situation, companies will be left with one thing: moving their warehouses of products for export to a country where there is no excise duty on devices, e.g. the Czech Republic.

Here, however, it should be added that on September 4, a conciliation conference was held at the Ministry of Finance regarding comments on the draft changes to excise duty published on August 2. According to the statements of the representatives of the Ministry of Finance, it is likely that this problem was noticed during the analysis of the submitted comments and the draft may be changed. However, more will be said when this new draft is published. However, this does not change the fact that the Ministry of Finance is determined to cover vaping devices with the new tax, which in an extreme case may cause the collapse of the legal market.

The question arises whether companies will be able to translate the new taxes into the price of products without consequences for demand. If not, because the purchase price will become prohibitive for consumers, there is a risk of the development of a grey zone. This applies to cigarettes, e-cigarettes and tobacco for heating.

According to estimates, the MF proposal will cause the prices of the cheapest cigarettes to exceed PLN 20 in a year, which means that the difference in price between legal and illegal cigarettes will be over PLN 10. If someone smokes a pack a day, they could save over PLN 3,300 in a year.

These amounts may tempt people to look for products on the illegal market. In fact, this has already happened in the past. In the years 2011–2014, legal cigarette sales collapsed, by as much as 10 billion in just three years. Thus, the abrupt increases in excise duty that took place then, and were carried out as a result of implementing EU regulations, may not bring an increase in budget revenues. Analysis of data from the years 2011–2014 shows that the budget lost around PLN 1 billion at that time. In addition, production in illegal factories means losses for growers and the state budget due to the lack of tax revenues. Today, it can be said that this risk is smaller, because the borders with Ukraine and Belarus, where the smuggling came from to a large extent, are closed. However, it is not only illegally imported products that have an impact on the development of the grey zone. It is also illegally created factories in the country. I am afraid that after the price increase, the willingness to create them may be greater. Therefore, there is a risk that the amendment will not have an effect not only fiscally, but also health-wise. Smokers will not give up their addiction. They will only switch to illegal products, which may be to their additional detriment, because the quality of these products is not controlled in any way.

The best solution would be to abandon changes to the excise map, i.e. wait until it ends, do an analysis and only when it turns out that further and larger increases are necessary, introduce them. However, this is impossible, because the government is determined to make changes. In this situation, there is a greater mobilization of the KAS in monitoring the market. But not only companies operating legally, but also those that are outside the law. An area completely devoid of supervision is online sales.

Besides, there is no need to tax vaping devices to eliminate disposable e-cigarettes from the market. It is enough to impose a new tax rate on liquids for such devices. This will make their purchase unprofitable in relation to reusable devices.

If the government is looking for additional budget revenue from excise tax, then instead of raising rates on tobacco products, perhaps it should look for opportunities in relation to other excise products that are not as burdened with excise tax, e.g. fuels.