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February 2019

Tobacco Tax Revenues: Belgium slowly recovering from fiscal shortfall

By In the news

The Belgium government reported yesterday an increase of 123,8 million euros of excise receipts from tobacco, which amount to 2,373 billion euros in 2018. This increase is partly due to higher prices in neighbouring countries, such as France where cigarettes packs increased by around 1 euro.

This increase of government revenues follows difficult years for the Belgium government, which recently suffered from severe fiscal shortfalls due to poorly-conceived tax policy on fine-cut tobacco. As demonstrated in the 2018 London Economics Study, Belgium has implemented sharp increases in tobacco excise duties (up to 17-19% in 2016-2017) since 2013, which heavily impacted domestic duty-paid sales and significantly reduced taxation receipts. In 2016 excise duties were increased to raise revenues, but there was a fiscal shortfall of almost 5% (€3.087 billion instead of the expected €3.238 billion). By 2017, tobacco duties had further declined to €3.004 billion, thereby exacerbating the fiscal shortfall.

ESTA Secretary General Peter van der Mark said: “Belgium’s example illustrates the sensitivity of the demand for fine-cut tobacco to changes in excise duties (and price), but also the importance of taking into account the speed of changes in consumer behaviour in response to excise changes; the buffer function of fine-cut tobacco; and the long run consequences on public finances of sudden and ill-conceived policy changes.