Germany Case Study

Moderate and step-by-step increases in tobacco duties, along with a tax differentiation between product categories, instils stability and predictability in government revenues in Germany whilst at the same time reducing overall tobacco consumption levels.

The German government has successfully managed to strike a balance between its fiscal and public health objectives in the Tobacco and Duty Model by maintaining a tax differentiation between FCT and FMC that allows substitution. Modest excise increases, combined with the maintenance of a price differential between FMC and FCT mean that German excise revenues remain stable both when consumers who are priced out of the legal market choose to quit smoking, but also when they continue to choose to smoke – as the buffer function of fine-cut tobacco now offers them a legal, and excise-generating, alternative.