This report builds on previous research done by London Economics in 2015 and 2021. It presents case studies analysing domestic and non-domestic tobacco consumption and excise tax policies in France, Germany, the Netherlands, Slovakia, and the United Kingdom. The report also includes a cross-border analysis of France and Germany, examining the effects of pandemic-related border closures and other restrictions on domestic tobacco consumption.
The Study confirms the buffer function of fine-cut tobacco (FCT) protecting domestic excise revenues against illicit tobacco. The pandemic period showed how outpriced consumers cut off from illicit tobacco instead bought lower-taxed FCT. The Dutch case study also demonstrates that over-taxed FCT leads to a market crash with consumers simply purchasing non-domestic FCT, including smuggled and other illicit tobacco.
PREVIOUS REPORTS
LONDON ECONOMICS STUDY 2021
The objective of this study was to assess how economic downturns influence the consumption of fine-cut tobacco and its role within tobacco taxation systems. The study focused on three areas of impact, including the economic downturn on FCT consumption, on tax revenue and the illicit cigarette market. The study demonstrates that during economic downturns, smokers are more likely to switch to illicit consumption, unless FCT is relatively more affordable than domestic cigarettes (FMC), in which case FCT can capture priced-out consumers and mitigate the negative financial impact of reduced duty-paid consumption on government revenues.
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2021 COUNTRY CASE STUDIES: BELGIUM | GERMANY | THE NETHERLANDS | UNITED KINGDOM
Sources & References
LONDON ECONOMICS STUDY 2018
The fundamental objective of this study was to further develop and illustrate some of the key economic mechanisms behind the taxation of fine-cut tobacco. Using governmental data sources when available, the objective was achieved using four case studies: The Netherlands, Belgium, the UK and Germany. The study confirms and further explains the key principles of taxing fine-cut tobacco, already demonstrated in the 2015 study.