Cheap cigarette prices set for sudden jump

Photo: Panther Media/Scanpix

In a rare accord, Big Tobacco, taxpayers union and health activists agree that tobacco excise needs to primarily rise on the cheap cigarettes storming the market. That ought to make cigarettes harder to obtain for the youth. Today, the government will be deliberating the issue, as new coalition brings a new excise bill.

Recently, Estonian Chamber for Cutting Tobacco and Alcohol Damage (ETAK) had recourse to health minister Urmas Kruuse, Riigikogu financial affairs committee head Rannar Vassiljev, and social committee chairman Heljo Pikhof, expressing its concern that the recent rises of tobacco excise have not significantly improved health of the nation.

«We support tobacco products excise rises, the goal of which is to make tobacco products less accessible, especially to children. Piece-based of cigarettes ought to be applied, guaranteeing more effective protection of public health,» wrote ETAK chief Andrus Lipand.

He was referring to the corresponding EU tobacco excise directive touching the very piece-based taxation.

For these past five years, health behaviour monitoring by TAI (National Institute for Health Development) say that among the 16–64-olds percentage of smokers has not dropped below 26. Also, no change has occurred in the market shares of cheaper and expensive cigarettes, the cheaper ones still the dominant category.

«So far, excise changes have only been cosmetic; they have not altered people’s smoking habits or the spread of smoking,» noted Mr Lipand.

For close to ten years now, Estonia uses a cigarettes excise model whereby 50 percent of excise rise is collected related to amount of pieces, the other 50 percent related to retail price.

The relatively high link of excise to retail price (in 2013 budget proceeds from tobacco excise, it had reached nearly 60 percent) has motivated tobacco producers to increasingly bring cheaper cigarettes to the Estonian market.

On the Estonian market, the so-called cheap-class cigarettes assume 60 percent, the price gap between the cheap and the dear cigarettes ever widening (as year by year, the link between excise and retail price grows). Currently, it stands over 30 percent i.e. up to a euro of price difference per pack.

Proposal by health activists is also supported by taxpayers union and tobacco producers who think that the best way to fill state budget and protect human health is to close the price gap: add tax to cheap ones; add taxes to the expensive ones as well, but in a smaller proportion.

The topic is nothing new; it has been pressed before, but finance ministry has been reluctant to alter the structure. After the governmental discussion today, the bill reaches Riigikogu before the summer break.

«A debate at the committee is guaranteed and, possibly, after that the proportions will change,» said finance committee head Rannar Vassiljev (SDE).

In addition to the above, e-cigarettes market remains totally unregulated. Even the size of it is difficult to assess. What we do know is that while in 2011–2012 e-cigarettes EU market share was one percent of all cigarettes, by 2013 it had tripled.

E-cigarettes were indeed up in coalition talks; soc dems and Reform agreed that regulation was needed. The task was eagerly cast on social ministry shoulders, to get extra budget revenue as early as in 2015; the ministry soon said «not so fast please».

Yearly, an average of €170m comes to state coffers from tobacco product VAT; by granting e-cigarettes tax exemption for years, in a couple of years the state loses dozens of millions of euros.