Patching the budget at the cost of a given word. The Ministry violates the excise tax arrangements

At the beginning of July, on one of the television stations, the Minister of Health, Izabela Leszczyna, expressed the opinion that cigarettes and alcohol in Poland are the cheapest in the whole of Europe. In her opinion, for health prevention reasons, access to them should be made more difficult, so she is an advocate of raising the excise tax. A few days later, the head of the Ministry of Finance, Andrzej Domański, admitted that he had talked about the increases with his colleague from the government, but the ministry he heads does not plan to raise the excise tax on alcohol. However, consultations are underway on raising the excise tax on tobacco products.

– We have proposed changes to the so-called road map to entrepreneurs, we are in dialogue with them, tomorrow there will be another meeting. I would not like to anticipate the next steps. We know unequivocally that the economic availability of cigarettes has increased very significantly in recent years. The Minister of Health appealed for an increase in excise tax, also in order to limit this availability. Hence our proposal. We know that the road map has not worked in this aspect – said Andrzej Domański.

Dialogue that is not dialogue

At the beginning of 2022, the excise map, a plan for gradually increasing excise tax rates on tobacco and alcohol products, came into effect. The document is the result of cooperation between MF officials and industry organizations. It provides that excise tax on cigarettes, tobacco for smoking cigars, cigarillos and dried tobacco is to increase by 10 percent each year. The map is to be in force until 2027. The specified deadline gives entrepreneurs the opportunity to plan their business in a tax context, and allows the ministry to determine excise tax revenues to the budget.

Meanwhile, the minister stated that he wants to withdraw from the arrangements earlier and significantly increase excise duty from 2025. Excise duty on cigarettes from 2025 would increase by 25%, on smoking tobacco – by 38%, on innovative products – by 50%, and on e-cigarette liquid – by 75%. He argues that the map is still valid in its established form.

– We know that the use of tobacco products, their structure, has changed significantly. We want the road map to also take this fact into account. What’s more, we have studies that show that potentially harmless products, which are very often used by young people, later, in the next steps, also lead to the use of tobacco products – said the Minister of Finance.

Health or just budget revenues?

The argument about the need to protect health is contradicted by the fact that the highest excise duty is to cover heated tobacco and e-cigarettes, which in many countries are considered less harmful substitutes for cigarettes. Their growing popularity has meant that they are now to increase budget revenues to a large extent.

It is estimated that nearly 1.4 million consumers in Poland use tobacco heaters, which are defined in the act as innovative tobacco products. They are introduced to the market primarily by international tobacco companies.

The Ministry of Finance is not listening to the criticism coming from various sides. On August 2, a draft amendment to the Excise Duty Act appeared on the Government Legislation Center website. It assumes “making excise duty rates on tobacco products, innovative products and e-cigarette liquid more realistic, and imposing excise duty on devices used for vaporizing e-cigarette liquid and innovative products.”

This is how the excise tax on nicotine products increased

If the price increases pushed by Andrzej Domański come into effect, in the second quarter of 2025 the price of a pack of cigarettes will increase by about PLN 3, a pack of tobacco heater inserts by about PLN 2, and an e-cigarette with a capacity of 2 ml – by about PLN 1.

To illustrate the scale of the increases, the National Tobacco Industry Association added up the excise tax increases on nicotine products from 2022 to 2027:

• Cigarettes: 109 percent increase (excise map version: 61 percent);

• Smoking tobacco: 165 percent increase (excise map version: 61 percent);

• Tobacco heaters: increase of 401 percent (in the excise map version: 222 percent);

• E-cigarettes: 228% increase (previously not included in the excise map).

The Ministry of Finance has postponed the deadline for changes in excise duty

Ministerial officials met with representatives of the tobacco industry, who were convinced that departing from the road map did not constitute a breach of the agreement. The only concession from the ministry was the agreement to postpone the entry into force of the higher tax: instead of January 1, it would be March 1, 2025. In this way, the ministry will maintain the 6-month vacatio legis period set out in the coalition agreement, which is intended for any changes in taxes. There is no talk of other concessions, although the unilateral departure from the 5-year excise tax plan has been criticized not only by the tobacco industry, but also by organizations associating entrepreneurs.

The National Tobacco Industry Association called the proposed level of the increase “absolutely unprecedented.”

“The consequences of introducing such significant increases will affect consumers of all nicotine products, some of whom will certainly be pushed into the grey zone. As Poland, we do not learn from our own mistakes. After a series of drastic increases in excise duty in 2011-2014, the grey zone reached almost 20 percent. It took us 10 years to reduce it, and the current proposals of the Ministry of Finance will once again lead to the collapse of the legal market,” we read in the KSPT position.

Opposition from business organisations and the SME Ombudsman

The Spokesperson for Small and Medium-sized Enterprises, attorney-at-law Agnieszka Majewska, pointed out to the Undersecretary at the Ministry of Finance, Jarosław Neneman, that the changes in excise duty policy proposed by the ministry are a breach of the social contract and may be inconsistent with Polish and European law. “The change in the scale and deadline for introducing changes in the amount of excise duty for the years 2025, 2026 and 2027 proposed by the Minister of Finance violates the principle of protection of the legitimate expectations of an individual (in this case entrepreneurs). The purpose of this principle is to guarantee the predictability of the state’s actions – both in terms of legislation and in the area of ​​​​administrative bodies’ activities,” she wrote in a letter dated July 19.

The SME spokeswoman calls for “a reduction in the level of planned excise duty increases on tobacco products, in particular innovative products, e-cigarettes and e-liquids, and a more proportional burden on all entities in the tobacco sector.”

Market representatives emphasize that sudden, drastic increases in excise duty on tobacco products will contribute to the disruption of market balance and the growth of the grey zone. In 2023, it was already PLN 27.7 billion.

Experts also point out a serious mistake, which is the failure of the Ministry of Finance to present an assessment of the regulatory impact of the proposed solutions.

– The excise map – despite our initial doubts – worked very well, because the industries covered by it delivered revenues predicted in the impact assessment of this regulation. In the case of the tobacco industry, these revenues were even higher than announced. However, its greatest value was stability, because consumers were not surprised by increases and although prices were rising, the grey zone was shrinking – said Szymon Parulski, an excise expert at the Business Centre Club, in an interview with Newseria.