The Croatian government plans to raise the consumption tax on all types of tobacco products starting from July 1st and impose taxes on e-liquids for the first time, raising concerns in the industry. This tax reform aims to fill the fiscal gap and promote public health goals. Still, industry criticism claims that this measure may lead to the expansion of the black market and undermine the existing tobacco control effectiveness.
Key points:
- E-liquid will be taxed for the first time at a rate of 0.20 euros (0.23 US dollars) per milliliter.
- The e-cigarette industry stated that the new tax would increase the price of e-liquid by 100% to 500% and might strangle the entire market.
- The government expects that the new tax can bring in 74.7 million euros (86.27 million US dollars) in fiscal revenue.
Croatia plans to impose a tax on e-liquid
According to a report by Croatian Lider on June 12th. Croatia has announced the imposition of a consumption tax on e-liquid used in vapes, causing panic among traders of such tobacco products. To further fill the budget gap, the government has decided to raise the consumption tax on tobacco products again after a year. Now, for the first time, the increasingly popular vapes have also been included. On June 11th, a draft regulation on tobacco products and the consumption tax rate for tobacco products was submitted for public consultation. According to this regulation, the consumption tax rate and the minimum consumption tax rate for cigarettes will be increased. This regulation will come into effect on July 1st.
The new content introduced in this regulation is the imposition of a consumption tax on e-liquid. Previously, these e-liquids were subject to consumption tax, but the tax was zero euros. Now, the consumption tax on e-liquid will be 0.20 euros (0.23 US dollars) per milliliter. Starting from the beginning of July, the consumption tax on heated tobacco will be raised from 185.82 euros (222 US dollars) per kilogram to 198.50 euros (226 US dollars), and the consumption tax on “new tobacco products” will be raised from 114.15 euros (132 US dollars) per kilogram to 120.50 euros (138 US dollars).
The price may rise to five times the original price
For most traders dealing in such tobacco products, imposing a consumption tax on e-liquids means the end of their business. Filip Tokić, a member of the management committee, said that based on the proposed amount, the price of e-liquids would increase by 100% to 500%. For example, a bottle of e-liquid that used to cost 10 euros (11 US dollars) is now sold for 40 euros (46 US dollars). Few people would be willing to purchase products with such uncompetitive prices. Another issue is that no instructions from the Ministry of Finance have been received yet. Therefore, it is unknown whether the consumption tax must also be calculated for existing inventories or only for new inventories after the regulation comes into effect on July 1st.
According to the government’s estimation. The increase in the specific consumption tax on cigarettes and the minimum consumption tax, as well as the increase in the consumption tax on other tobacco products and tobacco products, will bring an additional revenue of 74.7 million euros (86.27 million US dollars) to the national budget. It is worth mentioning that the consumption tax on tobacco products is one of the main sources of revenue for the national budget. Due to the relatively stable consumption of tobacco, its revenue is also quite predictable.
The government expects that the new tax can bring in 74.7 million
The government explained that:
- “In addition to financial benefits, raising the consumption tax on tobacco products can also bring health benefits and reduce the consumption of tobacco products, which is in line with the international obligations undertaken within the framework of the World Health Organization, etc.”
However, Philip Tokic believes that from a public health perspective, the effect might be exactly the opposite.
Croatia has been unable to quit smoking successfully for decades. Now, it has finally achieved tangible and positive results, with a significant decrease in the number of smokers. However, the imposition of a consumption tax will lead to a significant return of tobacco consumption and give rise to a huge and unregulated black market for products, which will have disastrous consequences for citizens’ health. Every year, 14,000 people die from smoking-related diseases. It is estimated that the annual cost of treating smoking-related diseases exceeds 700 million euros (800 million US dollars)! Tokic pointed out that this is a regrettable and destructive policy of the government of the Republic of Croatia.
