More money for the state

A “nicotine tax” could bring in millions

The state loses revenue as no tobacco tax is levied on e-cigarettes.

(Bild: fotofabrika )

Austrians are smoking fewer and fewer cigarettes, while at the same time the market is flooded with nicotine pouches and e-cigarettes. They are less regulated, but this could change. A "nicotine tax" could also bring much-needed money into the state coffers. A reform is also likely to be a topic in government negotiations soon.

Currently, e-cigarettes, liquids and nicotine pouches (small pouches under the lip) are taxed at zero percent, with only 20 percent VAT being charged on sales. For classic cigarettes, on the other hand, 60 percent goes to the tax authorities as tobacco tax, and for heaters it is around 18 percent.

"Nicotine belongs in the tobacconist"
"This is incomprehensible in terms of health policy," says Hannes Hofer, head of the monopoly administration. It is understandable to tax such products less, as they are less risky than cigarettes, but it makes no sense that they are not covered by the Tobacco Tax Act. Professor Bernhard Rupp, health economist at the AK, takes a similar view: "We rely on the principle of risk reduction for all addictive substances, but politicians are ignoring this for cigarettes."

Hofer advocates turning the tobacco monopoly into a "nicotine monopoly" and also restricting the sale of e-cigarettes and nicotine pouches to tobacconists. Currently, any tire dealer, bakery or cell phone store can sell these products freely. Large retail chains are also said to be interested and want to cash in on the trend towards new cigarette alternatives.

(Bild: Krone KREATIV/Stock Adobe)

However, it would only be a logical step to also sell the alternative products exclusively in tobacconists, says Hofer. This would also strengthen the protection of minors. "Uncontrolled sales endanger the health of our young people," warns the head of the monopoly. This is because the demand for smoking alternatives is growing by 50 percent every year. Tobacconists are also losing out on revenue if e-cigarettes and the like are sold in an uncontrolled manner. Expert Rupp also recognizes the problem: "The EU wants to reduce the proportion of smokers to below five percent, but what does that mean for tobacconists? I think it makes sense to extend the monopoly."

E-cigarettes and pouches could become more expensive
The current tax system also leads to another problem for the state: the lack of revenue. Since alternatives have grown so strongly, tobacco tax revenues have in fact only stagnated or grown moderately (see chart). The state took in a good two billion euros in 2023, this year it is likely to be only around 2.5 percent more.

The uncontrolled sale of alternative products endangers the health of our young people.

Hannes Hofer, Chef der Monopolverwaltung

Bild: www.mvg.at/Johannes Kernmayer

Tobacco tax is the second largest consumption tax after mineral oil tax! The Finance Minister is counting on revenues rising at least in line with inflation. However, the budget could lose around 100 million euros a year in future, as alternatives are not taxed and are growing strongly at the same time - especially in times of huge budget deficits, this is money that the federal government could really use. However, e-cigarettes would then become more expensive, as the tax would also be passed on to the consumer.

Even the industry, which would be directly affected by taxation, is open to the idea. They are not advocates of a "nicotine tax", but "it would be unrealistic to assume that nicotine products would not be taxed at all, apart from VAT, as this is already the case in many other countries", emphasizes Ralf-Wolfgang Lothert from JTI (Austria Tabak). However, it is important that the tax rates reflect lower health risks. Less harmful products should be taxed at a lower rate.

The approval procedures for alternative products are too complicated in Austria. Austria has interpreted EU regulations particularly strictly here.

Florian Groß, Philip Morris

Bild: Chris Singer

The tax authorities are missing out on more urgently needed money because tobacco sticks from the Philip Morris brand Terea are not approved in Austria and are therefore bought across the border. The proportion of products not taxed in Austria is already said to be around 30 percent.

"As a result, the state is expected to lose a further 80 million euros in 2025. The approval procedures in Austria are too complicated. The authorities go far beyond the EU requirements here," says Philip Morris spokesperson Florian Groß. In almost all other EU countries, on the other hand, the alternatives are available, they just have to be registered there.

"Nicotine tax" could become an issue in government negotiations
It is not yet clear whether an expansion of the monopoly will make it into the government program. According to reports, however, the "nicotine tax" could soon become a topic in the coalition negotiations. There is certainly a need for action during the coming legislative period, as the current tobacco tax law expires in 2027. A revision or a new law would be possible. Regulations are currently set out in the Tobacco Tax Act, the Tobacco Monopoly Act and the Non-Smokers Act.

A nicotine law or an amendment could create new framework conditions and also include alternatives. According to a market survey commissioned by the monopoly administration, 75 percent of Austrians would also be in favor of selling e-cigarettes and the like exclusively in tobacconists.