Possible excise increase on tobacco and alcohol in Poland

The government adopted a bill to increase the excise tax with 10% on tobacco and alcohol. Thanks to this increase, the state budget is to gain about PLN 1.7 billion in 2020 and in the following years.

Before the elections the old government talked about tax increases, but the budget forecast for 2020 only assumed a 3% increase. It is the first act proposed by the newly elected government to the Polish Parliament and still needs to be voted by the Parliament. Both tobacco and alcohol industry are in shock as no one expected such changes and the the sector was neither consulted nor communicated.

shelves full of bottles with expencive alcohol

Alcohol

If the new bill comes into force, the price for a 0,5 liter bottle 40% vodka will raise by 1.40 pln, for a can of beer 0,10 pln and for a wine bottle 0,75 l 0,15-0,20pln.

Separate regulations are provided for cider with alcohol amount below 5%. The assumed rate is 97pln/ hectoliter of ready product. The aim of the government is to develop the market of these low-percentage drinks. The preferential tax rate should indirectly support fruit production "which is one of the pillars of Polish agriculture". The government remained however deaf to the appeals of the brewing industry, which before the holidays asked to leave the excise duty on beer to the current level. With the increase the government wants to change the structure of alcohol consumption in Poland towards beverages that contain less amount of pure alcohol. Therefore the increase on beer is really symbolic.  And depending on this increasing percentage of pure alcohol in the alcoholic beverage, the difference in price is greater.

The sector is convinced the change is a real threat of strengthening the shadow economy - not only smuggling, but above all the increase in illegal alcohol production using sanitized technical spirit, which is a serious threat to the life and health of buyers of such products.

tobacco

Tobacco

In the case of tobacco products, after an increase in excise duty, a packet of cigarettes will be more expensive by approx. 1.10 PLN, a packet of smoking tobacco (50 gr) by 1.70 PLN, and a kilogram of dried tobacco by more than 20 PLN. The increase will also include e-cigarettes and e-cigarette liquids, which until now had a zero tax rate. Excise duty on e-cigarettes and liquids will increase from July 1, 2020. As a result, their price may increase by up to 150-200%.

The increase in excise will coincide with the introduction of a ban on the sale of menthol cigarettes, which account for over 27% of the Polish market. Therefore, it seems possible that the simultaneous elimination of a significant part of the market and price increases determined by an tax increase may direct consumers to the gray economy.

Excise income from cigarettes has been growing recently because consumption is increasing - during the 3 quarters of 2019 in Poland almost 7% more cigarettes were burned compared to year ago. It is the result of among others the growing number of immigrants and the reduction of the shadow economy. Today the government records the highest income from tobacco excise tax in history, and the level of illegal trade has been reduced below 10%. Such an increase will lead to a significant decline in budget revenues and an increase in the shadow economy so the effect will be the opposite of what was intended complain the industry.

The last change in excise duty rates on ethyl alcohol and tobacco products took place on January 1, 2014.

The increases in alcohol and tobacco will come into effect with the new year.

Source: Farmer, Bankier, Agropolska, Puls Biznesu