TOBACCO: EU Membership will Significantly Increase Price of Cigarettes
According to the obligations that Croatia has accepted during the EU accession process, the price of tobacco products will increase due to excise taxes that will need to align with EU regulations. The present tax system for tobacco products is significantly lower than the EU average; by 1 July 2013, the minimal tax must reach €64 per 1,000 cigarettes and €77 by 2014. According to the EU Council Directive 2011/64/EU, the tobacco excise tax will reach €90 per 1,000 cigarettes by 2018.
The tobacco industry fears that the sudden increase in prices could result in consumers turning towards black market sources. A similar scenario was experienced in 2009, when tariffs increased by 20-30%, which directly resulted in reduced sales (but increased sales on the black market) and reduced revenues to the state budget.
Unfortunately, in the region, there are many sources of black market cigarettes available, especially from Bosnia-Herzegovina and Serbia, who are not obligated to align the sector’s regulation according to EU regulations. Therefore, tobacco companies advocate for an incremental increase of tariffs, in order to reduce the economic impact of a sudden loss of consumers. Slovenia is used as an example, since they implement an incremental tariff increase every two years. In Croatia, the tobacco market is dominated by the Tobacco Factory Rovinj (TDR) with 80% of market share. International companies Philip Morris, British American Tobacco, and Japan Tobacco International are also present on the market. Along with the increase in the tariff system, the loss of CEFTA customs benefits will also negatively affect the business activities of TDR in the region.