The German cabinet adopted the draft Tobacco Duty Modernisation Act on 24 March 2021. With this legislation, the German government is adjusting tobacco duty rates and responding to changes in the tobacco market and in consumer behaviour. The new law also serves to improve public health and protect minors.
The main objectives of the Tobacco Duty Modernisation Act (Tabaksteuermodernisierungsgesetz) are:
- To improve public health and the protection of minors. By adjusting tobacco duty rates, ensuring the equal tax treatment of heated tobacco (heat-not-burn) products, and introducing a new duty on substances containing nicotine for use in e-cigarettes, the government is setting a necessary entry-level threshold for the pricing of tobacco and nicotine products that are harmful to health.
- To adapt tobacco duty to changes in the tobacco market and in consumer behaviour. Cigarette substitutes such as e-cigarettes (which were previously untaxed) and heated tobacco products (which were insufficiently taxed) will now be taxed appropriately.
- To gradually adjust tobacco duty rates, as was also done in the past.
Details on the new legislation:
Adjustment of tobacco duty rates
One of the reasons why it is necessary to adjust tobacco duty rates is to continue to use tobacco duty to incentivise healthy behaviour. This is especially important in order to protect the health of young people and adolescents.
The adjustment was necessary, as the previous adjustment of tobacco duty rates was made in 2011. As in the previous adjustment, the rates of tobacco duty on cigarettes and fine-cut tobacco will be subject to regular, moderate increases over a five-year period (from 2022 until 2026). This will be complemented by an adjustment of the minimum duty on cigars/cigarillos and pipe tobacco.
Tobacco duty on a packet of cigarettes (20 units) will increase by an average of 8–8.7 cents per year between 2022 and 2026. Tobacco duty on a pouch of fine-cut tobacco (40g) will increase by an average of 13.3–15.7 cents per year over the same period. In addition, the minimum duty on cigars/cigarillos and pipe tobacco will also be raised.
Duty on heated tobacco (heat-not-burn) products and nicotine-containing substances for use in e-cigarettes (liquids)
The new legislation will put an end to the differing treatment of cigarettes, nicotine-containing vaping liquids and heated tobacco products. Due to the health risks of nicotine-containing products and substances, the increase is also necessary from the point of view of improving public health and protecting minors. The Federal Institute for Risk Assessment (BfR) believes that the use of vaping liquids containing nicotine can also lead to nicotine addiction. High-nicotine liquids with fruit flavours pose health and addiction risks for adolescents in particular.
For this reason, the tax treatment of heated tobacco products will be brought into line with that of cigarettes. Consumers think of these products as cigarettes, and they will be taxed as such.
E-cigarettes with nicotine-containing liquids are also used as cigarette substitutes. They will be taxed appropriately from now on. The duty on nicotine-containing vaping liquids will be set at an initial rate of €0.02 per mg of nicotine from July 2022 onwards and for the whole of 2023. Starting in 2024, the rate will increase to €0.04 per mg of nicotine.