Is it possible to combine the health care of the nation and budget revenues from bad habits?
The fight against tobacco consumption at the state level has two caring components: social care (the health of nation) and economic (replenishing the budget).
The end of May is not only an occasion to celebrate World Anti No Tobacco Day (May 31st), but also the anniversary of the entry into force of one of the strictest laws in Europe, the set of anti-tobacco laws which came into force at the end of May 2016.
Four years is not an anniversary, but a sufficient period to assess the changing situation in the country during this time. Moreover, over the past year new rules of the game for the tobacco industry have come into force in the middle of 2019 and changes are expected in the near future.
Maia Sandu’s government and parliament approved a tax increase for the sliced tobacco over the past year, about 40%, which made tobacco sticks intended for tobacco heating systems to be equal with taxes to cigarettes, so the excise tax on sticks grew by 11 times. Along with the European Union and Britain, the sale of menthol cigarettes is prohibited from 20th May 2020 in Moldova. After the end of the state of emergency in the country, it will be banned to display tobacco products at the points of sales on 15th August.
Moldova annually increases excise taxes on tobacco products in recent years, steadily approaching its commitment to raise the minimum excise tax to 90 euro per 1000 cigarettes by 2025. This means that only the excise tax in a pack of cigarettes will be at least 35 lei (1.8 euro). A gradual increase in excise taxes on tobacco products should provide additional funds to the budget and reduce the consumption of tobacco products which has a negative impact on human health and the development of society as a whole.
Last year, the Ministry of Health already released information that over the three years since the entry into force of the anti-tobacco package of laws, the number of smokers in the country decreased by 2 percentage points from 27% to 25% of the population.
And the volume of the tobacco market is decreasing from year to year. Three years ago, it reached 5 billion cigarettes a year; now estimated at no more than 3.5 billion cigarettes per year. Despite the decrease in cigarette consumption, the budget has received comparable excise taxes in the last three years due to the annual increase in excise taxes.
Total excise tax, mln MDL
The share of excise taxes on tobacco products,%
Excise tax on tobacco products, mln MDL
A significant increase in excise taxes in 2015 was connected to the drastic change in the principles of excise taxes application (from ad valorem to specific principle). In 2016, the concept of minimum excise tax was introduced in Moldova. Previously, the tobacco excise tax consisted only from two components : a fixed part (calculated from the sum per 1000 pieces) and an ad valorem part (percentage of the cost); though, in 2016, the “minimum excise tax” (MET ) has been added . For example, the excise tax for the filter cigarettes was 300 lei per 100 pieces in 2016, plus 12% of the cost, but the total amount of excise tax should have been no less than 400 lei per 1,000 pieces.
Filter cigarettes ('000)
Cigarettes without filter ('000)
Specific ( MDL )
MET ( MDL)
Almost nobody is indignant of the sharp restrictions associated with smoking within four years. The fact that excise taxes are growing and the price of cigarettes is also clear for all. If one in ten smokers was able to quit smoking, then nine out of ten continue to smoke cigarettes, according to the Ministry of Health. About half of smokers simply go down to the cheaper cigarettes due to financial reasons, although the cost of a pack of cigarettes balances gradually, regardless of its quality.
The “cheaper segment” included also the growth of counterfeit and smuggled cigarettes’ share on the Moldovan market. In December 2019, Ipsos, one of the world leaders in market research, has published a study results showing that last year’s share of the cigarettes of unknown origin accounted 5.3% of the Moldovan market. Due to this, the country's budget received less than 100 million lei as excise taxes, and in 2020, according to forecasts, it will receive less than 120 million lei. Thus, we can add the struggle with smuggled cigarettes and their counterfeit production to the struggle for national health budget replenishment.
The fact that the world-wide campaign on tobacco control led by the World Health Organization will be gaining momentum every year, the manufacturers were prepared in advance in different countries - in different ways. Tens of billions have been invested by each major market operator in the development, registration and promotion of alternative methods of tobacco smoking. The work is carried out mainly in two directions: tobacco heating systems and vapes (electronic vaporizers) or electronic cigarettes.
Philip Morris has invested over $10 billion in the development of IQOS tobacco heating system. British American Tobacco developed a system of heating under the GLO trademark; Japan Tobacco International has the PLOOM brand. At the same time, each manufacturer has progress in the development of electronic vaporizers and electronic cigarettes.
Only IQOS is available at the market of the Republic of Moldova. Neither BAT nor JTI have introduced any alternative devices in our country. Although, BAT promotes GLO in neighboring Romania and Ukraine at the end of 2019. JTI introduced its new electronic vaporizer “Logic Compact”. It seems that instead of tobacco heating systems in Ukraine, JTI relies with electronic devices using replaceable cartridges with nicotine- containing liquids for steam.
Manufacturing companies are actively promoting alternative smoking methods, including the segment that they almost lost the e-cigarettes and vape market. Previously, the consumers could prefer cigarettes from one manufacturer to another easily, but it’s not possible with electronic devices. Smoking devices are made in such a way that users of a particular device can use only the replacement parts corresponding to the manufacturer. Not counting, of course, a possible counterfeit.
If you purchased the GLO device, you can only use “Neo” sticks from the same manufacturer; if IQOS, then special “Heets” sticks; if “Logic”, then only replaceable cartridges.
New products, of course, are faced with regulatory problems in certain markets. Many countries at the state level support the idea of switching from classic cigarettes to various devices, as a step and to the subsequent abandonment of nicotine addiction. Various studies prove that new products are less harmful than cigarettes, since they do not contain combustion products (resins, tar, etc.), but they offer nicotine to the consumer. And international companies are actively proving on the basis of numerous scientific studies that alternative methods of quenching “nicotine thirst” are significantly less harmful than traditional smoking. And they do it in the most difficult markets from the point of view of regulation and protection of the rights and health of consumers.
For example, international companies know how difficult it is to register a new product in the United States, where one of the most stringent organizations in the world, FDA (Food and Drug Administration) which is responsible for authorization. However, IQOS received authorization to sell its sticks last spring and Swedish snus received the status of a tobacco product with a modified (reduced) risk in the fall, despite the fact that in the EU the sale of snus (except Sweden) is prohibited, but its consumption is not prohibited.
Philip Morris submitted modified risk tobacco product (MRTP) applications in December 2016 seeking authorization to market its IQOS heated tobacco product, but it is still under consideration.
The USA is the only country in the world at the moment which developed legal procedure for obtaining the status of a tobacco product having a modified (reduced) risk and the authorized state company that can give such permission. It is the FDA.
Many countries are introducing a differentiated approach to tobacco products in Europe at the level of legislation. The excise taxes on cigarettes and tobacco products intended for consumption by burning are increased and slightly less excise taxes apply to alternative tobacco or nicotine consumption methods in order to reduce classic smoking. German deputies propose to classify tobacco and nicotine products according to the degree of health risk setting different taxation for them accordingly. The sticks for tobacco heating systems are already in a separate category in 16 EU countries in terms of applying lower excise taxes than for classic tobacco products.
The taxation of classic cigarettes and sticks is the same in Moldova. Some believe, there is damage to health in both cases, only a high cost can prevent consumers buying those types of products. Others believe, the taxes should be differentiated since sticks cause less harm to the people according to the scientific researches. Thus, smokers can be encouraged to switch to less harmful consumption of tobacco products with the prospect of completely abandoning the bad habit.
There is also a third category, vapes and electronic cigarettes. They are generally not regulated in terms of excise taxation. E-cigarettes are not considered excisable goods in Moldova, also drop out of the legal field and do not appear in customs statistics. No one knows how many of those two percentage points of the population who quit smoking actually switched to electronic vaporizers.
Two components of the fight against tobacco smoking is concern for public health and concern for replenishing the budget can have synergies with a competent approach to the problem. It can be resolved through public debates and discussions taking into consideration the fiscal policy of the state. //28.05.2020 - InfoMarket.