Czech Radio: State could have missed out on hundreds of millions by not taxing heated cigarettes earlier

The Czech state could have lost out on hundreds of millions of crowns worth of tax money by not taxing heated tobacco, a report by Czech Radio has found out. Between 2017 to March 2019, products such as Philip Morris’ HEETS were excluded from the consumer tax.

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Just as in other parts of the world, healthier ways of smoking are becoming increasingly popular in the Czech Republic.

While the latest data on how many Czechs use alternative smoking products is hard to come by, sales data shows a quickly growing trend.

For example, Philip Morris’ HEETS model, which uses electronically-heated tobacco, sold 72 million units when it was introduced in July 2017, but increased sales to 532 million just a year later.

A report on Tuesday by Czech Radio’s online news service iRozhlas brought attention to the fact that the state may have been missing out on hundreds of millions of crowns by not implementing the commercial tax on such products.

Photo: Andreas Ganter, Pixabay / CC0

New legislation which taxes heated tobacco only came into force last month.

Therefore, just on Philip Morris’ HEETS, the state could have missed out on CZK 400 million between 2017-19.

Finance Ministry spokesman Zdeněk Vojtěch, told iRozhlas that testing if the new product was liable to consumer tax was undertaken by the General Directorate of Customs.

However, records show that the latter organisation’s test results did not refer to the consumer tax at all, focusing instead on the tobacco composition and the amount of nicotine.

Ivo Šulc, photo: Archives of the Chamber of Tax Advisers of the Czech Republic

The tests showed that the contents of the heated tobacco product could not be smoked as a normal cigarette and therefore, according to the Ministry of Finance, lay outside EU and Czech law on taxing tobacco products.

However, in Slovakia where the product was introduced a month later, a change of legislature that enabled the taxation of heated cigarettes was introduced already before they came on to the market.

Some legal experts questioned by iRozhlas have disputed the Finance Ministry’s claim that taxing the product sooner was impossible.

Ivo Šulc, a member of the Chamber of Tax Advisers of the Czech Republic and an expert on consumer tax, says that the law which had been in force until March 2019 could have been interpreted in a way that made the taxation of HEETS possible.

The government is now planning an increase in consumer tax related to tobacco products, including electrically-heated tobacco for next year.

Cigarette prices could rise by CZK 13 a packet, a measure that the government hopes will bring a further CZK 7,7 billion into the state budget in 2020.

An increase in taxation is also planned on alcohol and gambling.