Tax

On this page, the following questions are answered (all in respect to the national situation in the Netherlands):

• How much tax is currently levied on the different tobacco products?
• What tax increases have been implemented during the last decade?
• What happens in case of a tax raise?

How much tax is currently levied on the different tobacco products?

The above chart shows how much tax is levied on two particular packs of cigarettes or fine-cut tobacco. These packs are currently the "price class most in demand", being the combination of price and amount that was sold most during a year. Both cigarettes and fine-cut tobacco have their own "price class most in demand".
At the end of each year, the Ministry of Finance assesses whether a certain combination of price and amount is still "most in demand". The Ministry needs to assess this, because Dutch law refers to the Most Popular Price Class in order to determine the amount of excise that is levied on all packs of cigarettes and fine-cut.

What tax increases have been implemented during the last decade?

1997 (the tax increases in '97, '98 and '99 were the result of a decision in 1996 to implement one increase in three steps)
Increase of GLD 3 per kilogram fine-cut
Increase of GLD 6 per 1000 cigarettes

1998
Increase of GLD 3 per kilogram fine-cut
Increase of GLD 6 per 1000 cigarettes

1999
Increase of GLD 3 per kilogram fine-cut
Increase of GLD 6 per 1000 cigarettes

2001
Increase of GLD 3,42 per kilogram fine-cut
Increase of GLD 6,84 per 1000 cigarettes

2004
Increase of € 9,20 per kilogram fine-cut
Increase of € 18,40 per 1000 cigarettes

2008
The government's proposal was:
Increase of € 5,25 per kilogram fine-cut
Increase of € 10,50 per 1000 cigarettes
The Parliament increased the proposed amounts up to:
Increase of € 9,15 per kilogram fine-cut
Increase of € 14,50 per 1000 cigarettes

Historically, the government's practice of applying excise increases in the above ratio (which is a ratio of 1:1 on a per pack basis) is believed to be the least distortive way. Any other ratio is believed to be more advantageous for one of the two product categories (the Dutch version of this webpage provides Dutch government references in this respect).

What happens in case of a tax raise?

Typically, government and parliament agree on a tax increase during yearly Tax Plan discussions, in autumn. Such increase is formulated in terms of euro per 1000 sticks (cigarettes) or kilogram (for fine-cut tobacco): "As of XX (date), excise on 1000 cigarettes of the price class "most in demand" will be €XX higher than the previous day".
The new excise amount will then be translated in new excise tariffs. For both cigarettes and fine-cut, law describes three tariffs:

1. X % of the retail selling price (called ad valorem excise)
2. X euro per KG (or 1000 sticks in case of cigarettes)
3. X euro per KG as a minimum to which 1 plus 2 should amount

A rule that has to be taken into account is that tariff "2" shall be equal to half of the sum of 1 + 2 + VAT (all expressed in euros).

Taking into account the new retail prices of the price class "most in demand", enables the Ministry of Finance to express the ad valorem excise and VAT in euro amounts.