Government mulls minimum excise tax for cigarettes

Minimum pricing for tobacco could become a reality following the launch of a new government consultation on the introduction of a minimum excise tax (MET).

The consultation has been set up in response to the prevalent move to downtrading in the tobacco category and the phenomenal growth of value-for-money cigarettes, trends which the government believes now pose “a risk to future tobacco tax revenue” due to the structure of tobacco excise duty.

Tobacco excise duty is made up of a specific (per stick) component and an ad valorem (percentage of the price) component. Because the ad valorem component is calculated as a proportion of the price, less revenue is received from the sale of cheaper cigarettes compared with more expensive cigarettes.

The government believes that a structural MET could help to mitigate this risk.

Most EU member states have already adopted a MET system and the European Commission is currently reviewing the EU Tobacco Excise Directive.

Imperial Tobacco head of UK corporate and legal affairs Colin Wragg said it welcomed the consultation, which closes on 8 October.

“Market stability is important for retailers and the whole supply chain. It will help reduce the unusually high pricing differentials between the premium and economy products, slow downtrading and help retailer revenues; a MET will also help the government to better manage its revenues from tobacco,” he added.