In a surprising twist, the Czech Republic’s aggressive taxation on tobacco products is backfiring, pushing smokers to seek cheaper alternatives across borders. Nearly one in five cigarettes consumed in the country now evades domestic taxation, resulting in an annual loss of up to 12 billion crowns for the state coffers.
The primary beneficiary of this trend is neighboring Poland, where cigarette prices can be up to 40 crowns cheaper per pack compared to the Czech market. This price disparity is mainly due to the Czech government’s continuous increase in excise taxes, which now account for almost two-thirds of a cigarette pack’s retail price.
The strategy appears counterproductive despite the government’s intentions to discourage smoking and boost revenues. While the tax rate has increased by a third in recent years, tax collection has decreased since 2019. Current tobacco tax revenues are similar to eight years ago when the tax burden was only half of what it is today.
The emergence of a black market for tobacco products further complicates the situation. While counterfeit cigarettes make up only about 2% of this illegal trade, the majority consists of genuine cigarettes imported from abroad in quantities exceeding legal limits. Experts warn that high excise taxes make the Czech Republic an attractive target for counterfeiters looking to maximize profits.
As Czech smokers increasingly turn to alternatives like heated tobacco and e-cigarettes, which now constitute nearly a third of the market, the government plans to extend tax increases to these products as well. However, industry experts caution that overly strict regulations, particularly on e-cigarette flavors, could inadvertently push more consumers toward the black market.