Tobacco Taxation in Spain: A Tax Laggard With a Brighter Possible Future

Abstract

Introduction: In recent years tobacco taxation in Spain has regressed, with its Tobacconomics tax scorecard falling from 3.9 points (out of 5) in 2014, to only 2.625 in 2020. The objective of this research is to provide a detailed analysis of the causes behind this deterioration and identify possible ways forward for reversing this trend.

Aims and methods: A retrospective 2014-2022 analysis of manufactured cigarettes (FM) and roll-your-own tobacco (RYO) markets including tax structure/rates, affordability, retail price gaps across products, and price differentials with bordering countries. A market-level simulation model for 2028 studied the impact of various tax policy scenarios on smoking prevalence, premature deaths averted, smoking intensity, product substitution, government revenue, sales, and industry profit.

Results: A lack of tax increases in a context of inflation and income growth during the past 8 years means FM and RYO have become 13% more affordable, with a constant differential of €2 between 20 FM and RYO sticks, and the price gap between Spain and neighboring France increased. Modeling of two realistic reform scenarios that reduce/eliminate the price gap between FM and RYO suggest substantial increases in government revenues and up to 700 000 fewer smokers and 210 000 fewer premature deaths.

Conclusions: Current European Union (EU) legislation on tobacco taxes leaves ample room for much-needed tobacco tax reform. For the sake of both public health and the economy, Spain should increase its Minimum Excise Tax. This would not only save lives, but also bring much-needed revenue for the government.

Implications: The stance of Spain on tobacco taxes has deteriorated recently. This study argues that the failure of successive governments to raise minimum taxes in an inflationary context has made tobacco products more affordable, and quantifies the improvements in smoking prevalence and excise revenue that would accrue if the authorities act urgently increasing rates within realistic limits. Spain is representative of European countries where government inaction has rendered minimum tobacco taxes obsolete. Given the postponement of the revision of the EU Tobacco Tax Directive, this study highlights the need to act unilaterally within the existing legal framework.