Croatia Loses 120 Million Euro Annually in Tax Revenue Due to Tobacco Smuggling

By 30 September 2019

ZAGREB, September 30, 2019 - Over 306.7 million euro in tax revenue is lost in the region annually due to tobacco smuggling, including 120 million euro in Croatia, according to the findings of a project on the illegal trade in tobacco products along the Balkan route.

The project was carried out by the Zagreb Institute of Economics in 2018 and included a survey on smokers' habits and views on the illegal trade. The survey was carried out in Croatia, Slovenia, Bosnia and Herzegovina, Serbia, Montenegro, North Macedonia and Kosovo, covering 3,000 adult respondents in each country.

Presenting the findings earlier this week, project leader Jelena Budak said 7.6% of smokers in Croatia (88,000) bought tobacco products on the grey market. The regional average is 11%.

Cut tobacco on the grey market is a replacement for legally sold cigarettes and in Croatia it accounts for 89% of said market. Cigarette availability on the grey market in Croatia has dropped but the availability of cut tobacco has increased.

More than half of respondents are aware that buying on the grey market is illegal, and harsher penalties would prompt only 5% of them to stop doing so. More than half of respondents also think that buying tobacco products on the grey market is insufficiently punished.

Eight in ten smokers who buy on the grey market cited a more favourable price as the main reason for the illegal purchase of tobacco products.

The survey also shows that prices of tobacco products in said seven countries are significantly lower than the EU average, as well as that they differ significantly between them, which is an additional incitement to smuggling.

Slovenia, as the most expensive tobacco product market in the region, stands at 68% of the EU average in terms of prices. There one carton costs 40 euro, as against 36 euro in Croatia and €26 in Serbia or Bosnia and Herzegovina.

The reason for such price differences lies primarily in excises on cigarettes and other taxes. The price differences between legal cigarettes and illegal tobacco products on each market are even greater.

In Croatia, cigarettes made of illegal cut tobacco are ten times cheaper than legally produced ones. A kilo of tobacco on the grey market can be bought for 120 kuna, from which 1,000 cigarettes can be rolled, the equivalent of 60 packets, which would cost 1,600 kuna.

Budak said cigarette prices were likely to increase and push even more smokers onto the grey market.

The survey shows that the annual revenue from tobacco smuggling is estimated at over 200 million euro in the Western Balkan countries and 32 million euro in Croatia as well as that it causes losses of 1.3 billion kuna in gross added value and over 7,500 jobs. One thousand smokers who buy tobacco products on the grey market reduce gross added value by over 1 million euro annually and cause 50 job losses.

Commenting on the findings, Croatian Employers Association director general Davor Majetić has said that it is necessary to reduce the grey market offer and demand, and that raising excise taxes has not reduced the number of smokers but motivated people to choose the grey market. He believes it is necessary to seriously consider the tax and excise policy for tobacco products.

More news about smoking in Croatia can be found in the Lifestyle section.