Governments Unwittingly Subsidising Tobacco Giants Through Lower Taxes on Heated Tobacco Products, New Research Reveals
Recent research conducted by the University of Bath has uncovered a concerning trend in global tobacco taxation policies—governments imposing lower taxes on heated tobacco products (HTPs) may be inadvertently subsidising the tobacco industry. While intended to steer smokers away from conventional cigarettes by encouraging the adoption of what are perceived as ‘less harmful’ alternatives, this strategy is resulting in lost tax revenue and potentially undermining public health initiatives.
The study scrutinised the tobacco market dynamics in Ukraine, one of the few nations that have implemented equivalent specific tobacco taxes on both traditional cigarettes and HTPs. This unique tax structure provided an invaluable natural experiment to observe how tobacco companies adjust their pricing strategies in response to tax reforms, offering insights with global applicability. HTPs differ fundamentally from conventional cigarettes in that they heat tobacco to create an inhalable aerosol without combustion, contrasting with traditional burning tobacco and nicotine-containing but tobacco-free e-cigarettes.
Over recent years, the demand for HTPs has skyrocketed globally, fuelled by aggressive marketing campaigns positioning these products as premium alternatives that promise a similar sensory experience to conventional tobacco but with purportedly reduced health risks. However, many countries apply lower tax rates and lighter regulation to these products, which this new research suggests primarily benefits the financial performance of tobacco companies rather than fostering public health benefits.
Dr Zaineb Sheikh, lead researcher at the University of Bath’s Tobacco Control Research Group, elucidates the market mechanics underpinning these findings. She explains that the tobacco companies have positioned heated tobacco offerings as premium alongside their high-end cigarette products. When Ukraine harmonised the tax rates across tobacco products, the retail prices of HTPs remained largely unchanged, indicating the industry absorbed reduced profits instead of passing cost savings to consumers. This evidence strongly suggests that lighter tax regimes on HTPs effectively act as a government subsidy to tobacco firms, depriving public coffers of essential revenue.
The implications for health policy are profound. By granting these subsidies, governments may be compromising the fiscal means required to fund broader public health initiatives. According to Dr Sheikh, the study titled “Examining cigarette, heated tobacco, and e-cigarette market pricing and tax passthrough in Ukraine during the 2019-2022 tax reforms” offers valuable data for policymakers seeking to design tax policies that do not inadvertently empower tobacco companies to the detriment of society.
Despite traditional cigarettes maintaining the largest market share in Ukraine, the rapid surge in HTP and e-cigarette demand reflects a shifting consumer landscape. Ukrainian HTP sales increased by an astonishing 278% from 2019 to 2022, while conventional cigarette sales declined during the same period. This trend highlights a ‘new frontier’ in global tobacco control, where the proliferation of novel products demands nuanced regulatory and fiscal strategies.
The public health implications of this shift are complex and uncertain. Although tobacco companies tout HTPs as reduced-risk alternatives, there remains significant scientific ambiguity regarding the long-term health outcomes associated with these devices. Some evidence points to potential utility in smoking cessation; however, other studies suggest that such products may have limited efficacy or even hinder smokers’ attempts to quit entirely.
In fact, a recent comprehensive review of 40 clinical trials assessed by the Tobacco Control Research Group found the health effects of HTPs to be inconclusive, challenging industry claims of their comparative safety. This uncertainty necessitates a cautious approach by regulators who must balance harm reduction objectives against the risk of normalising new nicotine delivery systems, particularly among youth drawn by the innovative technology and sleek design of such products.
Dr Rob Branston, co-researcher and expert from the University of Bath School of Management, stresses the adaptability of tobacco industry pricing strategies which consistently undermine the impact of tax increases on profits. He advocates for tax harmonisation aligned with World Health Organization recommendations, which emphasise uniform taxation across tobacco product categories to prevent market segmentation and the circumvention of regulations through product innovation.
Globally, many jurisdictions apply lower or no taxes on heated tobacco and e-cigarette products, creating loopholes exploited by manufacturers to maintain or grow their market share while minimising fiscal contributions to public health funding. Understanding the complex interplay between tax policies, industry pricing tactics, and consumer behaviour has thus become imperative to inform targeted interventions.
While some consensus exists around e-cigarettes potentially aiding smoking cessation, Dr Branston underscores that similar conclusions cannot yet be drawn for heated tobacco products. The lack of compelling independent evidence supporting the reduced harm of HTPs compared to combustible cigarettes strengthens the case for taxing these products at rates comparable to traditional tobacco, ensuring that public health policies are not compromised by regulatory inconsistencies.
This study, conducted in collaboration with Johns Hopkins University and supported by Bloomberg Philanthropies as part of the Bloomberg Initiative to Reduce Tobacco Use, represents a significant advancement in understanding the economic and epidemiological dimensions of emerging tobacco products. The interdisciplinary research team included public health and policy experts who combined robust data analysis with regulatory insights to produce a comprehensive assessment applicable beyond Ukraine’s borders.
As HTPs and other novel nicotine delivery systems become increasingly sophisticated and widely marketed, governments worldwide are confronted with pressing choices about how to regulate and tax these products effectively. The evidence underscores that harmonised tax regimes not only close loopholes exploited by the tobacco industry but also safeguard governments’ vital revenue streams that fund essential health interventions.
In sum, lower taxes on heated tobacco products may be counterproductive, inadvertently enriching tobacco companies while draining public resources necessary for combating tobacco-related morbidity and mortality. Policymakers must carefully calibrate tax policies to align with scientific evidence, industry behaviour, and public health goals, recognising that product innovation should not be a vehicle for regulatory evasion or revenue loss. The stakes are high in this evolving arena of global tobacco control, where economic policy intersects directly with population health outcomes.
Subject of Research:
Not applicable
Article Title:
Examining cigarette, heated tobacco, and e-cigarette market pricing and tax passthrough in Ukraine during the 2019-2022 tax reforms
News Publication Date:
14-May-2025
Web References:
DOI: 10.1136/tc-2025-059290
References:
The study cited in the University of Bath press release and additional tobacco control research articles by the Tobacco Control Research Group.
Image Credits:
Not provided
Keywords:
Tobacco, Heated Tobacco Products, E-cigarettes, Tobacco Taxation, Public Health, Tobacco Industry, Market Pricing, Tax Passthrough, Ukraine, Tobacco Control, Smoking Cessation, Tobacco Regulation
