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Tax Gap of Heated Tobacco Products in Italy

Heated tobacco products were introduced in Italy in Nov 2014. Per Legislative Decree 188/2014 which entered into force on Dec 24, 2014, heated tobacco was categorized in the tax code as a tobacco product, but subject to only 50% of the excise tax applied to an "equivalent” quantity of cigarettes. A few years later, Legislative Decree 119/2018 went into effect from Jan 16, 2019, further reducing the excise duty on heated tobacco sticks from 50% to 25% of the tax on the “equivalent” quantity of cigarettes. This resulted in a large tax discount for heated tobacco as compared to conventional cigarettes, and a rapid growth of the Italian heated tobacco market, whose share in Italy’s tobacco market increased 40-fold from 2016 – 2019 (Blue Book, 2019, page 69).

The methodology for determining the “equivalent” quantity of cigarettes was established by the Customs and Monopolies Agency (Agenzia delle dogane e dei Monopoli, ADM). The method essentially compares the time it takes to consume a heated cigarette to that of a conventional cigarette. The conventional cigarettes used were from a best-selling brand determined to be similar in price point to heated tobacco sticks. Based on this calculation, ADM applies the tax discount rate and publishes the list of heated tobacco consumables, including their market price and applicable excise rate. ADM updates this list on a regular basis.

Italy is the first and only country to compare quantities of heated and conventional cigarettes on the basis of consumption time (as opposed to the number of sticks or the weight of tobacco). Consumption time, and therefore tax burden, varies considerably between heated cigarette brands.

As of writing this in mid-2020, net excise rates for heated cigarettes (still 25% of the tax on conventional cigarettes) had last been updated by an official communication published in Oct 2020, with a list of heated tobacco consumables on the market and the applicable price. The maps use the “HEETS Amber selection” brand, for which the price and tax are listed as follows:

  • Oct 2020: Retail price of EUR 225 per 1000 sticks and a total excise of EUR 37.67.

On December 30, 2020, under the pressure of health authorities to finance Italy’s health care system, the government voted to increase the tax on heated tobacco and e-cigarettes. Article 1, paragraph 1126, of Law No. 178 of 30 December 2020 (Financial Statements of state forecast for the financial year 2021) amended the excise taxation of “inhaled tobacco without combustion” to increase to the tax rate equivalence from 25% to 30% of the equivalent quantity of cigarette, staring Jan 1, 2021. The law establishes further increases to 35% from Jan 1, 2020, and 40% staring Jan 1, 2023.

ADM’s Amendment Det-498043-20, published December 31, 2020, gives the current heated cigarette brands, combustion time, price, and tax rate.

Cigarettes in Italy are subject to a mixed excise system including (in Fiscal year 2020, ending March 31 2021) an ad-valorem excise of 51.24% of the retail sales price and a specific excise: 20.98 EUR per 1000 sticks.

Sources, relevant links

Last Updated Feb. 22, 2021