Tobacco Tax and Cigarette Sales in Austria

The retail price for the best-selling cigarette brand in Austria currently includes 74 percent in taxes, more than in any of the neighboring countries. The tax rate is lowest in Slovakia (47 percent), the Czech Republic (50 percent) and Switzerland (55 percent). Smokers go to considerable lengths to shop for cheaper cigarettes abroad, especially at the airport duty free shops and at the road border crossing points. Annually, some 266 million people cross into Austria who are entitled to make direct imports of a certain quantity of cigarettes. Of them, almost one third are Austrians. The permitted limits for duty-free cigarette imports are normally utilized by just a fraction of those eligible. The current figure for direct imports by Austrians declined from 3.8 to 1.1 billion cigarettes, in consequence of the limit reduction on July 1, 1997. Low prices for cigarettes and petrol are incentives for shopping trips to the eastern neighbor states. This in turn may lead to increased direct imports of other goods and services. A day trip to Czechia or Slovakia is attractive not just for the low prices for food and restaurant meals but even more because of the cheap cigarettes. In Austria, every announcement of a price increase up to the mid 1980s triggered significant sales before it became effective. Such sales were then more than compensated by slow sales afterwards because consumers used the price increase to restrict their smoking. In later years, that restraint following hoarding purchases has been less pronounced. It appears that the accumulated home stock tempts those smokers not weeded out by anti-smoking campaigns to step up their consumption. The Eastern opening has reduced domestic sales. Initially (1993) moderate, the slackening has accelerated markedly since 1995. For 1996, the drain was calculated at almost 2 billion cigarettes (about 15 percent of domestic sales). This estimate gets some verification from the development in 1997. After import from the Eastern countries was limited to 25 cigarettes per person, sales in Austria grew by more than 15 percent. As expected, Austrian consumers showed little response to changes in cigarette prices. Even income fluctuations did little to affect demand. The older the members of an Austrian household, the smaller will be the part of their income spent on tobacco products. Blue-collar workers spend most on tobacco. Tobacco consumption declines with the level of education achieved.