Upcoming Tax Increases on Cigarettes in Morocco: Impacts and Revenue Goals

In an effort to bolster public finances, the Moroccan government is set to introduce significant tax increases on manufactured cigarettes, effective January 1, 2027. This reform is particularly concerning for low-income consumers who primarily purchase cheaper cigarette brands, commonly referred to as "poor people's cigarettes." The anticipated tax hikes are expected to place a heavier burden on these lower-priced products, raising alarms about their potential impact on the purchasing power of low-income households, who may be more adversely affected by rising prices on essential goods. A recent tax simulation, based on proposals from the upcoming budget law, indicates that the excise tax on a pack of cigarettes priced at 29 dirhams will see an increase of approximately 7.6%, while a pack priced at 39.50 dirhams will only rise by about 4.4%. This suggests that the relative tax burden on cheaper cigarette brands will be roughly 1.7 times greater than that on their more expensive counterparts, assuming that retail prices remain constant. However, it is crucial to note that these percentages do not necessarily reflect the ultimate price increases that consumers will face at retail. According to industry sources, the planned reform will encompass simultaneous increases across three tax components: the specific excise duty rate, the relative rate, and the minimum tax collection threshold, as part of a gradual approach extending to 2031. Specifically, the specific excise duty is set to climb from 550 to 645 dirhams per 1,000 cigarettes—a rise of 17.3%. Concurrently, the relative rate will increase from 56.5% to 57.5%, and the minimum collection threshold will be adjusted from 953 to 1,025 dirhams per 1,000 cigarettes. The new tax measures will elevate the minimum excise tax on a pack of 20 cigarettes from 19.06 to 20.50 dirhams, marking an increase of 1.44 dirhams. This increase will be felt most acutely by consumers of lower-priced cigarettes, who are more likely to be subject to the minimum collection threshold, compared to higher-priced brands whose tax burden is determined by other elements of the tax system. The tax simulation reveals that the tax burden on a 29-dirham pack will rise from 19.06 to 20.50 dirhams, while a 31.50 dirham pack will see its tax increase from 19.62 to 20.58 dirhams—an increase of 4.9%. For the 39.50 dirham pack, the tax will rise from 23.38 to 24.41 dirhams, which is a 4.4% increase. This reflects a disparity in the relative impact of the tax reform across different price categories, without indicating that the entire tax increase will be passed on to consumers. The forthcoming tax hikes raise critical questions regarding the fairness of tax burden distribution among consumers, particularly as smokers of cheaper brands face relatively larger tax increases. It is essential to recognize that the calculation of the actual impact on consumers' purchasing power is contingent upon consumption levels, income levels, and the extent to which tax increases are transferred to final retail prices. In a bid to generate additional tax revenue from tobacco products, the budget law for 2027 anticipates an increase in excise tax revenues to 19.32 billion dirhams, up from 17.71 billion dirhams projected for the current year, representing a growth of 1.603 billion dirhams or 9.05%. This expected increase places revenue collection under pressure due to the evolving landscape of consumption and reported sales within the legal market. Data from the Moroccan treasury indicates that excise tax revenue from tobacco hit approximately 11.4 billion dirhams by the end of September, reflecting a 7.7% increase compared to the same period last year. However, the achievement rate for annual revenue forecasts was only 64.3%, a decline from 77.3% at the end of September 2025 and 74.6% during the same period in 2024. This trend signifies a relative decline in the effectiveness of achieving annual revenue targets, despite an absolute increase in revenue, which rose from 9.319 billion dirhams at the end of September 2024 to 10.587 billion dirhams during the same period in 2025, and now to around 11.4 billion dirhams this year. The impending tax increases also raise inquiries about the government's capacity to offset any potential decline in legally sold quantities through higher taxes per pack. Should retail prices increase, consumers might reduce their consumption, shift to alternative products, or resort to illegal markets, all of which could adversely affect the tax base the government relies upon to meet its fiscal objectives. Research published in the journal "Public Health" highlights a relevant study involving 36 European countries, concluding that a 10% increase in cigarette prices could lead to a 3.1% reduction in overall consumption and a 4.61% drop in legal sales, while illegal market activity might rise by 1.52%. These findings, while based on international data, do not directly pertain to the dynamics of the Moroccan tobacco market but elucidate potential repercussions of price adjustments. Furthermore, insights drawn from the French experience illustrate the intricate relationship between tax increases and revenue shifts. The average price of a cigarette pack in France surged from 7.10 euros in 2017 to 12.50 euros by 2025, coinciding with a decrease in the quantity sold from 54,525 tons to around 30,000 tons. Despite revenue from tobacco taxes rising from 11.4 billion euros in 2017 to 14.4 billion euros by 2020, it fell to 12.6 billion euros by 2025, emphasizing that a reduction in legal sales can outpace the rise in unit tax rates, thereby impacting total tax revenues. Nationally, statistics related to the illicit cigarette market reveal a decline in its penetration rate within the Moroccan market from 2.81% in 2022 to 1.85% in 2023, and then to 1.04% in 2024, before rebounding to 1.37% in 2025. The number of seized cigarettes surged from 254,388 in 2024 to 843,854 in the past year, reflecting an increase of 231.7%. While these figures do not establish a direct correlation between tax increases and cigarette smuggling, as the rise in seized quantities might be attributed to intensified customs enforcement or increased smuggling activity, they underscore the importance of monitoring the illegal market as the new tax reforms are implemented to prevent a shift in consumption towards unregulated distribution channels. Looking ahead, the trajectory of tobacco taxes is expected to continue its upward trend in the coming years. Professionals predict that the specific excise tax rate could reach 21.06 dirhams per pack of 20 cigarettes by 2031, compared to an anticipated 12.90 dirhams in 2027. During this period, the relative rate is expected to rise to 61.5%, while the minimum collection threshold will increase to 26.92 dirhams per pack. These anticipated changes present financial authorities with the challenge of balancing the enhancement of tax resources with health objectives aimed at reducing tobacco consumption, all while mitigating the disproportionate effects of tax increases on consumers, particularly those purchasing lower-priced cigarettes, and ensuring the tax base remains intact against the backdrop of declining legal sales or the expansion of the illicit market. In this regard, the gradual implementation of these reforms and the annual monitoring of price trends, sales volumes, collected revenues, and smoking and smuggling prevalence indicators will be crucial for evaluating their financial and health effectiveness in the years to come.

As reported by hespress.com.