The Case of Tobacco in Hungary

24.03.2016

The EU decided to unify packaging and labelling requirements of tobacco products with its 2014/40/EU Directive. The implementation of these requirements is just a further step in Hungarian legislation which aims to reduce the attractiveness of tobacco products. Since 2012 in Hungary the availability of tobacco products was reduced by confining their sale to National Tobacco Shops and now by centralizing distribution of tobacco products. Further there was an attempt to put a higher tax rate on tobacco products.

1.              Plain Packaging and Combined Health Warnings

The implementation obligations regarding the 2014/40/EU Directive must be implemented by the Member States by May 20th 2016. Hungary has fulfilled its obligation, and amended three legal regulations: the CXXXIV Act of 2012 on Reducing Smoking among Young Persons, the XLII Act of 1999 on the Defence of Non-Smokers, and the Decree 39 of 2013 (14.II.) on  Developing, and Purchasing Tobacco Products and the Combined Health Warnings.

Based on these regulations – according to the intention included in the 2014/40/EU Directive – some big changes are awaited.

The package must display a combined, or (in some cases) a simple health warning covering 65% (in some cases less) of the surface on both sides (on the narrower sides only a warning must be printed.) The combined health warnings include a deterrent picture about the consequences of smoking, showing the visible effects and results of cancer, or the harmful effects on babies.

According to the EU Directive, we can also say goodbye to tobacco products with a characterising flavour. These products will not be withdrawn from the market but can be sold up to the final deadline of May 20th 2017. Menthol tobacco goods may be enjoyed until May 20th 2020.

2.              Further steps in Hungary

Apart from these regulations, further steps were introduced in Hungary.

(a)           National Tobacco Shops

Starting point was in 2012, the establishment of the National Tobacco Shops. Until 2012, tobacco products could be obtained without restrictions, e.g. in food stores, kiosks or at fuel stations. According to the preamble to the Hungarian legislation the main aim was to reduce smoking by young people by confining availability of tobacco products only to special shops called National Tobacco Shops. The number of tobacco selling shops reduced from nearly forty thousand to a few thousand, which have won the concessions.

(b)          Central Tobacco Distributor

The wholesaling of tobacco products was also centralised by legislative changes coming into force on 1st November 2015. This meant that only one market player – the concession winner – is entitled to distribute tobacco products to retailers. This concession is completely distinguished from those concessions which were received by retail shopkeepers in 2012 and which established the National Tobacco Shops in Hungary. The concession introduced in 2015 for distribution to retailers was intended to place one market player – the National Tobacco Provider Center (“ODBE”) – between the retailers and the wholesalers. The only one entitled to transport tobacco goods as a distributor to retail shops – i.e. the National Tobacco Shops – is the ODBE. That means that now only one market player, ODBE is entitled to provide distribution service, and big manufacturers/wholesalers, such as Philip Morris or JTI, are not entitled to engage in distribution to retailers. The manufacturers/wholesalers transport the tobacco products to the warehouses of the ODBE, from which ODBE delivers them to the retail shops.

Wholesalers tried to contest this regulation by offering ten times higher concession fees than the actual winner of the tender. The bid was not accepted and the ODBE started its operation in November, 2015. No infringement procedure has yet been commenced in this respect.

(c)           Tax Health Contribution

The summer months in 2015 are memorable for tobacco wholesalers also because of a further reason. A new health tax (“health contribution”) for tobacco companies was introduced, which was steeply progressive: companies with a low turnover were to pay a tax of 0.2% of their turnover from the production and sale of tobacco products, but companies with a higher turnover were subject to a rate of up to 4.5% of their turnover with the result that bigger companies with greater income could have faced higher tax payment obligations. After filing a complaint with the EU Commission, an infringement procedure was instituted and the health tax was suspended at least until the decision of the Commission or the European Court of Justice.

3.              Questionable effects

Studies show that the health warning can really decrease smoking – mainly among those who are called “party-smokers”, or only rarely light up a cigarette. It is questionable whether the centralization of the distribution or raising taxes lead to the same results. The consumption has not changed significantly since the introduction of the National Tobacco Shops. Even if studies show that increasing prices result in decreasing consumption, the black market is often excluded from the picture.