Morocco's Tobacco Tax Hike: Impact on Lower-Priced Cigarettes

Morocco's upcoming tobacco tax reforms, set to begin in January 2027, will impose a higher relative burden on lower-priced cigarettes, known as 'cigarettes of the poor.' This has raised concerns about the impact on the purchasing power of low-income groups, who may be more affected by price increases in cheaper products.

According to a tax simulation based on the draft 2027 finance law, the internal consumption tax on a pack of 29 dirham cigarettes will increase by 7.6%, compared to a 4.4% increase for a pack priced at 39.50 dirhams. This makes the relative tax burden on cheaper brands approximately 1.7 times higher, assuming retail prices remain constant and not accounting for potential final price increases.

The upcoming tax reform will involve a simultaneous increase in three tax components: the specific rate of the internal consumption tax, the proportional rate, and the minimum collection threshold. This gradual process will continue until 2031. The specific rate will rise from 550 to 645 dirhams per thousand cigarettes, a 17.3% increase. The proportional rate will increase from 56.5% to 57.5%, while the minimum collection threshold will rise from 953 to 1025 dirhams per thousand cigarettes.

Professional sources have confirmed that the new tax adjustments will increase the minimum internal consumption tax on a pack of 20 cigarettes from 19.06 to 20.50 dirhams, a rise of 1.44 dirhams. This increase will be more pronounced for lower-priced cigarettes, which are subject to the minimum collection threshold, compared to higher-priced brands, which are taxed based on other components of the tax system.

A tax simulation, conducted under the assumption of fixed retail prices, showed that the tax burden on a pack of 29 dirham cigarettes will increase from 19.06 to 20.50 dirhams. In contrast, the tax on a pack priced at 31.50 dirhams will rise from 19.62 to 20.58 dirhams, a 4.9% increase. For a pack priced at 39.50 dirhams, the tax will increase from 23.38 to 24.41 dirhams, or 4.4%. This reflects a differential impact of the reform across various price categories, though it does not necessarily mean that the full tax increase will be passed on to consumers.

The tax reform aims to raise revenue for the government, but it also raises concerns about the potential impact on low-income consumers. The higher relative tax burden on cheaper cigarettes could lead to increased prices, affecting the purchasing power of those who rely on lower-priced products. The government will need to balance the need for increased revenue with the potential social and economic impacts of these tax changes.

The upcoming tax reforms in Morocco will have significant implications for the tobacco industry and consumers. The disproportionate impact on lower-priced cigarettes highlights the need for a nuanced approach to tax policy, considering both revenue generation and the social and economic effects on different income groups.