Legal tobacco sales decline in Hungary

Cigarette sales have declined dramatically in Hungary, statistics published by the National Tax and Financial Control Administration (NAV) showed. In the meantime, there are more and more reports of illegal trading of tobacco in the country.

According to NAV data published by local daily Népszabadság, a total of 623 million cigarettes were sold in July, almost 40% fewer than in June (1.025 billion cigarettes) when new regulations on tobacco retailing entered into effect. The decline compared to July 2012 is also massive, as 1.3 bn cigarettes were sold then.

The financial website portfolio.hu reminds that the government decided in 2012 that the sale of tobacco products would in future be limited to just around 5,000 licensed vendors - compared to 45,000 retailers before. Legislation approved last September effectively established a state monopoly on the retail sale of tobacco products from 1 July 2013.

The opposition sharply criticized this legislation, claiming that the Orbán government – that claimed the aim of the law was to hinder the access of young people to tobacco products – only wanted to provide lucrative business opportunities to loyal people even at the expense of thousands of families, who used to sell cigarettes in their little shops, losing their businesses they lived on.

When the new regulation came into effect tobacco was a good business in Hungary, with 38% of the population smoking, 15% being ex-smokers and only 47% never lit up in their life. Annual cigarette consumption is above the EU average both among men and women.

This was a circa HUF 400 billion market, 80% of which is paid excise tax, 5-10% is the purchase price (depending on the brand) and 10-15% is left for anything else. This HUF 40-60 bn is no clean profit, however, because the wholesalers have two other major cost items, distribution and sales.

Now, many of the tobacco shops in less popular locations are reported to find it difficult to conduct a profitable business. One reason is the spreading of illegal trade provoked by the smaller of tobacco shops and the higher price.