The use of heated tobacco products in Serbia

This study examines the dynamics of heated tobacco product (HTP) prices, sales and taxation in Serbia and assesses how the tobacco industry shapes HTP- and cigarette-pricing strategies in response to tobacco tax policy. Using monthly data on HTP and manufactured-cigarette (MC) prices and excise taxes for the 2018-2025 period, we apply fixed-effects panel regression models to estimate the pass-through of excise taxes to retail prices, complemented by descriptive analysis of market developments, consumption trends, affordability and taxation. Since the introduction of HTPs in 2018, consumption of them has steadily increased, reaching 6.25% of all tobacco packs sold in 2023. Although excise taxes on HTPs have risen substantially, retail prices have not followed at the same pace. The estimated direct pass-through of an increase of one Serbian dinar (RSD) in the HTP excise tax is RSD 0.26 and statistically insignificant, indicating that the industry absorbs a significant portion of tax increases. Excise taxes account for only 13.4% of the retail price of the leading HTP brand, compared with 61.4% for cigarettes. Aligning HTP taxation with cigarettes would reduce industry profit, improve public health and increase public revenue.

Keywords: Heated tobacco products, tobacco taxation, tax pass-through, panel data

JEL classification: H21, I18, D22

Countries covered: Serbia