Tax committee report: Snus tax revenues plummet due to Laffer-effect

Published: February 12, 2016

Tax revenues from snus dropped by almost SEK 200m between 2013 and 2014, according to a new report from the Swedish parliament’s Committee on Taxation, which explained the fall by pointing to the so-called ‘Laffer curve’, when higher tax rates can lead to lower overall revenues. 

In a seminar on excise duty on tobacco held to present the report, representatives from the Ministry of Finance acknowledged that the excise duty was not justified on public health grounds, but instead to raise revenue for the government. 

The Laffer curve, developed by the supply-side economist Arthur Laffer, has been historically used to argue that tax cuts can sometimes increase total tax revenue by stimulating consumption. 

When a duty with a moderate tax rate is introduced, people do not change their behavior and tax revenues increase. But if the tax rate rises too high, people will start to act differently to avoid the tax until reaching a point where total tax revenues decrease, which is what the committee’s report argues has happened with snus taxation. 

In its report, the Committee on Taxation recommended that the Ministry of Finance closely monitors the total tax revenue from snus to make sure that the tax is as effective as possible. 

Read the tax committee’s report on excise duties (in Swedish) here.