The pass-through of excise taxes to market prices of heated tobacco products (HTPs) and cigarettes: a cross-country analysis.

Currently, the debate over whether HTPs should be taxed in comparison with cigarettes considers their potential harm reduction impact, and most countries tax HTPs at much lower rates than cigarettes in order to keep HTP prices lower than cigarette prices. However, the direct pass-through rate of HTP taxes to prices is several times smaller than that of cigarettes, resulting in very similar unit prices of HTPs and cigarettes. Further, while cigarette taxes are over-shifted to cigarette prices, HTP taxes are under-shifted to HTP prices, suggesting that tax gaps between the two products does not translate to price gaps. The results overall suggest that the lower taxes on HTPs do not lead to lower prices as compared to cigarettes and are unlikely to incentivize cigarette smokers to transition to HTPS for lower costs. Under this scenario, taxing both products equivalently could be an option to raise additional tax revenue.