This open letter is prompted by the current tobacco excise policy and its impact on the economy of the Republic of Moldova. More specifically, it concerns the amendments to tobacco excise policy for 2027–2029 proposed by the Ministry of Finance. We believe it is necessary to clarify several points and draw attention to issues that, in our view, have not been examined in sufficient depth.

First, we believe this issue must be considered from a broader perspective, rather than solely in terms of the revenue the state will collect from higher excise duties. We do not dispute the need to raise budget revenue or the objectives of public health policy. Nor are we asking for tax privileges for domestic producers. However, we believe that the existing excise formula needs to be rebalanced and that the proposed changes must also be assessed in terms of their indirect economic impact.

In this context, it should be noted that, since 2012, tax policy affecting the tobacco industry has undergone successive changes that have significantly altered the economic conditions in which local producers operate. One major change was the gradual increase in the specific component of excise duty, accompanied by a reduction in the ad valorem component. A mandatory minimum excise amount was subsequently introduced, regardless of the outcome of the calculation formula. In 2020, the excise rates on filtered and unfiltered cigarettes were equalised, affecting a category in which local producers operated. In 2022, changes were also made to the tax treatment of cigarillos. Our analysis indicates that these changes contributed to the contraction of certain traditional segments of domestic production. We believe that their effects, including on tobacco farmers, require an official assessment.

Further increases are now being proposed for 2027-2029, without a sufficiently detailed analysis of their cumulative impact on the entire economic value chain being made available to the public.

We also wish to draw attention to the imbalance created by a high specific excise component and a low ad valorem component. The current cigarette excise formula includes a substantial specific duty of MDL 1,189.57 per 1,000 cigarettes in 2026, together with an ad valorem component of just 13% and a mandatory minimum excise amount. From an economic standpoint, this structure does not ensure fiscal equity across products in different price segments. By way of illustration, we examined four price segments of the 2026 market:

As the figures show, of the MDL 47 retail price of a pack, almost MDL 40 consists of excise duty and VAT. Approximately MDL 7 remains for the entire production and distribution chain. In the premium segment, the amount remaining after these taxes is considerably higher. Moreover, under the market structure analysed, approximately 78% of sales volume is already subject to the minimum excise amount. Thus, although the ad valorem component exists in the formula, it no longer effectively changes the tax payable on most products. We believe that the balance between specific and ad valorem excise duty should be adjusted by reducing the fixed component and increasing the price-proportional component. Such an approach is also used in most European countries and should be examined as an alternative that would not reduce budget revenue but, on the contrary, could increase it.

A separate concern is the proposal to change the reference-price coefficient from 1.46 to 1.57. As a result of the proposed increase in the minimum excise duty for 2027, the reference price per pack would already rise from approximately MDL 46.59 to MDL 55.92, even if the existing coefficient remained unchanged. Increasing the coefficient to 1.57 would bring the reference price to approximately MDL 60.13 (calculated as follows: minimum excise duty of MDL 38.3 per pack × coefficient of 1.57 = minimum reference price of MDL 60.13). Two increases are therefore being applied simultaneously: one through the minimum excise duty and the other through the coefficient used to calculate the selling price.

But there is an even more important point. In price segments already subject to the minimum excise duty, a further increase in the reference price does not generate additional excise duty on each pack sold. Instead, it creates asymmetric conditions for the same products in different price segments.

Scenario 1: The minimum price rises from MDL 47 to MDL 61 (an increase of MDL 14, or 29.78%), while total excise duty amounts to MDL 38.30 per pack (62.78% of the final retail price).

Scenario 2: The premium-segment price rises from MDL 73 to MDL 80 (an increase of MDL 7, or 9.58%), while excise duty amounts to MDL 38.96 per pack (48.7% of the retail price).

We recall that, in 2019, the Chicu Government decided to abolish minimum cigarette prices from 2020, on the grounds that the state should not interfere without justification in price formation and competitive market relations. Nevertheless, the mechanism was reintroduced in 2023, and an increase in the calculation coefficient from 1.46 to 1.57 is now proposed for 2027. What has changed in the meantime? Why is it necessary to impose a minimum selling price when the state already collects a mandatory minimum excise duty? Such intervention may restrict price competition and disadvantage producers with lower costs, without automatically generating additional excise revenue.

We also ask the Ministry of Finance to explain how this mechanism is compatible with European principles concerning freedom of price formation. Article 15 of Directive 2011/64/EU protects the freedom of producers and importers to set their selling prices. In the context of EU accession, how can the maintenance of an administratively imposed minimum price, in addition to the minimum excise duty, be justified? We believe these questions require public answers grounded in legal and economic reasoning, rather than general references to harmonisation with EU legislation.

European models differ. Most countries use ad valorem components above 30% or 40%, alongside specific components and minimum tax levels. At the same time, the EU–Moldova Association Agreement provides for the gradual approximation of excise duties, taking into account, as far as possible, the constraints of the regional context. In our view, the Ministry of Finance should clearly identify which provisions are required by EU law and which reflect the national authorities’ own tax-policy choices.

Finally, we come to the most important issue: the impact on the national economy. It must be emphasised that the discussion of excise duties should not revolve exclusively around direct budget receipts. Domestic manufacturing makes a different economic contribution from merely importing and selling finished products. Local production creates demand for tobacco grown in the Republic of Moldova. This means work for farmers, raw-material processing, jobs in rural areas, transport, warehousing, logistics, related services and export opportunities. By contrast, in the case of imported finished products, a significant share of the value added during manufacturing is generated outside the Republic of Moldova.

We do not dispute the legitimate role of importers. However, the state must recognise the difference between the economic impact of manufacturing a product domestically and that of importing the finished product. Rebalancing the tax system should also be assessed in terms of its potential to reduce the external trade deficit, increase value added generated in Moldova, encourage investment in domestic manufacturing and strengthen indirect tax revenues. We are referring to taxes on wages, social contributions, VAT, local taxes and all the economic activity generated around a product manufactured in the country.

The state must act in accordance with its genuine economic interests. If we want a stronger economy, more jobs and competitive agriculture, tax policy must be designed not only to secure immediate budget revenue but also to support long-term economic development.

We are not proposing the abolition of minimum excise duties or the abandonment of public health objectives. We propose examining a genuine reform of the excise mechanism that would ensure budget revenue, predictability and fair conditions of competition.

To this end, we request that the Ministry of Finance:

1. Reassess the excise formula by increasing the ad valorem component and reducing the specific component, on the basis of a comparative analysis of European models.
2.  Repeal Article 123³ of the Fiscal Code, “Method for calculating the reference price of cigarettes and cigarillos”. Present a separate assessment of the impact of increasing the coefficient from 1.46 to 1.57, including a justification for maintaining a minimum retail price alongside the minimum excise duty.
3. Assess the effects on domestic production, including tobacco farmers, employment, investment, imports and value added generated in the Republic of Moldova.
4. Seek an opinion from the Competition Council on the effects of tax policy on competitive conditions.
5. Organise a genuine public debate involving the responsible institutions, producers, importers and independent experts before the tax policy is finalised.

We also request that the Ministry of Finance make public the rationale for the proposed changes and consider the available economic alternatives.

We believe that the Republic of Moldova needs a predictable, proportionate and economically justified tax policy, rather than a succession of increases in excise duties.

This is not just an issue for the tobacco industry; it is a question of how the state intends to support production, investment and the competitiveness of the Republic of Moldova’s economy.

Respectfully,
Vladimir Țurcan, President of the Association of Tobacco Processors “AP-TUTUN”

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