Poland’s illicit cigarette share rises as excise revenue misses plan by PLN 3.5 billion

Illegal trade gains ground after tax increase

Illicit cigarettes increased their share of Poland’s tobacco market while legal sales declined, according to a report by the Foundation Laboratory of Law and Economy covered by 300gospodarka.pl. An EPS study cited in the report estimated that illegal products represented 7.5% of cigarettes consumed in the fourth quarter of 2025. That was approximately one in every 13 cigarettes.

The change followed a departure from Poland’s excise tax roadmap. Introduced in 2022, the roadmap provided a predictable schedule agreed by the government, businesses and tobacco growers. During its operation, excise revenue increased and the illicit share remained at about 5%. The schedule was altered in 2024, and new rates took effect in 2025. A previously planned 10% increase in cigarette excise was replaced with a 25% rise, while rates for smoking tobacco and novel tobacco products increased by more.

Revenue falls PLN 3.5 billion short of plan

The higher rates did not produce the revenue included in the state budget. Planned 2025 excise receipts from tobacco and nicotine products were approximately PLN 37.1 billion, but actual revenue reached about PLN 33.6 billion. The resulting gap was approximately PLN 3.5 billion. Excise from tobacco products, novel products and e-cigarette liquids still accounted for around 6.35% of all state budget tax revenue in 2025.

The report’s authors argue that some consumers did not stop using nicotine products after legal prices rose but instead moved outside the regulated market. They do not oppose excise taxation or tobacco regulation. Their concern is that further tax increases and product restrictions are being introduced before the government has fully assessed the effects of earlier measures on public health, revenue and illegal trade.

Enforcement disrupts factories but demand persists

Polish authorities continued to uncover substantial illegal production. In the previous year, the National Revenue Administration detected 27 illegal factories and seized more than 184 million untaxed cigarettes. Police reported another 36 illegal facilities and secured 51 million cigarettes. These operations removed significant volumes, but the report says enforcement alone may not contain the market if the price difference between legal and illegal cigarettes continues to widen.

Poland has faced a larger illicit market before. Following sharp excise increases between 2011 and 2014, illegal cigarettes accounted for about one-fifth of the market. Reducing that share to roughly 5% took more than a decade. The report also examined France, the Netherlands, Lithuania and New Zealand, arguing that rapid tax increases or extensive product bans can make illicit trade more attractive when consumer and criminal responses are not considered.

Predictability becomes an industry concern

For manufacturers and other legal-market businesses, abrupt regulatory changes affect production, inventories, pricing, contracts and investment planning. The report says the 2024 departure from the roadmap weakened confidence in the stability of the rules. It calls for longer implementation periods, impact assessments, analysis of alternatives and continuous monitoring of the illicit market.

The policy debate now extends beyond conventional cigarettes to novel tobacco products and e-cigarette liquids. Each category has different consumers and a different exposure to illegal supply. The report recommends evaluating them separately before adopting further restrictions. Its central warning is that taxes designed to increase revenue and reduce consumption can instead shrink the legal tax base if price-sensitive demand moves to unregulated suppliers.