Government retracts regulation on waterpipe tobacco use
Underground Waterpipe Tobacco Trade Prospers. The Federal Finance Ministry and Customs initially planned to crack down on small packaging with tax duties. However, the legitimate market crumbled due to the move.
After facing intense backlash, the Federal Finance Ministry revoked a controversial packaging regulation for Shisha tobacco. As per a ministry order, the maximum limit of 25 grams per Shisha tobacco packaging will no longer apply from July 1. All packaging sizes will be permitted once more, as per the regulations. The Ministry and Customs are thereby performing a 180-degree turn: In mid-2022, the maximum limit was imposed to control rampant tax evasion in the Shisha industry.
Numerous bars purchased large packages and sold small individual portions to customers. This made it possible for them to pay less tax to the Treasury than they should have - they skirted the "single-use ban". The authorities were aware of the issue and carried out raids against it from time to time. However, the problem persisted, as many bar owners continued to operate as before.
The packaging regulation was meant to be the solution: Since only 25-gram packages were permitted from mid-2022 onwards, the division of the content - the "single-use" - was no longer feasible due to the small quantity. The Finance Ministry had anticipated that tax revenues would increase as a result. However, this prediction turned out to be incorrect: The Treasury did not receive more, but significantly less tax revenue.
Black market flourishing
According to the Waterpipe Tobacco Trade Association's evaluation, the decline in tax revenues was due to a surge in the black market. Consumption remained constant, said Association Managing Director Folke Rega, justifying this belief with the consistent sales of specialized Shisha coal. A large portion of this was used to fuel the black market tobacco. Prices for Waterpipe tobacco had approximately doubled due to the packaging prescription.
The legal market shrank to only about one tenth of the level of 2021, that is, before the introduction of the packaging regulation. Some dealers went out of business, while other companies were hit hard. Criticism against the packaging regulation intensified, with supporters of the Waterpipe tobacco industry coming from all sides.
Environmentalists pointed out that, due to the requirement for 25-gram packaging (approximate amount for a Waterpipe head), significantly more packaging waste would be generated. Therefore, if one uses 200, 500 or 1000 gram packages, significantly less plastic would be required in relation to the amount.
Shisha industry in disarray
With the ordinance, the Federal Finance Ministry and the Customs, under their supervision, are now abandoning the regulation implemented by the coalition (CDU/CSU and SPD). FDP Bundestag member Till Mansmann expressed relief. "With the introduction of the volume limit for Waterpipe tobacco, the Union and SPD mainly made a gift to smugglers and fraudsters who have been illegally flooding the market in large quantities since then."
Carrying businesses have been honest establishments, which have been driven into bankruptcy. The managing director of the Federal Association of Waterpipe Tobacco, Rega, also expressed positively. "For the businesses that have not given up yet, the regulation change means salvation in the last second. The existence of the entire industry was in danger, it would have had to surrender to the black market."
Association requests additional changes
The association pleaded with the Federal Government to take another step and allow the sale of portions removed from large packages in Shisha-Bars - thus breaking the long-standing "prohibition of individual sales". "That would be a boost for honest bar owners who want to comply with state regulations." However, these regulations must also be "practical".
As of July 1, the sale of large packages is once again permitted in Germany. However, the regulation change is very short-term. "Therefore, it may still take some time before large packages are available again," said Rega. By the end of July, most brands should have them again.
In Germany, there are approximately 5000 Shisha-Bars, in which about a quarter of the waterpipe tobacco sold in Germany is consumed - the rest falls on private demand. According to the association's statements, there are approximately 2500 sales points, such as kiosks and gas stations, as well as approximately 200 wholesalers.
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In response to the backlash, the Federal Ministry of Finance revoked the controversial packaging regulation for Shisha tobacco, allowing all packaging sizes once more from July 1. The tobacco industry, specifically the Shisha sector, has been significantly impacted by this change, as the black market thrived due to the regulation.
Despite the reversal of the regulation, the Federal Association of Waterpipe Tobacco has requested an additional change, allowing the sale of portions removed from large packages in Shisha-Bars, aiming to support honest bar owners.
