“Rescue at the last second”
Ministry backtracks on shisha tobacco rule
20.06.2024, 10:25 a.m.
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The black market for hookah tobacco is booming. The Federal Ministry of Finance and Customs actually want to counteract this by making small packages mandatory. However, this has led to the legal market collapsing. Now the authorities are pulling the ripcord.
After sharp criticism, the Federal Ministry of Finance has scrapped a controversial packaging rule for shisha tobacco. According to a ministry regulation, the maximum limit of 25 grams per pack of hookah tobacco will be lifted. From July 1, all pack sizes will be released again, the regulations state. The ministry and customs are thus changing course: the maximum limit was introduced in mid-2022 to put a stop to rampant tax fraud in the shisha industry.
Many bars bought large packages and sold small individual portions to customers. This meant that they paid less tax to the tax authorities than they should have – they defied the “ban on individual portions”. The law enforcement officers were aware of the problem and repeatedly took action against it in raids. This did not solve the problem, and many bar owners carried on as before.
The packaging rule was supposed to be the solution: Because only 25-gram packs were allowed from mid-2022, dividing up the contents – i.e. “separating” – was no longer possible given the small quantity. The Federal Ministry of Finance estimated that tax revenues would increase as a result of the new rule. But this assumption turned out to be a fallacy: The tax authorities did not collect more, but significantly less.
Black market booming
According to the Federal Association of Hookah Tobacco, the declining tax revenue was due to a boom in the black market. Consumption has remained stable, said association manager Folke Rega, justifying this assumption with the stable sales of special shisha coal. A large part of this is used to light the black market tobacco. Due to the packaging regulations, the prices for hookah tobacco have roughly doubled.
According to the association, the legal market collapsed to just a tenth of the level of 2021, i.e. before the packaging rule was introduced. The first dealers closed down, other companies gradually began to list. Criticism of the packaging rule grew, and supporters of the hookah industry came from very different corners.
Environmentalists pointed out that the requirement to use 25 gram packs – about the size of a water pipe bowl – resulted in significantly more packaging waste than before. So if you use 200, 500 or 1000 gram packs, significantly less plastic is needed in relation to the amount.
Shisha industry in trouble
With this regulation, the Federal Ministry of Finance and the customs authorities under its control are now pulling the plug; the regulation introduced by the black-red coalition will soon be history. FDP member of the Bundestag Till Mansmann was relieved. “By introducing the quantity limit for water pipe tobacco, the Union and SPD have given a gift above all to the smugglers and fraudsters who have since brought illegal products onto the market on a large scale.”
Those who suffered were companies that were honest about their taxes and were forced into bankruptcy. The managing director of the Federal Waterpipe Tobacco Association, Rega, also expressed himself positively. “For the companies that have not yet given up, the rule change means rescue at the last second. The existence of an entire industry was in danger; it would have had to capitulate to the black market.”
Association hopes for further changes
The association appealed to the federal government to go a step further and allow the sale of portions taken from large packages in shisha bars – in other words, to overturn the long-standing “ban on individual sales”. “That would be a boost for honest bar owners who want to abide by state rules.” However, these rules would also have to be “suitable for everyday use”.
As of July 1, the sale of large packs is permitted again in Germany. However, the rule change is very short-term. “It may therefore take some time before large packs are available again,” said Rega. By the end of July, most brands should be available in large packs again.
There are an estimated 5,000 shisha bars in Germany, where around a quarter of the water pipe tobacco sold in Germany is consumed – the rest is for private use. According to the association, there are around 2,500 sales points, such as kiosks and petrol stations, as well as around 200 wholesalers.