Across many jurisdictions, governments have become structurally dependent on cigarette taxation as a stable source of public revenue. This dependence creates powerful fiscal and political incentives that can slow or complicate the transition away from combustible tobacco, even as public-health strategies increasingly emphasise harm reduction. In this environment, it is not coincidental that the companies best positioned to navigate complex regulatory systems are the largest cigarette multinationals, rather than smaller innovators developing lower-risk nicotine products.
Governments’ Cigarette Cash Machine
Cigarette excise duties remain one of the most reliable and high-yield revenue streams in public finance. Globally, tobacco excise generated an estimated US$361 billion in 2018 alone, placing cigarettes among the most consistently taxed consumer products worldwide. Analyses of the largest multinational tobacco companies indicate that governments collectively receive well over US$100–160 billion annually from cigarette-specific taxes and associated corporate income taxes, with excise duties accounting for the majority of this revenue.
In many countries, tobacco tax receipts are sufficiently large and predictable that they are treated as quasi-structural funding within general budgets or earmarked programmes. Rather than being viewed as a declining revenue stream linked to a product governments publicly aim to eliminate, cigarette taxes often become embedded in long-term fiscal planning. Australia offers a clear example, where tobacco taxation has accounted for approximately 2.5 percent of combined federal, state, and territory government revenue in recent years, an appreciable share within a mature, high-income tax system.
When Smokers Switch, Treasuries Lose
The fiscal implications of harm reduction are stark. Analyses of cigarette taxation in the United States show that state governments can capture between US$60 and US$90 of every US$100 spent on cigarettes once excise taxes, sales taxes, and Master Settlement Agreement payments are combined. This makes cigarette consumption an unusually lucrative source of government income.
When smokers switch to nicotine pouches or other lower-risk, smoke-free products, this revenue model changes dramatically. In many cases, the combined fiscal return falls to as little as US$5–10 per US$100 spent, reflecting lower or absent excise duties, the absence of settlement payments, and declining combustible sales. At a global scale, a rapid and sustained shift away from cigarettes would, by design, erode hundreds of billions of dollars in excise revenue over time.
This outcome aligns with stated public-health goals, but it presents a clear challenge for finance ministries and sub-national treasuries. As a result, a tension emerges between rhetorical commitments to ending smoking and fiscal systems that continue to treat cigarettes as indispensable sources of public revenue. In such contexts, safer nicotine products risk being marginalised, delayed, or reframed primarily as new tax bases rather than as tools for reducing smoking-related harm.
Policy Coherence or Revenue Protection?
In the United States, the proposed POUCH Act (H.R. 10444) reflects an attempt to restore a degree of regulatory coherence by preventing state and local governments from banning FDA-authorised reduced-risk products, including nicotine pouches and vapes. The legislation recognises that once the FDA has determined a product to be “appropriate for the protection of public health,” blanket prohibitions at state or municipal level undermine the logic of a national, science-based regulatory framework.
However, the POUCH Act does not address a deeper structural issue. Nicotine pouches that contain no tobacco leaf, involve no combustion, and exhibit toxicological profiles closer to nicotine replacement therapy remain regulated within the FDA’s Center for Tobacco Products and subject to the full premarket tobacco application process. This classification places fundamentally different products within the same administrative category as combustible cigarettes, slowing authorisation timelines and constraining market entry for lower-risk alternatives.
How the Current System Favours Big Tobacco
The premarket tobacco application process was designed for an earlier regulatory context and now requires extensive toxicological testing, behavioural modelling, and population-level analysis for each product or product family. The cost of compliance can run into millions of dollars per application, creating a barrier that only the largest multinational tobacco companies can consistently overcome.
As a result, many small and mid-sized companies developing innovative, lower-risk nicotine products have remained in prolonged regulatory limbo or exited the market entirely. These outcomes often occur in the absence of negative safety findings, driven instead by cost, delay, and uncertainty. In contrast, incumbent cigarette manufacturers are able to cross-subsidise regulatory compliance using profits from combustible products and position smoke-free alternatives as portfolio hedges rather than as disruptive replacements.
The outcome is paradoxical. The more regulators insist on treating smoke-free nicotine products “like cigarettes” in law and process, the more they consolidate market power in the hands of companies whose continued cigarette sales underpin both tax revenues and regulatory capacity.
Time to Break the Fiscal Trap
Global tobacco taxation guidance frequently highlights the revenue potential of higher cigarette excise, while paying comparatively less attention to the design of risk-proportionate frameworks for smoke-free nicotine products. This imbalance reinforces a cycle in which cigarettes are heavily taxed for revenue, safer alternatives are regulated as if they were combustible, and slow progress in reducing smoking is attributed to industry behaviour rather than to structural incentives.
A more transparent and sustainable approach would acknowledge that fiscal dependence on cigarette excise has become one of the principal barriers to ending smoking. Governments could then plan for a managed decline in tobacco revenue by diversifying tax bases, avoiding long-term spending commitments tied to cigarette sales, and earmarking shrinking tobacco revenues for transition and cessation-support mechanisms.
At the same time, nicotine pouches and similar products should be moved out of combustible-centric regulatory frameworks and into proportionate regimes focused on age restrictions, product standards, marketing controls, and transparency. Such an approach would allow genuine competition with cigarettes, rather than protecting tax flows and incumbent firms from healthier disruption.
For an organisation such as GINN, the central conclusion is clear. Fiscal realism and public-health ambition must be aligned, not traded off. As long as cigarette excise remains a pillar of government finance, there will be persistent, if often unspoken, incentives to delay the transition to safer alternatives and to favour the companies best equipped to operate within an uneven regulatory landscape.
