© 2025 the Author(s), licensee AIMS Press.In this study, we examined the role of tobacco taxation in Spain, focusing on its effectiveness in reducing smoking, generating fiscal revenue, and promoting health equity within the framework of health economics and national accounting. Using panel data econometrics across Spain’s 48 provinces from recent decades, we evaluated the relationship between tax rates, tobacco consumption, and fiscal outcomes. Our results suggested that while tobacco taxes are effective in reducing consumption overall, their impact is limited by tax disparities between products and substitution toward roll-your-own (RYO) tobacco. Furthermore, demographic factors, including aging populations and socio-economic disparities, significantly influenced consumption patterns and tax sensitivity. Evidence indicated that Spain’s current tobacco tax rates might fall below the revenue-maximizing point, leading to potential fiscal losses. Accounting for these findings, we highlighted pathways to refine the tax structure, including integrating specific and ad valorem taxes, adjusting for inflation, and harmonizing rates across tobacco products. These insights contribute to the optimization of tobacco taxation, supporting fiscal sustainability and public health outcomes.