COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT REPORT Accompanying the document Proposal for a COUNCIL DIRECTIVE on the structure and rates of excise duty applied to tobacco and tobacco related products (recast)

EN EN
EUROPEAN
COMMISSION
Brussels, 16.7.2025
SWD(2025) 560 final
COMMISSION STAFF WORKING DOCUMENT
IMPACT ASSESSMENT REPORT
Accompanying the document
Proposal for a COUNCIL DIRECTIVE
on the structure and rates of excise duty applied to tobacco and tobacco related products
(recast)
{COM(2025) 580 final} - {SEC(2025) 560 final} - {SWD(2025) 561 final}
Offentligt
KOM (2025) 0580 - SWD-dokument
Europaudvalget 2025
1
Table of contents
1. INTRODUCTION: POLITICAL AND LEGAL CONTEXT ...............................................................7
2. PROBLEM DEFINITION.....................................................................................................................9
3. WHY SHOULD THE EU ACT?......................................................................................................... 19
4. OBJECTIVES: WHAT IS TO BE ACHIEVED?................................................................................ 20
5. WHAT ARE THE AVAILABLE POLICY OPTIONS?..................................................................... 22
6. WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? ........................................................... 35
7. HOW DO THE OPTIONS COMPARE? ............................................................................................ 52
8. PREFERRED OPTION....................................................................................................................... 55
9. HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED?.................................. 59
ANNEX 1: PROCEDURAL INFORMATION ............................................................................................ 61
1. LEAD DG, DECIDE PLANNING/CWP REFERENCES .................................................................. 61
2. ORGANISATION AND TIMING...................................................................................................... 61
3. CONSULTATION OF THE RSB....................................................................................................... 63
4. EVIDENCE, SOURCES AND QUALITY......................................................................................... 67
ANNEX 2: STAKEHOLDER CONSULTATION (SYNOPSIS REPORT) ................................................ 68
1. CONSULTATION STRATEGY ........................................................................................................ 68
2. FEEDBACK ON THE POLICY PROBLEMS ................................................................................... 69
3. FEEDBACK ON SPECIFIC POLICY OPTIONS .............................................................................. 73
ANNEX 3: WHO IS AFFECTED AND HOW?........................................................................................... 78
1. PRACTICAL IMPLICATIONS OF THE INITIATIVE..................................................................... 78
2. SUMMARY OF COSTS AND BENEFITS........................................................................................ 78
3. RELEVANT SUSTAINABLE DEVELOPMENT GOALS ............................................................... 84
ANNEX 4: ANALYTICAL METHODS...................................................................................................... 88
1. INTRODUCTION............................................................................................................................... 88
2. DATA COLLECTION........................................................................................................................ 88
3. DESK RESEARCH............................................................................................................................. 90
4. CALL FOR A DATA.......................................................................................................................... 91
5. CASE STUDIES ................................................................................................................................. 92
6. METHODOLOGICAL LIMITATIONS............................................................................................. 92
7. BASELINE SCENARIO..................................................................................................................... 93
8. IMPACT ANALYSIS ......................................................................................................................... 96
ANNEX 5: COMPETITIVENESS CHECK............................................................................................... 105
1. OVERVIEW OF IMPACTS ON COMPETITIVENESS ................................................................. 105
2. SYNTHETIC ASSESSMENT .......................................................................................................... 105
ANNEX 6: SME CHECK........................................................................................................................... 108
ANNEX 7: SMOKING PREVALENCE AND PRICE LEVELS............................................................... 114
1. SMOKING PREVALENCE.............................................................................................................. 114
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2. SMOKING PREVALENCE. GENDER AND SOCIO-ECONOMIC GROUPS.............................. 115
3. AFFORDABILITY AND THE ROLE OF EU MINIMA ON TOBACCO PRODUCTS ................ 118
4. EXCISE DUTY LEVELS ................................................................................................................. 121
ANNEX 8: CROSS-BORDER FLOWS OF TOBACCO AND NEW PRODUCTS.................................. 123
1. CONTEXT ........................................................................................................................................ 123
2. ASSESSMENT OF CROSS-BORDER FLOWS.............................................................................. 123
ANNEX 9: ILLICIT TRADE AND MANUFACTURING OF TOBACCO PRODUCTS ........................ 130
1. OVERVIEW...................................................................................................................................... 130
2. ESTIMATED MAGNITUDE AND CHARACTERISTICS OF ITTP ACROSS THE EU.............. 131
3. ILLICIT MANUFACTURING WITHIN EU ................................................................................... 133
ANNEX 10: INCOHERENT FISCAL TREATMENT OF CIGARILLOS AND WATERPIPE TOBACCO136
1. CIGARILLOS ................................................................................................................................... 136
2. WATERPIPE TOBACCO................................................................................................................. 136
ANNEX 11: PURCHASING POWER PARITIES APPROACH............................................................... 138
1. OVERVIEW...................................................................................................................................... 138
2. COMPARISON BETWEEN RELATIVE INCOME PRICE (RIP) AND PURCHASING POWER
PARITIES (PPP) BASED MECHANISMS...................................................................................... 138
3. LIMITS OF THE PPP APPROACH ................................................................................................. 139
4. CONCLUSION ................................................................................................................................. 140
ANNEX 12: HEATED TOBACCO PRODUCTS...................................................................................... 143
1. MARKET AND DEMAND TRENDS.............................................................................................. 143
2. LEGAL FRAMEWORK OF HTP IN MEMBER STATES.............................................................. 146
3. TAX REVENUE ............................................................................................................................... 149
ANNEX 13: LIQUIDS FOR ELECTRONIC CIGARETTES.................................................................... 150
1. MARKET TRENDS AND DEMAND.............................................................................................. 150
2. LEGAL FRAMEWORK FOR E-CIGARETTES IN MEMBER STATES ...................................... 155
3. LIQUIDS FOR E-CIGARETTES REGIME’S IMPLEMENTATION AND OBLIGATIONS........ 155
4. TAX REVENUE ............................................................................................................................... 156
ANNEX 14: OTHER TOBACCO-RELATED PRODUCTS ..................................................................... 158
1. MARKET TRENDS AND DEMAND.............................................................................................. 158
2. LEGAL FRAMEWORK IN MEMBER STATES ............................................................................ 159
ANNEX 15: RAW TOBACCO .................................................................................................................. 160
1. RECONSTRUCTION OF THE TOBACCO SUPPLY CHAIN ....................................................... 160
2. LEGAL FRAMEWORK FOR RAW TOBACCO IN MEMBER STATES ..................................... 166
ANNEX 16: CURRENT EXCISE DUTY RULES FOR MANUFACTURED TOBACCO...................... 168
1. EXCISE DUTY STRUCTURE......................................................................................................... 168
2. RELEVANCE OF THE CURRENT EXCISE DUTY STRUCTURE.............................................. 170
ANNEX 17: IMPACTS OF THE PROPOSED OPTIONS ........................................................................ 171
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1. REVISION OF EU MINIMA FOR TRADITIONAL TOBACCO PRODUCTS ............................. 171
2. HOLDING, MOVEMENT AND CONTROL REQUIREMENTS UNDER HORIZONTAL DIRECTIVE
........................................................................................................................................................... 174
3. ENLARGING THE SCOPE TO NEW PRODUCTS........................................................................ 176
4. IMPACTS RELATED TO ENLARGING THE SCOPE OF THE DIRECTIVE TO RAW TOBACCO
........................................................................................................................................................... 181
5. ENVIRONMENTAL IMPACTS ...................................................................................................... 186
ANNEX 18: ELASTICITY......................................................................................................................... 188
1. MARKET EFFECTS: ELASTICITY................................................................................................ 188
2. THE PRICE ELASTICITY OF THE DEMAND FOR TOBACCO PRODUCTS IN THE RELEVANT
LITERATURE .................................................................................................................................. 188
ANNEX 19: EXPRESSING REVISED EU MINIMA IN NOMINAL TERMS........................................ 190
1. TRADITIONAL TOBACCO PRODUCTS ...................................................................................... 190
2. NEW PRODUCTS ............................................................................................................................ 194
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Glossary
Term or acronym Meaning or definition
B2B Business to business
CN Combined Nomenclature
Horizontal Directive Council Directive 2008/118/EC concerning the general
arrangements for excise duty and repealing Directive
92/12/EEC
The Directive Council Directive 2011/64/EU on the structure and rates
of excise duty applied to manufactured tobacco
Council Directive 2007/74/EC Council Directive 2007/74/EC of 20 December 2007 on
the exemption from value added tax and excise duty of
goods imported by persons travelling from third countries
CJEU Court of Justice of the European Union
Tobacco Products Directive Directive 2014/40/EU of the European Parliament and of
the Council of 3 April 2014 on the approximation of the
laws, regulations and administrative provisions of the
Member States concerning the manufacture, presentation
and sale of tobacco and related products and repealing
Directive 2001/37/EC
DG TAXUD Directorate-General for Taxation and the Customs Union
DG SANTE Directorate-General for Health and Food Safety
DG AGRI Directorate-General for Agriculture and Rural
Development
E-cigarette Electronic cigarette, that can be used for consumption of
vapour via a mouthpiece, or any component of that
product, including a cartridge, a tank and the device
without cartridge or tank
EDY Excise duty yield
EMCS Excise movement and control system
5
EU European Union
EUROPOL European Union Agency for Law Enforcement
Cooperation
FCT Fine-cut tobacco intended for the rolling of cigarettes
FCTC Framework Convention on Tobacco Control
GDP Gross Domestic Product
HICP Harmonised Indices of Consumer Prices
HTP Heated tobacco product
ITTP Illicit trade of tobacco products
MED Minimum Excise Duty
NGOs Nongovernmental organisations
OLAF European Anti-Fraud Office
OST Other Smoking Tobacco
PPP Purchasing Power Parity
RIP Relative Income Price
RSP Retail Selling Price
RFC Release for consumption
SEED System for Exchange of Excise Data
SDG Sustainable Development Goals
SMEs Small and medium enterprises
TEDB Taxes in Europe Database
TFEU Treaty on the Functioning of the European Union
WAP Weighted average price
6
WHO World Health Organization
WPT Waterpipe tobacco
7
1. Introduction: Political and legal context
Tobacco consumption is one of the greatest avoidable health risks in the European Union.1
Tobacco
is a highly addictive substance, and its use is linked to cardiovascular and respiratory diseases, and
27% of all cancers. Tobacco consumption remains the largest behavioural risk factor to health and
each year accounts for about 700 000 deaths across EU Member States. In Europe’s Beating Cancer
Plan2
, the European Commission proposed to create a ‘Tobacco Free Generation’ and set a target of
reducing smoking prevalence to less than 5% of the population by 2040. The plan is based on a wide
consultation with stakeholder groups, the European Parliament and the Member States.
The revision of Council Directive 2011/64/EU on the structure and rates of excise duty applied to
manufactured tobacco (‘the Directive’), which is the subject of this impact assessment, as an integral
part of Europe’s Beating Cancer Plan, should focus on ensuring a high level of human health
protection. Higher tobacco taxes and prices have been demonstrated to be the single most effective
measure to reduce overall tobacco use, induce current smokers to quit, reduce uptake by young
people, lower consumption among those who continue to smoke, improve population health, increase
tobacco tax revenues, and produce additional public health benefits. The revision of the Directive will
contribute to the delivery of these objectives.
Other actions contributing to these objectives include the adoption in December 2024 of updated
Council Recommendation on Smoke-Free Environments (to extend its coverage to emerging
products, such as electronic cigarettes and heated tobacco products)3
and a comprehensive evaluation
of the Tobacco Products Directive and the Tobacco Advertising Directive4
. The evaluation will
determine whether and to what extent the current legal frameworks needs to be amended.
reviewing the Tobacco Products Directive. Tobacco tax policy and other tobacco control policies act
in synergy. Taxation in addition to its behavioural impact, delivers an overall ‘price signal’ to society
that smoking is indeed harmful for consumers and should be discouraged by all possible means.
The revision of the Directive will support Member States in meeting the objectives of the WHO
Framework Convention on Tobacco Control5
, including by adopting tax measures to reduce the
demand for tobacco.
The initiative shall also be considered in the context of the EU agenda to strengthen EU
competitiveness and growth while upholding high standards and achieving economic, social, and
environmental goals and to fight against fraud. These political objectives, in the tobacco context, have
three main dimensions:
1
OECD (2024), Beating Cancer Inequalities in the EU: Spotlight on Cancer Prevention and Early Detection, OECD
Health Policy Studies, OECD Publishing, Paris, https://doi.org/10.1787/14fdc89a-en, p 12.
2
Europe's Beating Cancer Plan, SWD (2021) 44 final.
3
https://ec.europa.eu/commission/presscorner/detail/en/ip_24_6185
4
Directive 2014/40/EU of the European Parliament and of the Council of 3 April 2014 on the approximation of the laws,
regulations and administrative provisions of the Member States concerning the manufacture, presentation and sale of
tobacco and related products and repealing Directive 2001/37/EC, OJ L 127, 29.4.2014, p. 1–38.
Directive 2003/33/EC of the European Parliament and of the Council of 26 May 2003 on the approximation of the laws,
regulations and administrative provisions of the Member States relating to the advertising and sponsorship of tobacco
products, OJ L 152, 20.6.2003, p. 16–19.
5
The WHO Framework Convention on Tobacco Control (FCTC) is a legally binding international treaty that aims to
reduce the health and economic impact of tobacco consumption.
8
▪ To streamline rules and reduce the administrative burdens6
for businesses by introducing clear
definitions of new tobacco and tobacco-related products to facilitate cross-border trade
involving these products while, at the same time, helping Member States enforce tax rules and
improve tax compliance, ensuring they can secure reliable tax revenues.
▪ The fight against illicit tobacco trade, in line with the 2nd
EU Action Plan7
, which focuses on
limiting some of the key input materials going into the illicit manufacture of tobacco products,
including raw tobacco, and the use of the Excise Monitoring and Control System (EMCS) for
risk analysis and control.
▪ The fight against tax fraud and evasion, in line with the EU Action Plan for fair and simple
taxation supporting the recovery8
, which sets out measures to help Member States enforce tax
rules and improve tax compliance, ensuring they can secure reliable tax revenues.
EU legislation for the taxation of manufactured tobacco products9
, in place since the 1970s, lays down
minimum tax rates that Member States must respect when taxing tobacco products. The Directive
continues to be an instrument for Member States to collect tax revenues10
. The legal framework has
been revised and amended several times11
. The Directive is part of a broader EU policy framework
that includes the common provisions applicable to all products subject to excise duty and the customs
union legislation, as well as key tobacco control policies.
This revision follows the evaluation of the Directive published on 10 February 2020.12
The evaluation
highlights the main limitations of the current regulatory framework and concludes that the Directive
no longer fully achieves its objectives. The current minimum tax rates have lost traction in terms of
making an effective contribution to reducing tobacco consumption. Notwithstanding that the
Directive contributed to the decline of smoking prevalence, to a certain extent, smoking prevalence
levels remain higher than expected. Existing differentials incentivise cross-border flows. The current
scope of the Directive is not adapted to market developments such as electronic cigarettes (‘e-
cigarettes’) and heated tobacco products. Furthermore, illicit trade in tobacco products remains
substantial and continues to constitute a source of concern in Member States. Most public health
authorities of the Member States are not satisfied with the impact of the Directive on tobacco control
targets and call for stronger fiscal measures.
The Directive can support and complement the objectives of Europe’s Beating Cancer Plan by better
aligning the taxation of tobacco and related products with health objectives, adapting to new
developments and market trends, and introducing harmonised rules on tobacco and related products.
6
https://commission.europa.eu/law/law-making-process/better-regulation/simplification-and-implementation_en
7
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND
THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE 2nd Action Plan to fight the illicit tobacco trade 2018-
2022 (COM/2018/846 final)
8
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL AN
ACTION PLAN FOR FAIR AND SIMPLE TAXATION SUPPORTING THE RECOVERY STRATEGY (COM(2020)
312 final)
9
For the purposes of the provisions of this Directive, manufactured tobacco are: cigarettes; cigars and cigarillos; smoking
tobacco (fine-cut tobacco for the rolling of cigarettes and other smoking tobacco). For more details see ANNEX 16:
10
In 2020 at EU level tobacco excise duties provided around 2% share of tax revenues and 0.93% of GDP (Gross Domestic
Product).
11
Council Directive 92/79/EEC; Council Directive 92/80/EEC; Council Directive 95/59/EC; Council Directive
2002/10/EC; Council Directive 2003/117/EC, Council Directive 2010/12/EC. In 2011, the Council adopted the revised
Directive which codified the previous legislation in a single act.
12
Evaluation of the Council Directive 2011/64/EU of 21 June 2011 on the structure and rates of excise duty applied to
manufactured tobacco, SWD(2020) 33 final.
9
On 2 June 2020, the Council adopted conclusions on the review of the Directive13
based on the
findings from the evaluation. The Council invited the European Commission to submit a legislative
proposal for the revision of the Directive on the basis of an impact assessment.
2. Problem definition
This section defines and analyses the problems and their drivers and it assesses the expected evolution
of these problems in the absence of any EU policy intervention. Figure 1 shows visually the problems,
their drivers, as well as the consequences if unaddressed.
Figure 1. Problem tree
Relative low average price levels
of products
Increasing illicit manufacturing of
tobacco products within EU
Unfit EU minima
Smoking prevalence not declining
sufficiently quickly to meet
Europe’s Beating Cancer Plan
objectives
Incoherent fiscal treatment between and
across the products
Ineffective control of tobacco supply chain by Member States
Negative impact on Member States revenue (fraud, tax avoidance, ineffective tax collection) and security
Market and competition distortions
Negative public health impact (smoking related diseases, addiction levels and related social costs)
DRIVERS
PROBLEMS
CONSEQUENCES
Divergent approaches to taxation between products and Member States
Source: Commission analysis
2.1. What is/are the problems?
At the time of its adoption, the Directive represented a positive contribution to the EU legislative
framework by harmonising rules for the taxation of tobacco. However, the Directive has remained
unchanged over the past 15 years, despite changes in the tobacco market, other EU legislation, and
the political context with an increased focus on public health both at national and EU level. As noted
above the evaluation found that the Directive no longer fully achieves its objectives, which for this
impact assessment is translated into three intervention areas: (1) revising EU minima and certain
categories for traditional tobacco products as smoking prevalence is not declining sufficiently quickly
to meet Europe’s Beating Cancer Plan objectives; (2) enlarging the scope of the Directive to new
products as the current scope of the Directive is not adapted to market developments and the fiscal
treatment between and across products is incoherent; and (3) enlarging the scope of the Directive to
raw tobacco to address increasing illicit manufacturing of tobacco products within the EU. As
verified in the evaluation, in general the regulatory burden and the current excise duty structure for
tobacco products is neither an issue for Member States authorities nor for operators (also see ANNEX
16:2 on relevance of the current excise duty structure). Only certain provisions of the Directive related
to the definitions of and EU minima for traditional tobacco products need to be revised, and the
regulatory framework should be updated due to the disparities in the tax treatment of new products
across Member States and due to the lack of a proper control system for raw tobacco. The options
envisaged for each of the identified problem areas will be subsequently presented. By tackling the
problem drivers, each policy option aims at achieving one or several of the specific objectives.
13
Council conclusions concerning the structure and rates of excise duty applied to manufactured tobacco.
10
Acknowledging the complexity of the issues at stake and their analysis, Figure 3 offers an overview
of the intervention logic behind the initiative (see section 4).
2.1.1. Smoking prevalence not declining sufficiently quickly to meet Europe’s Beating
Cancer Plan objectives
Although smoking prevalence has declined in the EU over the past decade (from 28% to 24% between
2012 and 2023), substantial differences remain between countries and population groups. In some
Member States (e.g. Greece, Bulgaria and Croatia) smokers still represent more than 35% of the
population, while in others (e.g. Denmark, the Netherlands and Sweden) prevalence has fallen below
15%.14
Without intervention, even at current rates of declining usage, the long-term target set out in
Europe’s Beating Cancer Plan, which is to reduce smoking prevalence to less than 5% by 2040, will
not be achieved.
Around 40% of the smoking prevalence decline in the EU can be attributed to the impact of taxation
policies.15
The effectiveness of taxing addictive substances in changing behaviour and improving
public health is widely recognised and reflected by, amongst others, the World Health Organisation
(WHO)16
, the World Bank17
, and academics.18
According to the WHO, a tax rise that increases
tobacco prices by 10% decreases tobacco consumption by about 4% in high-income countries and by
up to 8% in most low- and middle-income countries.
Furthermore, taxation, as a measure to reduce tobacco consumption, is specifically called for in
Article 6 of the WHO Framework Convention on Tobacco Control.19
The European Union is a Party
to the Convention.
While other policy measures such as product regulation, smoke-free environment policies, tobacco
advertising bans, health warnings and labelling policy measures can reduce demand, the relationship
between tobacco control policies and taxation is complementary in fostering greater reduction in
smoking prevalence than each element would have achieved alone.20
14
In the case of the Netherlands – from 24% to 11%; in the case of Sweden – from 13% to 8%; in the case of Denmark –
from 26% to 14%. See ANNEX 7:1 for details.
15
Economisti Associati ‘Impact analysis of the review of tobacco excise duty rules’ (‘EA 2021 study’)..
16
https://www.who.int/activities/raising-taxes-on-tobacco
17
Chaloupka, FJ, Curbing the Epidemic - governments and the economics of tobacco control, Tobacco
Control 1999;8:196-201. Marquez, Patricio V.; Moreno-Dodson, Blanca. 2017, Tobacco Tax Reform at the Crossroads
of Health and Development: A Multisectoral Perspective, World Bank.
18
Kara A. Contreary, Sajal K. Chattopadhyay, David P. Hopkins, Frank J. Chaloupka, Jean L. Forster, Victoria Grimshaw,
Carissa B. Holmes, Ron Z. Goetzel, Jonathan E. Fielding, Economic Impact of Tobacco Price Increases Through
Taxation: A Community Guide Systematic Review, American Journal of Preventive Medicine, Volume 49, Issue 5, p.
801.
19
Article 6(1) provides: ‘The Parties recognize that price and tax measures are an effective and important means of
reducing tobacco consumption by various segments of the population, in particular young persons’. - WHO Framework
Convention on Tobacco Control.
20
Ballester L, Auchincloss A, Robinson L, Mayne S. Exploring impacts of taxes and hospitality bans on cigarette prices
and smoking prevalence using a large dataset of cigarette prices at stores 2001–2011, USA. Int J Environ Res Public
Health. 2017;14(3):e318 (Exploring Impacts of Taxes and Hospitality Bans on Cigarette Prices and Smoking Prevalence
Using a Large Dataset of Cigarette Prices at Stores 2001–2011, USA - PMC (nih.gov), accessed 15 July 2022). White,
V.M., Warne, C.D., Spittal, M.J., Durkin, S., Purcell, K. and Wakefield, M.A. (2011), What impact have tobacco control
policies, cigarette price and tobacco control programme funding had on Australian adolescents' smoking? Findings over
a 15-year period. Addiction, 106: 1493-1502. https://doi.org/10.1111/j.1360-0443.2011.03429.x
11
Within the EU, the relationship between the Weighted Average Price (WAP) of cigarettes in each
Member State and prevalence of smoking may be demonstrated (see
Figure 2 below). In general, the higher WAP of cigarettes, the lower the smoking prevalence within
that Member State.
Figure 2. Weighted Average Price per 1000 cigarettes in EUR (WAP) and Smoking prevalence
in % within the EU (2023)
Source: Commission analysis
The EU minima set in the Directive have been moderately effective in raising tax rates, and
consequently, prices in Member States, especially in the case of cigarettes. However, EU minima
have not been updated since 2010 and inflation21
has eroded their effectiveness. This loss of traction
of EU minima is confirmed by public health authority’s survey results, where a majority admitted
that their smoking prevalence reduction objectives over the last few years could be achieved only to
some moderate or limited extent, particularly among young people and women. In addition, the real
effect of price increases on consumers is dependent on income levels within Member States and this
is not reflected in the Directive. Artificial tax driven cross-border shopping, whereby private
individuals buy tobacco products in another Member State and bring them home for consumption22
,
lowers the effective price at which tobacco is available. This lack of convergence is to be seen together
with the difficulties of enforcing the concept of personal use as foreseen by Article 32 of the
Horizontal Directive (guidance to what quantity of excise good a private person can transport across
Member States borders for his/her own use). The high levels of (cheaper) cross border cigarettes
clearly undermine national public health policies by reducing the effective price at which tobacco is
available, hence affecting efforts to reduce smoking prevalence, although it is difficult to quantify.
Such cross-border shopping distorts competition and market functioning by incentivising businesses
to cluster in countries with lower tax rates. The loss of tax revenue is significant for some Member
21
EU minimum rates are not adjusted on inflation.
22
Personal use of excisable goods provided for by Article 32 of the Horizontal Directive. See ANNEX 8: for more details
on cross-border acquisitions.
0
100
200
300
400
500
600
700
800
900
0
5
10
15
20
25
30
35
40
SE NL DK FI IE LU BE PT MT CZ DE ES IT SI EE HU FR PL SK CY LT AT LV RO HR EL BG
WAP cigarettes Prevalence Linear (WAP cigarettes) Linear (Prevalence)
12
States, while others register considerable extra revenue compared with local consumption23
. In 2023,
the estimated of volume of cross-border purchases of cigarettes by private individuals for their own
use in other EU Member States was approximately 28 billion pieces, i.e. around 7% of total
consumption. In some Member States, the magnitude of cross-border flows is estimated to reach well
above 10% of domestic demand.24
The aggregated forgone excise revenues throughout the EU
amounts to approximately EUR 2.9 billion per annum (that can be used to compensate for the social
costs of smoking). The incidence of cross-border flows is even greater for fine cut tobacco (FCT)25
in relative terms, with volumes estimated to reach between 13% and 20% of the total consumption in
the EU.26
The estimated forgone excise revenue associated would range between EUR 1.3 billion
and EUR 2 billion. For heated tobacco products (HTP)27
and liquids for e-cigarettes28
, recent market
developments show cross-border flows which are also relevant, albeit in a limited number of EU
countries (see ANNEX 8:).
The travel restrictions during the COVID–19 period highlighted the extent of the phenomenon.
During confinements, consumers had more limited access to cheaper tobacco products in other
Member States resulting in increases in the sales of domestic products. For example, in the case of
France - a Member State with high cross-border inflows of tobacco products - during the lockdown,
the estimated volume of cigarettes purchased cross-border was 9.5% of domestic sales while in 2023
it was 23.4%.29
There is a consensus among all stakeholders that the EU tobacco taxation policy
should contribute to reduce differences in taxation between Member States and therefore decrease
the incentive for cross-border flows.
2.1.2. Incoherent fiscal treatment of certain products
The lack of clarity as to the definition of products leads to the incoherent application of the Directive,
resulting in difficulties for Member State authorities, economic operators, and consumers30
. This
affects harmonised products, such as cigarillos and waterpipe tobacco as well as products that contain
tobacco or nicotine but currently fall outside the scope of the Directive.
Until recently, the heterogeneous nature of cigars and cigarillos, and their limited demand, meant that
a single tax category was appropriate. However, the development of economy cigarillos (low priced
cigarillos) as substitutes to cigarettes has differentiated these products. Economy cigarillos take
23
For a number of Member States, notably France and Germany, the revenue loss is significant. Conversely, three Member
States, Luxembourg, Poland and Spain seemingly register considerable extra revenue in connection with cross-border
shopping.
24
In a number of Member States it reaches 10% or more of the total consumption of cigarettes (Austria, Belgium,
Denmark, France, Finland, Germany, Ireland and the Netherlands). The Luxembourg’s case stands out: seemingly almost
90% of the cigarettes released for consumption in the country are actually consumed abroad.
25
Fine-cut tobacco is loose tobacco, which the consumer can use to make cigarettes, by either hand rolling it into cigarette
paper or using a device.
26
Lower and upper bound. Similar to cross-border trade in cigarettes, Germany and France were identified as the main
destinations, while Poland and Luxembourg were the main sources of FCT purchased cross-border (External study).
27
Tobacco products prepared for consumption only in a special electronic device in which the tobacco is heated without
burning. According to the majority (eight out of ten) of the Member States authorities that replied to the consultation, the
substitution between cigarettes and HTP has increased in the past few years (External study).
28
E-cigarettes are disposable or refillable devices, which can be used for consumption of vapour from liquid (nicotine
containing or nicotine free) for electronic cigarettes.
29
See ANNEX 8: for details on magnitude of cross-border flows.
30
There is a significant consensus among all categories of stakeholders that divergences in new products fiscal treatment,
in particular heated tobacco products (HTPs) and e-cigarettes, hinder their free circulation in the internal market and is a
source of legal uncertainty and distortion of competition.
13
advantage of lower taxation rates compared with cigarettes under the Directive and a lighter
regulatory regime under the Tobacco Products Directive31
, so undermining both price and non-price
measures taken by Member States in pursuit of health objectives.
Waterpipe tobacco (WPT) currently falls under the category of ‘other smoking tobacco’ for excise
purposes. The lack of a specific category reduces the ability of Member State authorities to monitor
WPT consumption and movements specifically.32
The combination of an enhanced economic
incentive and poor visibility acts as an incentive to illicit trade. It is estimated that around half of all
WPT consumed in the EU could come from illicit sources.
Several products containing tobacco or nicotine fall outside the scope of the Directive. These include
(1) other manufactured (smokeless) tobacco33
(chewing tobacco34
, nasal tobacco35
and other tobacco
for oral use36
) and (2) related products (nicotine pouches, nicotine gums, other products for nicotine
intake through chewing, dissolving, sniffing, etc.). The categorisation, and therefore fiscal status, of
such products may be unclear, giving rise to uncertainty for economic operators and Member State
authorities37
. Although their markets remain marginal, such products have become increasingly
available across the EU, especially after a new generation of oral tobacco and tobacco-free products
containing nicotine has appeared on the market38
. Nicotine pouches in this document refer to small
flavoured pouches, placed between the lip and gum that releases a hit of nicotine to satisfy cravings.
Approved nicotine replacement therapies are not part of this analysis.
The growth of new products, such as heated tobacco products (HTP), e-cigarettes, other manufactured
tobacco and other tobacco-related products, which primarily includes nicotine pouches used in the
past years as substitutes to traditional tobacco products, especially among young people, has raised
concerns among tax and public health authorities alike. While in 2018 these products accounted for
little more than 4% of the aggregated EU market value for smoking and other tobacco-related
products, in 2023 this market had grown to nearly 13%, or an almost threefold increase. The existence
of substitution patterns between traditional and new products is not only suggested by market trends
but also confirmed on the supply side by the fact that these products (especially HTP and e-cigarettes)
were developed as alternatives to cigarettes and are marketed as such by manufacturers. In 2023 15%
of HTP users and 24% of e-cigarettes users were former smokers. While the percentage of former
smokers among HTP users has increased since 2020 (from 9% to 15%) in the case of e-cigarettes it
31
Regarding flavour ban, minimum pack size, pictorial warnings. See ANNEX 10:1 for details.
32
See ANNEX 10: section 2 for details.
33
Article 2 of the Tobacco Products Directive defines ‘chewing tobacco’ as a smokeless tobacco product exclusively
intended for the purpose of chewing and ‘nasal tobacco’ as a smokeless tobacco product that can be consumed via the
nose.
34
Commercialised in several Member States, consumption levels are mostly negligible, except in Poland, Czechia,
Denmark and Sweden.
35
A niche product with some marginal consumption in Germany, Poland, Hungary and some Italian regions.
36
Prohibited in the EU, except in Sweden, where snus is very popular. Snus is not covered in the proposed revision.
37
As regards chewing tobacco 9 of 24 Member States that expressed an opinion during consultation that would favour its
harmonisation at the EU level. As regards nasal tobacco – is not considered a product with future market growth or a risk
for tobacco control policies by Member States authorities (External study).
38
Majority of Member States tax authorities expect substantial growth in the next five years, especially of nicotine
pouches (External study).
14
has declined (from 30% to 24%), possibly related to the younger age of e-cigarettes users. The
majority of new products users remain ‘dual’ users of new and traditional products.39
In particular, the value of total sales of HTP exceeded EUR 12 billion in 2023, i.e. more than doubling
the value recorded in 2020 and with a eight-fold increase compared with 2018., i.e. accounting for
around 8% of the total tobacco market value. The total HTP users’ population in the EU can be
estimated at around 7.6 million, and the consumption prevalence in Member States is generally
comprised between 1% and 5%. The prevalence of HTP use among people in the 25-39 years age
group was 3%, compared with just 1% for older generations.40
After a few years of stagnation, the e-cigarettes market has expanded considerably in recent years,
from an EU aggregate value of EUR 2.9 billion in 2020 to nearly EUR 5 billion in 2023. The share
of Europeans regularly using e-cigarettes was at 3%. Prevalence varies across Member States from
below 1% in Portugal up to 9% in Estonia. The prevalence rate is higher among young people.
Overall, the e-cigarettes users’ population in the EU can be estimated at around 11.5 million.41
Nicotine pouches are a relatively new product, and sales increased considerably in recent years. In
2023, the EU market for nicotine pouches was valued at about EUR 1.1 billion, i.e. almost three times
more than the value recorded in 2020 and more than twenty times the value recorded in 2018. At EU
level, 1% of the population uses nicotine pouches, and the relative majority of daily users of nicotine
pouches are found primarily in younger generations (15 – 24 age bracket).42
Neither HTP nor the current generation of e-cigarettes and other tobacco-related products were on
the market when the Directive was last revised and Member States have implemented different
national measures in respect of such products. Incoherent responses have resulted in a range of
negative impacts on Member State authorities, economic operators, consumers, and the functioning
of the Single Market. Differences in the structure and rates of taxation distorts competition between
domestic and foreign manufacturers, especially in Member States that adopted relatively high tax
rates43
. Different movement and control regimes result in additional administrative and compliance
costs and cross-border movement difficulties. The absence of a common monitoring system reduces
the capacity of Member State authorities to identify and prevent fraudulent trade and detect the
emergence of ‘borderline’ products44
. Diverging excise rates based on tax categorisation rather than
consumer usage incentivises economic operators to develop and market ‘borderline’ products to
circumvent tax categories and induces consumers to adopt substitutes, which may be equally
damaging to health.
39
Substitution of traditional products with HTP and e-cigarettes appear only in part driven by lower prices. The
Eurobarometer survey showed that frequently the drivers behind e-cigarettes and HTP tobacco use are not related to price
but to the willingness to quit/reduce smoking, to the perceived lower risk involved, social acceptability of these products
and etc. (External study).
40
See ANNEX 12: section 1 for details.
41
See ANNEX 13: section 1 for details.
42
See ANNEX 14: section 1 for details.
43
External study.
44
E.g., according to interviews with Member States authorities, the lack of harmonised EU approach has created a
breeding ground for illicit practices in liquid for e-cigarettes sector, which translates into severe tax losses, in percentage
terms, for Member States (only about one-fifth of the theoretical tax revenue is actually collected). Due to their intrinsic
characteristics, liquids can easily be moved across borders elusively, especially when directly shipped to consumers in
small quantities, through ordinary courier delivery services. Additionally, business to business movements are also
difficult to control, since the excise movement control system does not cover e-cigarettes (External study).
15
Some Member States include HTP in a harmonised category, mainly other smoking tobacco (OST).
However, this means that Member State authorities cannot distinguish between the regime applied to
HTP and to other products in that category, such as pipe tobacco. Nor is it the case that the optimal
tax rate for HTP is appropriate for pipe tobacco and vice versa.
2.1.3. Increasing illicit manufacturing of tobacco products within EU
Illicit (tax-evaded) trade of tobacco products represents a major, persistent threat to the functioning
of the internal market. It is also a serious problem both in terms of revenue losses and security – as it
may contribute to financing organised crime. Additionally, it undermines tobacco control policy
causing adverse public health effects, as it reduces the cost of tobacco products making them more
accessible to consumers. Finally, it distorts competition, as it subtracts consumers from the legal
market.
It is estimated that around 13 billion illicit cigarettes are manufactured in the EU annually.45
In the
case of fine cut tobacco (FCT) and WPT, it can be assumed that half of illicit products are
manufactured in the EU – i.e. more than 10 000 tonnes. Estimated foregone revenue associated to
illicit trade of cigarettes amounts to approximately to EUR 9.0 billion while for other tobacco
products – to approximately EUR 3.5 billion. Some Member States46
have adopted national measures
to monitor and control the movement of raw tobacco.47
Measures include fiscal definitions,
authorisation schemes for operators, administrative controls on holding and movements, deposits and
financial guarantees to cover diversion risks, prohibitions on selling to unauthorised operators, and
the application of tax rates on raw tobacco48
. However, divergent national definitions and procedures
have led to legal uncertainty for legitimate economic operators and Member State authorities, and the
number of seizures and disputes over shipments of (claimed) raw tobacco has increased in the
majority of Member States. A majority of public consultation respondents see the need to fight illicit
tobacco trade and manufacturing as a priority and called for increased EU action on the subject.
2.2. What are the problem drivers?
2.2.1. Relative low average price levels of tobacco products
The Directive aims at impacting consumption behaviour through taxation. However, the evaluation
of the Directive concluded that current level of the minimum excise rates had been moderately
effective in raising tax rates and end-users prices in Member States. The metric used to analyse this
evolution is affordability, i.e. the ability for an end-user to buy a given product.49
This indicator varies
greatly across Member States: the lowest affordability levels for cigarettes (highest Relative Income
Price (RIP)) can be found in countries with comparatively lower income, such as Romania, Bulgaria
and Hungary, but also in countries with relative high price, like France. Conversely, cigarettes are
45
Cigarettes illicitly manufactured in the EU account for approximately one-third of total illicit cigarettes consumed in
the EU (External study). See ANNEX 9: for details.
46
Such as Bulgaria, Greece, Croatia, Czechia, Hungary, Poland, Italy, Romania, Slovenia, Spain, Sweden, France.
47
Raw tobacco refers to any form of tobacco that is neither a living plant nor a manufactured product, e.g. harvested
tobacco leaves and intermediate products
48
See ANNEX 15: section 2 for details on measures applicable in Member States.
49
The standard indicator used to measure the affordability of a given product is the relative income price (RIP). In the
case of cigarettes, it measures the percentage of per capita gross domestic product (GDP) required to buy 100 packs of
cigarettes. An increase in the RIP value indicates that cigarettes have become less affordable (i.e. more expensive) and
vice versa. See ANNEX 7: section 3 for details.
16
most affordable in Luxembourg and Sweden. The affordability of cigarettes has only marginally
declined over time. In 2023, the EU average RIP index was only slightly higher than in 2011 (i.e.
2.4% instead of 1.9%). In practice, the price of cigarettes in real terms has barely increased (although
trends varied across Member States).
2.2.2. Unfit EU minima
The current EU minima laid down in the Directive have lost traction and no longer make an effective
contribution to reducing tobacco consumption. Excise levels in Member States are generally much
higher than EU minima.50
With respect to cigarettes, the Directive requires that the excise duty charged represents at least 60%
of the weighted average retail selling price (WAP)51
and be not less than EUR 90 per 1 000
cigarettes.52
In comparison, the excise duty rates53
levied by Member States range from EUR 95 to
EUR 469 per 1 000 cigarettes, meaning that some Member States apply five times the EU minimum
rate. On average, the excise rate effectively applied in 2023 (EUR 187) is more than twice the
minimum. For FCT, the Directive requires that excise duty represents at least 50% of WAP or be no
less than EUR 60 per kg. Actual excise rates in Member States range from EUR 61 to EUR 437 per
kg.
The Directive requires excise duty levied on cigars and cigarillos to represent at least 5% of the retail
selling price54
or be no less than EUR 12 per 1 000 items; the average excise duty levied by Member
States in 2023 was EUR 727 per 1 000 items for cigars, and EUR 137 per 1 000 items for cigarillos.
As regards other smoking tobacco, the Directive requires excise duty levied to represents at least 20%
of the retail selling price or be no less than EUR 22 per 1 000 items; the average excise duty in 2023
was EUR 132 per kg.
The main reason why EU minima are so low is that they have been set in nominal terms, meaning
that both inflation and income growth compound to make them quickly obsolete. Assuming that
smokers keep constant the quantity of tobacco they purchase, a 2% inflation rate coupled with a 1%
increase in real disposable income, which would represent a conservative long-term trend for a
catching-up55
Member State, would imply that the excise burden on consumption falls by over 25%
in ten years.
This problem is exacerbated by the fact that EU minima, having been set at the same nominal level
for each Member State56
, take account of neither different income and price levels, nor different rates
of economic growth. Worse, there is ample scope for divergence as both inflation rates and GDP
growth rates differ significantly between Member States: the Harmonised Indices of Consumer Prices
50
See ANNEX 7: section 4 for details.
51
Article 8(2) of the Directive: the weighted average retail selling price in Member States is calculated by reference to
the total value of all cigarettes released for consumption, based on the retail selling price including all taxes, divided by
the total quantity of cigarettes released for consumption.
52
Article 10(2) of the Directive provides that a Member State needs not to comply with the 60% requirement where an
excise duty of at least EUR 115 per 1 000 cigarettes is levied (so called ‘escape clause’).
53
Excise duty refers to excise duty yield (EDY), which is the excise duty levied at weighted average price level.
54
Manufacturers or, where appropriate, their representatives or authorised agents in the EU, and importers of tobacco
from third countries are free to determine the maximum retail selling price for each of their products.
55
Catching-up refers to the process by which less developed or newer EU Member States experience faster economic
growth rates to close the gap, or converge, with more established, high-income Member States.
56
From 2018 in practice. Until then, a number of Member States were allowed a transitional period in order to reach EU
minimum for cigarettes.
17
(HICP) inflation as of March 2022 ranged between a low of 4.5% in Malta to a high of 15.6% in
Lithuania, whereas the 2021 real GDP growth rate ranged between 2.9% in Germany to 13.5% in
Ireland. This situation leads to the rapid obsolescence of nominal minima fixed for all at the same
level. As a result, in nominal terms, EU minima for cigarettes in Bulgaria and Romania are high
relative to income levels because of a lower GDP per capita. Conversely, EU minima are low
compared with price and tax levels in Denmark and Sweden, which are among the highest in the EU.
In other words, EU minima fixed at the same level in nominal terms inevitably imply that they are
too cheap in more prosperous Member States while being very expensive in Member States with a
lower GDP per capita.
Almost all Member States have fought the erosion of the real value of EU minima by increasing their
national excise duty rates. However, given freedom of movement within the EU, the effective price
of tobacco products for consumers may be lowered, and health policy undermined, through access to
cheaper tobacco products (due to cross-border shopping, substitution, and the illicit market). In
particular, differentials in taxation and, consequently, retail prices between Member States continue
to be a major driver of cross-border shopping. In turn, this can create negative economic incentives
as Member States with a starting point of low excise duties may be held back from increasing them
by the fear of a loss of tax revenue from cross-border tobacco sales. Diverging trends in prices,
incomes and health policies inevitably make any set of nominal EU minima quickly obsolete over
time.
Moreover, differentials in excise duty levels encourage price-sensitive consumers (especially youth)
to substitute cigarettes with less expensive alternatives.57
While the size of the cigarette market has
fallen from some 678 billion sticks in 2005 to less than 400 billion in 2023, the volume of FCT sales
had been increasing until 2012, when due to a reduction in the price gap, substitution plateaued and
then started a slow decline which was reversed only in 2020 presumably in conjunction with the
consumers’ down-trading registered during the COVID – 19 confinement period.58
The trend
observed is a 3.78% year-on-year decline between 2020 and 2023. On the one hand, differentials in
EU minima across harmonised products unduly create a tax advantage for certain products such as
FCT and economy cigarillos (low priced cigarillos)59
over cigarettes. On the other hand, the tobacco
market has experienced the emergence of various new products, which are not covered by the
Directive, being promoted as substitutes for cigarettes and other harmonised tobacco products. Tax-
induced substitution has several adverse effects, such as competitive distortions, tax revenue losses,
and the undermining of tobacco control policies.
57
The results of the Member States authorities’ survey support this finding. Nearly half of tax authorities have registered
an increase in the substitution between cigarettes and FCT in the past three years. In the remaining Member States, the
relative market share of these products has remained stable and only one country reported a decline. In the case of
cigarillos, substitution trends have accelerated in a smaller number of countries (4 out of 20 Member States) with none
reporting a decline (External study).
58
External study.
59
A few years ago, ‘borderline’ cigarillos (also called ‘eco-cigarillos’) have spread in around half of EU Member States,
and in particular in Germany, Spain, Denmark and in the Baltic countries. These products were in many respects similar
to cigarettes but enjoyed a more favourable tax regime because they were classified as cigarillos. The issue was addressed
by revising the definition of the tax category and by the phasing out of the derogation extended to these types of products
in Germany and Hungary. Additionally, various Member States increased the domestic taxation of low-price cigarillos
products (External study).
18
In addition to creating difficulties for Member State authorities and economic operators, uncertainty
as to the categorisation of products creates opportunities for those involved in illicit trade. Such
problems exist in relation to both WPT and raw tobacco.
2.2.3. Divergent approaches to taxation between new products and Member States
The growth of HTP and e-cigarettes consumption prompted Member States to establish ad hoc
national tax regimes in order to address substitution.
The varying excise regimes applicable to HTP may be summarised as follows:60
▪ HTP taxed as a harmonised product in seven Member States (Bulgaria, Germany, Greece,
Ireland, the Netherlands, Spain and Sweden) in most cases in the OST category. Sweden
differentiates between HTP sticks (taxed as cigarettes) from other HTP formats (taxed per
weight). In Germany, HTP is considered a harmonised product, but the rate is calculated in
relation to the rates of both cigarettes and OST. This classification allows HTP to be controlled
under the EU-wide Excise Movement and Control System (EMCS61
).
▪ Specific tax regime for HTP. All other Member States where HTP is commercialised have
adopted this national approach.
At the end of 2024, 21 Member States had established ad hoc national taxes on liquids for e-cigarettes,
three more countries will join in 2025 bringing the total to 24 Member States taxing liquids for e-
cigarettes. which may be summarised as follows:62
▪ 18 Member States are taxing any liquid, irrespective of whether they contain nicotine. Excise
duty rate varies from EUR 0.09 to 0.70 per ml. Croatia remains the only Member State having
a tax regime with a zero rate in place.
▪ Denmark and Sweden apply tax only to nicotine-containing products.
▪ Since 2021, Latvia has abandoned its mixed system that involved a specific flat rate on the
liquid plus another specific rate per mg of nicotine. Some Member States modulate the rates:
Denmark, Spain and Sweden apply a higher rate if the nicotine concentration exceeds a certain
threshold; Italy, Portugal and Slovenia apply a reduced rate to nicotine-free products.
2.2.4. Ineffective control of tobacco supply chain by Member States
In accordance with the provisions of the Horizontal Directive63
, excise goods are subject to the
EMCS. Raw tobacco, including intermediate products such as first-processed tobacco, is outside the
scope of the Directive and therefore not subject to EMCS. When diverted from the legitimate supply
chain raw tobacco is an ingredient for illicit manufacturing activities. Member States tax authorities
consider the poor control of the raw tobacco supply chain as a key driver of illicit domestic
manufacturing.
60
See ANNEX 12: section 2 for details on legal framework of HTP in Member States.
61
EMCS provides real-time monitoring of movements of excise goods between authorised and registered locations, and
ensures that excise goods can only be dispatched to such locations (a movement of excise goods is documented at every
stage through an electronic administrative document). One of the purposes of EMCS is to combat fiscal fraud, with real-
time information and checks on goods being moved across the EU.
62
See ANNEX 13: section 2 for details on legal framework of liquids for e-cigarettes in Member States.
63
Council Directive (EU) 2020/262 of 19 December 2019 laying down the general arrangements for excise duty (recast)
19
2.3. How likely is the problem to persist?
In the absence of EU intervention, the problems identified will persist. The current EU minima for
tobacco products will neither address the lack of convergence in price levels between countries, nor
affect sufficiently consumption behaviours and tobacco products substitution. Spontaneous price
convergence is – in line with historical experience - highly unlikely, as relative income prices are
divergent among Member States and economic incentives for cross-border shopping remain. The
incoherent treatment of new products will continue among Member States and control will remain
limited as Member States will continue to apply different ad hoc regimes. Market fragmentation will
persist. The lack of harmonised rules at EU level on substitutes to cigarettes and to other traditional
tobacco products will lead to a competitive advantage for these products and their sellers. New
products will remain out of scope of EU legislation, creating further distortions of competition in
cross-border trade. The relevance of this problem is expected to intensify, in light of the speed of
innovation and technological development64
in this sector. At the same time, effective tax
administration will not be ensured, as these products will not be subject to movement and control
requirements established in the Horizontal Directive.
Due to substitution and to illicit trade of tobacco products (including diversion of raw tobacco for
illicit manufacturing), Member States will continue to lose revenue. The absence of EU intervention
in the area of excise duty will continue undermining the effectiveness of tobacco control policies,
leading to a negative impact on national health policies, and contradicting the ambition of Europe’s
Beating Cancer Plan to reduce consumption of tobacco.
Currently witnessed global megatrends65
are expected to increase the scale of the problems identified.
Europe is facing shifting health challenges, as unhealthy lifestyles are causing an increasing burden
on public health systems. Smoking is indirectly connected to two other megatrends:
▪ Aggravating resource scarcity: tobacco production is related to the use of pesticides, water, land
and energy. The land used for tobacco growing is not dedicated to food production. In addition,
tobacco manufacturing has an impact on the environment due to water, energy, paper use, CO2
and pollutants emissions.
▪ Increasing inequalities: tobacco is a leading contributing cause to health inequities in Europe,
and reduction in smoking has so far mainly benefitted middle- and high-income groups66
.
3. Why should the EU act?
3.1. Legal basis
The EU’s right to act in the area of excise duty is established in Article 113 of the Treaty on the
functioning of the European Union (TFEU)67
, which invites the EU to lay down harmonised taxation
rules to ensure the proper functioning of the internal market and avoid distortion of competition.
It is therefore necessary for the Commission, which is responsible for ensuring the smooth functioning
of the internal market to propose action in this field.
64
See Accelerating Technological development, The Megatrends Hub | Knowledge for policy (europa.eu)
65
The Megatrends Hub | Knowledge for policy (europa.eu)
66
Tobacco and inequities, WHO Regional Office for Europe
67
Consolidated version of the Treaty on the Functioning of the European Union, OJ C 326, 26.10.2012, p. 47–390.
20
3.2. Subsidiarity: Necessity of EU action
In analysing the problems and their drivers, it is clear that EU action can best achieve the proper
functioning of the internal market and a high level of health protection across the EU.
The increased divergence between excise duty rates since the Directive was last revised engenders
significant cross-border shopping from low-tax to high-tax countries.
Unclear definitions of certain tobacco products at EU level (in particular waterpipe tobacco and
cigarillos) resulted in varying national approaches to rates and taxation regimes as well as adapted
business strategies aiming at circumventing the tax.
The lack of EU level regulation of new products (mainly heated tobacco products and e-cigarettes)
has led to different tax regimes for these products, leading to administrative difficulties in movements
between Member States. There is a large consensus among stakeholders on the need to harmonise
new products in the EU excise legislation68
. The urgent necessity to upgrade the EU regulatory
framework, in order to avoid legal uncertainty and regulatory disparities in the EU was highlighted
in the Council conclusions on the evaluation of the Directive.69
In most Member States, movements of raw tobacco are subject to notification obligations to the
competent authorities. At the same time, Member States recognise that the strictly national scope of
these regimes is a major limitation to their effectiveness. Cross-border movements of raw tobacco
cannot be effectively controlled due to the absence of appropriate control rules at EU level. The latter
is reiterated in the Council's conclusions.
The issues outlined above damage the interests of Member States and have common roots. These
issues also negatively affect the effectiveness of national tobacco control policies, which undermines
the objectives of Europe’s Beating Cancer Plan.
It is not possible for Member States to address the problems and their drivers in isolation without a
proposal to amend the provisions of the Directive. No alternative national, bilateral or other
international initiative would provide the same level of effectiveness in terms of addressing this issue
for all stakeholders at EU level.
3.3. Subsidiarity: Added value of EU action
Under the Directive, EU countries can freely set the rates for different products according to their
national preferences, as long as they are above the EU minima. Scope is also left to Member States
as regards to the structure of the tax.70
As a result, the EU action is limited to addressing the issues
that Member States cannot tackle at national level, in relation to the proper functioning of the internal
market. The Directive remains the best instrument to achieve these objectives.
Clearer definitions of product categories, and the extension of the scope of the Directive to new
products and to raw tobacco will support the effective enforcement of rules by Member States.
The increases of EU minima proposed are proportionate with the objective of ensuring a high level
of human health protection set out in the TFEU, and other measures will support the effectiveness of
national tobacco control policies. At the same time, several of the measures proposed aim at
68
Further discussed in section 5.3.
69
Council conclusions concerning the structure and rates of excise duty applied to manufactured tobacco.
70
Except for cigarettes.
21
minimising the burden potentially generated by the revision of the Directive. For example, the
structure of the excise duty rates, as currently implemented, remains broadly the same.
4. Objectives: What is to be achieved?
As detailed in the problem definition, given the scope of the Directive covering various tobacco
products and provisions, the problem areas of this initiative are somewhat different from each other
and require specific analysis. The revision of the Directive aims at filling the identified gaps and
providing tools to effectively address shortcomings. By tackling the problem drivers, each policy
option aims at achieving one or several of the general and specific objectives:
▪ with the revision of current EU minima for traditional tobacco products and the introduction of
EU minima for new products, to approximate tax levels, discourage tax induced substitution
between products, and ensuring legal certainty to support the proper functioning of the internal
market;
▪ with the increase of EU minima (increasing relative price levels), to influence consumption
behaviours and contribute to reduced smoking prevalence for a high level of public health;
▪ with the harmonisation (and hence monitoring and control) of raw tobacco and new products,
to ensure effective excise administration and tax collection as well as tax avoidance mitigation.
The UN adopted the 2030 Agenda for Sustainable Development (the ‘2030 Agenda’) in 2015, at the
heart of which are 17 Sustainable Development Goals (SDGs) and 169 associated targets. The 2030
Agenda represents a commitment to eradicate poverty and achieve sustainable development by 2030
worldwide. The EU is fully committed to be a frontrunner in implementing the 2030 Agenda and the
SDGs, together with its Member States, in line with the principle of subsidiarity.
The revision of the Directive supports the achievement of sustainable development goals, in particular
SDG 3 concerning health, SDGs 10 and 17, concerning equality and resource mobilisation, SDGs 6,
7, 8, 12, 14, 15 on the sustainable use of natural resources and the protection of the environment, and
SDGs 2 and 11, concerning food security and sustainable communities. For more details on SDGs
see ANNEX 3: section 3.
4.1. General objectives
Under Article 113 of the TFEU, the Directive aims to harmonise the excise duty regimes of tobacco
products in Member States to ensure the proper functioning of the internal market and, at the same
time, a high level of health protection. The public health approach is also supported by Article 168 of
the TFEU bearing in mind that tobacco products can cause serious harm to health and that the Union
is Party to the WHO Framework Convention on Tobacco Control. Although not explicitly mentioned,
the Directive has also the overarching objective of ensuring an efficient excise administration.
The general objectives of the initiative are:
▪ ensure the proper functioning of the internal market;
▪ ensure high level of health protection;
▪ fight against fraud and safeguard Member States’ revenues.
4.2. Specific objectives
The specific objectives of the initiative are:
22
▪ approximate Member States tax rates and regimes over the medium term;71
▪ discourage tax induced substitution between different tobacco products and their substitutes
within the short term;
▪ increase relative price levels to influence consumption behaviours with a view to reducing
smoking prevalence along Europe’s Cancer Beating Plan objective for 2040;
▪ ensure legal certainty in terms of product definition and fiscal classification for all stakeholders
within the short term;
▪ ensure effective excise administration, including effective enforcement, tax collection, fraud
and avoidance mitigation, within the short term by expanding application of the movement and
control provisions.
The revision of the Directive aims at striking the right balance between these different objectives,
which are equally important. Trade-offs exist between certain of these objectives: for instance,
increasing EU minima will necessarily magnify the economic incentive behind illicit manufacturing
and trade. Similarly, proposing EU minima based on relative income prices in different Member
States may hamper upward convergence. These trade-off and related choices are further detailed in
the following sections.
The problems, their drivers, objectives and corresponding options are illustrated in Figure 3 below.
The baseline scenarios have not been included in this figure although they are systematically
described under each policy area and constitute the framework against which all options will be
assessed.
Figure 3. Overview of the intervention logic
71
In this paragraph, the short term refers to the period following implementation of the revised Directive until the
preparation of the first evaluation (i.e., within five years of the application date of the new legislation), while medium-
term effects are those measurable up to 15 years after the implementation of the revised Directive.
23
Relative low average price levels
of products
Increasing illicit manufacturing
within EU
Unfit EU minima
Smoking prevalence not declining quickly enough to meet Europe’s Beating Cancer Plan objectives
Incoherent fiscal treatment between and across products
Divergent approaches to taxation
between products and MS
DRIVERS
PROBLEMS
GENERAL
OBJECTIVES
OPTIONS
Ineffective control of tobacco
supply chain
Ensure the proper functioning of the internal market
Fight against fraud and safeguard Member States’ revenues
Ensure high level of health protection
Approximate Member States tax
rates and regimes
Increase relative price levels to
influence consumption behaviours
with a view to reducing smoking
prevalence
Discourage tax induced
substitution their substitutes
Revising EU minima and certain categories for traditional products
Enlarging the scope to raw tobacco
Enlarging the scope to new products
Ensure legal certainty in terms of product definition and fiscal
classification
Ensure effective excise
administration
Ensure effective excise
administration
SPECIFIC
OBJECTIVES
Source: Commission analysis
5. What are the available policy options?
As shown in Figure 3, the policy areas examined further through the impact analysis are (1) the
revision of the minimum excise rates and of certain categories for traditional products; (2) enlarging
the scope of the Directive to new products and (3) enlarging the scope of the Directive to raw tobacco.
A wide range of options under each policy area were explored through the stakeholder consultation.
The report considers all possible policy options but focuses its analysis on the ones which have been
retained. The reasons for discarding some options early on are presented under each revision area.
But first, an important element for review is the metric according to which excise duty rates are
expressed.
5.1. Moving from nominal rates to an approach partially based on purchasing power
parities
Under the current Directive, EU minima for each product category are expressed in nominal terms,
i.e. as a fixed monetary amount applicable in all Member States. This is in line with the approach
traditionally used for harmonising indirect taxes. However, as discussed in the problem section, from
a tobacco control perspective this approach cannot provide a durable solution, as the combination of
inflation and income growth results, over time, in a rapid erosion of the minima. The dissuasive effect
of the tax depends on real parameters, such as the inflation-adjusted price and the percentage of one’s
personal income needed to sustain the habit, rather than simply its nominal value.
Furthermore, due to the substantial and persistent diversity in economic conditions in Member States
(not only in income, but also in the general price level), any nominal minimum rate set at EU level is
generally too low to have an impact in higher-income countries. This concern was highlighted in the
Commission’s evaluation of the Directive, and indeed the Council insisted that any future revision
24
should take into account the ‘specific economic situations’ of Member States72
, which is also
supported by stakeholders73
. Thus, in the current context where health objectives are a key driving
factor behind the revision of the Directive (see section 2), moving away from an approach purely
based on nominal rates is essential to ensure the effectiveness of the Directive in durably curbing
tobacco consumption among individuals. What is needed is a mechanism that goes beyond a simple
nominal value for the minima and can take into account the different economic growth trends for each
Member State.
After examining various alternatives, the External study supporting this impact assessment74
concluded that the approach that best achieves this objective requires abandoning the idea of a fixed
nominal minimum in favour of an index whereby the minimum would be periodically adjusted for
each individual Member State as a function of the purchasing power of its residents (see Box 1 and
ANNEX 11: for details). In practice, when strong economic growth boosts the purchasing power of
a given Member State, the minimum excise duty for that Member State would be automatically
increased (or, conversely, cut, should purchasing power decrease). This approach would ensure that
affordability of these products at national level is better reflected in the rates to have a more targeted
impact on consumption.75
At the same time, to ensure the durability of the policy stance over time,
the minimum rate of excise duty should take into account the EU average inflation trends, based on
the Harmonised Index of Consumer Prices (HICP). This periodic adaptation thus partially removes
the two main sources of obsolescence of the minima discussed in the problem section.
All in all, the proposed policy option is clearly more future-proof than the current system. This is
because the main weakness of the current fixed nominal minima, as shown by the External study, is
their inability to remain relevant in case of changes in the general price level, within each Member
State as well as between Member States.
Box 1. What is the Purchasing Power Parity adjustment?
It is common knowledge that directly comparing the value of a salary across countries using the
going exchange rate is not a meaningful exercise because of large differences in price levels.
Typically, in higher-income countries, prices are higher, eroding part of the benefit from higher
salaries. The Purchasing Power Parity or PPP adjustment allows a meaningful comparison
between salaries or GDP per capita by correcting for the differences in the price level. For example,
if in country A GDP per capita is 20% higher than in country B, but the price level too is 20% higher,
72
Council conclusions concerning the structure and rates of excise duty applied to manufactured tobacco.
As regards purchasing power parity the majority of tax authorities did not anticipate any major impact. Some of tax
authorities anticipates that it could have a negative impact on tax convergence and some public health experts even
anticipate a possible negative impact on reducing tobacco affordability where most needed.
73
There appears to be also substantial agreement among public consultation respondents (80%) that taxation levels be
adjusted to income differences between Member States, and this was broadly shared by tobacco industry representatives
(69%). This is particular so among respondents in Southern and Western Europe and among those who also deem tobacco
products more affordable. Some experts would support a tax that reflects affordability, but expressed doubts about using
purchasing power parity index. The possibility of introducing alternative approaches for EU minima was tested among
Member States tax authorities through the targeted survey. The initial feedback was cautious (half of respondents did not
provide feedback), which also indicates that there is a need for an in-depth, technical discussion on the benefits and
constraints of this approach.
74
‘Impact analysis of the review of tobacco excise duty rules’ (‘EA 2021 study’) and ‘Study on the impact analysis of a
review of tobacco taxation rules: update with recent market and regulatory developments’ (‘EA 2025 study’) (both
hereinafter - External study).
75
Member States have specifically asked in the Council conclusions to take into account their social and economic
conditions.
25
in PPP terms the two countries would be shown to have the same GDP per capita. The adjustment is
calculated utilising a comparable basket of goods and services in each country. Eurostat publishes
and updates regularly PPP coefficients.
Despite the advantages of this approach, a changeover to a full purchasing power adjustment would
not be advisable. This is because purchasing power differs so much across Member States that the
method would create very large price swings at introduction, destabilising the market. Price Level
Index (PLI) differences between Member States are significant (the PLI of Luxembourg is almost
three times higher than the PLI of Bulgaria). Hence, a 100% conversion of minima into PPP may lead
to (1) huge and potentially disrupting tax hikes for a few high-income countries (e.g., Luxembourg,
Denmark, Austria, and Sweden) and, conversely, (2) keeping or even increasing the price gap
between Member States. In this sense, overarching objectives of the Directive would be poorly
supported. Therefore, the solution proposed is to adopt a partial PPP system where 2/3 of the tax is
expressed in nominal terms and 1/3 in PPP terms.
This proportion between nominal and PPP components has been derived from the increase scenario
for the EU minima on cigarettes. It strikes a good balance between increasing convergence and
distributing the impact across Member States (see
26
Figure 4).
27
Figure 4. Comparison of nominal versus partial PPP approach in the case of cigarettes weighted
average price, according to options
Source: Commission analysis based on the External study
A fixed reference year for the PPP and HICP adjustment would be established and periodic revisions
of the PLI and HICP (e.g. every 3 years) would be scheduled to ensure that rates remain up to date
(with changes in prices and income) while providing sufficient perspective for Member States to
prepare their multi-annual tax increase plans. The calculation of the minima for each Member State
is made slightly more complex as a result of the partial PPP approach as it entails introducing the PLI
in the formula. Nevertheless, the periodicity of the adjustment would be such as to give ample
preparation time for stakeholders.
For the sake of readability and conciseness, all the policy options envisaged are expressed in partial
PPP. The impact of the different options expressed in nominal terms was however assessed and is
broadly the same for most criteria. It is available in ANNEX 19:.
5.2. Revising the EU minima and certain categories for traditional tobacco products
The proposed options aim to foster the convergence of tax levels applied in Member States, to
minimise cross-border flows, to contribute to fair competition between different types of products,
preventing or mitigating tax-induced substitution and to support public health protection objectives,
by triggering tax rise able to curb smoking prevalence and achieve Europe’s Beating Cancer Plan
objectives.
Despite citizens and industry respondents to the public consultation resisting the idea of increased
taxation for a number of products, a majority conceded that further action to close excise rate gaps
between cigarettes, fine-cut tobacco and cigarillos could be justified. Academics, NGOs, public
health experts and other respondents categories almost universally agreed that taxation had to be
increased and existing gap levels closed (see ANNEX 2: for details).
28
5.2.1. What is the baseline from which options are assessed?
The baseline for the revision of the EU minima for traditional tobacco products (cigarettes, fine-cut
tobacco, cigars and cigarillos and other smoking tobacco) assumes no change in EU policy. This
means that the EU minima remain the same, expressed in nominal terms. Their structure is shown in
Table 1 below (see also ANNEX 16:).
Cigarettes are currently subject to a mixed structure of excise, comprising both a duty calculated with
reference to the retail selling price (the ad valorem) and a duty calculated per unit of the product (the
specific). The Directive requires that the overall excise duty levied by Member States must represent
60% of the weighted average retail selling price (WAP) of all cigarettes made available for
consumption in that Member State (the relative minimum condition) and be no less than EUR 90 per
1 000 cigarettes (the fixed minimum). However, the 60% requirement needs not be met where an
excise duty of at least EUR 115 per 1 000 cigarettes is levied. Member States may also establish a
minimum excise duty.
All other manufactured tobacco products may be subject to an ad valorem duty based on the retail
selling price, a specific duty per kg or per unit, as appropriate, or a mixture of both. In respect of
cigars and cigarillos the overall excise duty must represent at least 5% of the retail selling price or
EUR 12 per 1 000 items or kg. In respect of fine-cut tobacco intended for the rolling of cigarettes, the
overall excise duty must represent at least 50% of WAP or EUR 60 per kg. In respect of other smoking
tobacco, the overall excise duty must represent at least 20% of the retail selling price or EUR 22 per
kg.
Table 1. EU minima for traditional tobacco products
Product category Fixed minimum rate Relative minimum condition Notes
Cigarettes
EUR 90 per 1 000 units
(irrespective of the average
price)
60% of the WAP unless
EUR 115 per 1 000 cigarettes at WAP level
(so-called ‘escape clause’)
Both
conditions
Cigars and cigarillos
EUR 12 per 1 000 units or
per kg
5% of the retail selling price (irrespective of
the WAP )
Alternative
conditions
Fine-cut tobacco EUR 60 per kg 50% of the WAP
Alternative
conditions
Other smoking tobacco EUR 22 per kg 20% of the retail selling price
Alternative
conditions
Example of the calculation of the tax for a pack of 20 cigarettes
Retail Selling Price (excluding taxes): EUR 1.56
+ Excise duty - specific: EUR 1.27
+ Excise duty - ad valorem: EUR 5.5 (55% of RSP)
Total excise duty: EUR 6.77 (68% of WAP)
= Price (excluding VAT): EUR 8.33
+ VAT 20%: EUR 1.67
= Retail Selling Price (including all taxes): EUR 10
The products covered by the Directive automatically fall into the category of harmonised products.
As a result, EU procedures for handling excise goods apply: they involve specific authorisation,
control and movement rules as per the Horizontal Directive. They are supported by two pan European
IT systems: the Excise Movement and Control System (EMCS) and the System for Exchange of
Excise Data (SEED).
29
5.2.2. Description of the policy options
The options considered differ across products based on both the starting conditions (how low are
current EU minima compared to actual excise duty levels) and the targeted minima condition (i.e.
fixed or relative).
Three increase options have been considered. For fine-cut tobacco (FCT) EU minima should be
equivalent to those for cigarettes to better prevent and mitigate tax-induced substitution.76
For other
traditional tobacco products, the EU minima have remained so far very low and have become
irrelevant. Given the lower baseline for OST and notably for cigars and cigarillos where current levels
are well below the actual excise duty levels applied in Member States77
, substantial increases have
been considered to partly bridge the gap with cigarettes while also bringing minima closer to actual
practices by Member States. The average excise duty for OST currently applied in Member States is
EUR 132 per kilogram of the product while for cigarillos, it is 137 per 1 000 units. The current EU
minimum rate is EUR 12 per 1 000 units or kg in the case of cigarillos and EUR 22 per kilogram of
the product in the case of OST. It is proposed to bring current fixed minimum to 107 EUR in option
1, and a more ambitions and progressive increase to EUR 143 over 8 years in option 2 and over 4
years in option 3. The gradual increase approach follows the model used in the current Directive to
progressively raise the tax level of FCT.
Introduction of separate categories better tailored for cigarillos and waterpipe tobacco (WPT)
All three options envisage the introduction of separate categories for cigarillos and WPT.78
This
would imply the revision of current definitions. As regards cigarillos, the distinction already exists in
the excise legislation79
and thus could be based on physical characteristics of cigarillos (e.g. weight
and other related criteria)80
and, for consistency with the existing criterion used in the excise
legislation, encompass all products that weigh less than 3 g. For WPT, the definition would be based
on the one used in the Tobacco Products Directive81
. The same minimum excise duty rates as for
other smoking tobacco (OST) are proposed for cigars and cigarillos to avoid tax-induced substitution.
WPT is a very specific product82
, with around half its market estimated to be illicit.83
To avoid
76
If it is assumed that there are 1 333 cigarettes in a kg of tobacco (the weight of one roll your own cigarette taken to be
0.75 g), the current minimum rate of excise in respect of 1 000 RYO cigarettes is EUR 45.01. By way of contrast, the
minimum rate of excise in respect of 1 000 cigarettes is EUR 90.
Gallus, Silvano; Lugo, Alessandra; Ghislandi, Simone; La Vecchia, Carlo; Gilmore, Anna B. Roll-your-own cigarettes
in Europe, European Journal of Cancer Prevention: May 2014 - Volume 23 - Issue 3 – p. 186-192.
77
See ANNEX 7: section 4 for details on applicable excise duty levels Member States.
78
Establishing a separate tax category for cigarillos has not elicited the support of the majority of tax authorities’
respondents (50% were against), while it has for waterpipe tobacco (63% were in favour).
79
Article 8 (cigarillos are cigars of a maximum weight of 3 grams each) of Council Directive 2007/74/EC and Article 32
(‘cigarillos (cigars weighing not more than 3 g each)’) of the Horizontal Directive.
80
In line with the opinion of Member States tax authorities. A distinction based on weight would be in line with standard
market segmentation, as well as with the split regimes for cigars and cigarillos that already exist in the EU, namely in
Portugal and Italy.
81
Article 2 of the Tobacco Products Directive.
82
WPT is to a large extent made of molasses, which significantly increases the specific weight of WPT compared to any
other tobacco product. This translates into high profit margins for illicit traders. Given the prevailing informality of this
market segment, collecting accurate market figures is unfeasible.
83
The illicit market could account for 50% of total consumption (exceeding 80% in a few Member States) (External
study).
30
unintentionally incentivising the illegal trade, a lower increase of the EU minimum rate is proposed84
when compared to OST. A gradual increase approach is also adopted for option 2 and 3.
Option 1: Limited increase of EU minima
Minima rates Cigarettes FCT Cigars Cigarillos OST WPT
Fixed minimum
EUR 155/
1 000 units
EUR 155/kg
EUR 107/1
000 units or
kg
EUR 107/1
000 units or
kg
EUR 107/kg EUR 72/kg
Relative minimum (% of
WAP for cigarettes; % of
RSP for other)
61% 56% 30% 30% 40% 40%
Comparison with the current
average excise duty rate in
Member States
-17% 1% -85% -22% -19% -45%
Escape clause (EUR/ 1 000
units)
203
Option 2: Moderate increase of EU minima
Minima rates Cigarettes FCT Cigars Cigarillos OST WPT
Fixed minimum
EUR 179/
1 000 units
EUR 179/kg
143/ 1 000
units or kg
(gradual
increase
over 8 years)
143/ 1 000
units or kg
(gradual
increase
over 8 years)
EUR 143/kg
(gradual
increase
over 8 years)
EUR 107/kg
(gradual
increase
over 8 years)
Relative minimum (% of
WAP for cigarettes; % of
RSP for other)
62% 58%
40%
(gradual
increase
over 8 years)
40%
(gradual
increase
over 8 years)
50%
(gradual
increase
over 8 years)
50%
(gradual
increase
over 8 years)
Comparison with the current
average excise duty rate in
Member States
-4% 17% -80% 4% 8% -19%
Escape clause (EUR/ 1 000) 232
Option 3: High increase of EU minima
Minima rates Cigarettes FCT Cigars Cigarillos OST WPT
Fixed minimum
EUR 215/
1 000 units
EUR 215/kg
143/1 000
units or kg
(gradual
increase
over 4 years)
143/1 000
units or kg
(gradual
increase
over 4 years)
EUR 143/kg
(gradual
increase
over 4 years)
EUR 107/kg
(gradual
increase
over 4 years)
Relative minimum (% of
WAP for cigarettes; % of
RSP for other)
63% 62%
40%
(gradual
increase
over 4 years)
40%
(gradual
increase
over 4 years)
50%
(gradual
increase
over 4 years)
50%
(gradual
increase
over 4 years)
84
A relative majority of Member States authorities (44%) would be in favour of a separate tax regime for WPT. One-
third is not in favour, and the remainder expressed a cautiously open attitude. Only one-fifth of respondents expressly
supported lower minima for WPT, while the majority agreed the EU minima should be the same as OST (regardless of
their position on split regimes). The proposed options are more ambitious than the average view emerging from Member
States authorities’ suggestions through the survey. As regards EU minima they roughly fall between the option 1 and 2 -
EUR 78 for the fixed minimum and 36% for the relative minimum.
31
Comparison with the current
average excise duty rate in
Member States
15% 41% -80% 4% 8% -19%
Escape clause (EUR/ 1 000) 274
5.3. Enlarging the scope to new products
The harmonisation of new products is important for the proper functioning of the internal market,
collection of fiscal revenues, prevention of tax-induced substitution, fraud and tax evasion and a high
level of health protection.
5.3.1. What is the baseline from which options are assessed?
The baseline for the harmonisation of the tax regime for new products assumes no change in EU
policy. The new products - liquids for e-cigarettes, other manufactured tobacco and related products
- continue not being covered by the Directive and hence would not be harmonised at EU level.
Member States would continue to apply their national tax regimes, if any. As regards heated tobacco
products (HTP), which are not explicitly defined in the Directive (however falling in the scope of the
Directive due to the lack of clear harmonised taxation rules), the legal uncertainty remains.
5.3.2. Description of the policy options
Harmonising new products requires clarifying the application of excise duty rules for HTP, extending
the Directive’s scope to include e-cigarette consumables (liquids including other refill containers),
other manufactured tobacco (for example, chewing and nasal tobacco) and related products, in
particular alternative products containing nicotine which can be considered as substitutes to tobacco
products from a fiscal perspective (for instance, nicotine pouches); and adopting a ‘catch-all’
approach, to ensure that future market developments are covered.85
The approach is technologically
neutral86
and can encompass current and prospective new products, mitigating the risk of product
engineering for the purpose of circumventing tax definitions.
The extension of the scope of the Directive entails an appropriate definition and tax regime for new
products. As a result of this extension, new products would be covered by the holding, movement and
control requirements from the Horizontal Directive (see ANNEX 17: section 2 for details).
5.3.2.1. Heated tobacco products
There is a broad consensus among stakeholders on the need to establish a separate excise duty
category for HTP at EU level.87
The options are based on wide but objective definitions to capture current and future formats. The
HTP excise category would be based on the following characterising elements: (1) the heating or
activation of products without combustion; (2) the delivery of an aerosol for inhalation; and (3) a
substrate which may or may not consist of tobacco (for analogy with cigarettes and smoking tobacco,
85
Future developments are difficult to predict, but market developments, notably in Asia, indicate that a new generation
of products is being developed (e.g. a hybrid product heating a liquid for e-cigarette, to create a vapour that is passed
through a tobacco pod).
86
The technological neutrality refers to the way the product is designed, packaged and offered to consumers.
87
The EU harmonisation of HTP was generally deemed necessary by all stakeholders, based on targeted consultations
with Member States’ tax authorities and in-depth interviews; it was then confirmed by a majority (more than 60%) of
public consultation respondents. As regards HTP minimum excise duty rates, the prevailing view is they should be lower
than those of FCT.
32
substitute products partly or entirely made of substances other than tobacco would be included in the
excise category). For instance, this category should also include heated products partly or entirely
made of substances other than tobacco. These elements, to a greater or lesser extent, reflect the
definitions applicable in Member States88
.
Given the heterogeneity of this class of products, the tax base would reflect how the product is
marketed: (i) HTP sold in sticks (minimum rates would be set ‘per stick’ as in the case of cigarettes,
i.e. per 1 000 units); (ii) other HTP, to ensure a common denominator applicable to all different
product formats89
, by setting a ‘per weight’ (in kg) tax base.
Two options for the minimum rates are proposed taking into account preferences of Member States
for HTP taxation90
(per weight, or per stick approach). To avoid major market distortion or regulatory
loopholes an equivalent taxation level was designed.
Options for EU minima for heated tobacco products
Options Fixed minimum Relative minimum (% of the retail selling price)
Option 1:
Moderate level of EU
minimum
HTP stick EUR 88/1 000 units 45%
Other HTP EUR 125/kg 45%
Option 2:
Higher level of EU
minimum
HTP stick EUR 108/1 000 units 55%
Other HTP EUR 155/kg 55%
As for traditional tobacco products, this option includes the possibility to apply specific or ad valorem
taxation, or a combination thereof and the minimum excise duty91
.
5.3.2.2. Liquids for e-cigarettes
EU-level harmonisation of liquids for e-cigarettes excise duty is welcomed by tax authorities and
most industry players (including 57% of companies declaring themselves as SMEs in the public
consultation), while it remains debatable among consumers.92
The options propose creating a new excise category for liquids based on two key elements, in line
with the Tobacco Products Directive and customs classification (Combined Nomenclature93
). The
88
See ANNEX 12:2 for details.
89
The HTP market in the EU is currently dominated by stick-shaped products containing a mixture of specially prepared
reconstituted tobacco. However, HTP could be available also in other formats, i.e. pods, hybrid capsules and even in loose
format.
90
See
Figure A12-8 for details.
91
In the case of application of fully ad valorem or mixed tax structure, Member States may establish a minimum amount
of excise duty to apply (i.e. a fixed monetary amount per quantity applicable if the amount of the excise duty falls below
a minimum floor).
92
Opinions of public consultation respondents, particularly among citizens (e-cigarette consumers were overrepresented),
were divided on the fiscal harmonisation of e-cigarettes in general (46% in favour and 46% against), and a slim majority
appears against liquids without nicotine being harmonised (52%).
93
The Combined Nomenclature (CN) is a tool for classifying goods, set up to meet the requirements both of the Common
Customs Tariff and of the EU's external trade statistics.
33
first element refers to the intended use in an ‘electronic cigarette’ device. The second element is the
reference to the acts characterizing consumption of liquids, as implicitly opposed to smoke and
smoking. These elements, to a greater or lesser extent, reflect the definitions currently applicable in
Member States. Liquids used exclusively for medical purposes are excluded from the scope.
E-cigarettes are viewed as substitutes, from a fiscal perspective to traditional tobacco products and in
particular to cigarettes. Alongside the similarity in the use and consumption behaviour, e-cigarettes
filled with nicotine containing liquids also offer an alternative means for nicotine intake. The nicotine,
which is highly addictive and toxic, is the trigger for substitution.
Regarding the tax base, all the options follow a ‘per volume’ approach (i.e. taxation proportional to
the volume). This is in line with the practice of Member States. This is confirmed by the results of
the stakeholder consultation.94
Option 1: Zero rate for the EU minimum
Under this option a fixed minimum of EUR 0/ml of liquid applies. This option would allow Member
States without excise duty in place to maintain the status quo, but at the same time to monitor the
movement of liquids for e-cigarettes through the EMCS.
This level of taxation corresponds to the approach adopted in Croatia.
Option 2: Higher level for the EU minimum
Under this option, a fixed minimum of EUR 0.36/ml of liquid applies with a relative minimum of
40% of the retail selling price, as an alternative condition.
Option 3: Moderate level for the EU minimum with a higher rate for high nicotine
concentrations in liquids for e-cigarettes
This option offers the possibility of applying a higher level of excise duty to liquids with a high
concentration of nicotine95
, for example nicotine ‘boosters’ that are added to ‘shortfill’ nicotine-free
liquids (underfilled bottles of flavoured liquids).
Under this option, a fixed minimum of EUR 0.12/ml of liquid applies for products96
with up to 15 mg
of nicotine per ml, including nicotine-free liquids, with a relative minimum of 20% of the retail selling
price as an alternative condition. The minimum rate for products with any concentration higher than
15 mg/ml is set at EUR 0.36/ml, with a relative minimum of 40% of the retail selling price as an
alternative condition.
94
The prevailing view on EU minima for liquids for e-cigarettes among Member State’s tax authorities converged around
the minimum common denominator of some EUR 0.10 per ml, while both higher EUR 0.30 per ml rates and the zero rate
option elicited less support. However, in the public consultation where e-cigarette consumers were, overrepresented,
respondents preferred the zero EU minimum option (48%), closely followed by the EUR 0.10 per ml option (43%), while
the EUR 0.30/ml value was preferred by a very small subset of stakeholders (6%). Respondents, excluding citizens were
all in favour of a positive EU minimum (69%).
95
In Sweden, liquids with a nicotine concentration exceeding 15 mg/ml are subject to a higher rate (EUR 0.40/ml instead
of EUR 0.20/ml). In Denmark, the threshold is 12mg of nicotine per ml.
96
In 2023 nicotine-containing products accounted for 87% of the total consumables market vs. just 13% for nicotine-free
products. Among nicotine-containing products, consumers tend to prefer low strength liquids (with 1 to 9 mg/ml),
although medium strength products (10 to 19 mg/ml) hold more than 50% of the market in half a dozen Member States
(Austria, Denmark, Italy, the Netherlands and Romania) (External study).
Under Article 20 of the Tobacco Products Directive it is not allowed to place on the market nicotine-containing liquid
where the nicotine concentration exceeds 20 mg/ml.
34
5.3.2.3. Other manufactured tobacco and related products
The options propose creating an excise category for other manufactured tobacco and related products.
There is consensus among tax authorities for including them in the scope of the Directive, although
opinions then differ on how best this could be implemented. The public consultation confirms that,
for this category of product, there is no prevailing view on implementing an EU minimum rate among
stakeholders, except for citizens that were against.97
To this end, two main catch-all categories with
a broad, flexible definition are proposed:
▪ Other manufactured tobacco. This is a residual excise category designed to capture any
manufactured tobacco product which does not belong to the smoking tobacco or heated tobacco
products categories. To deal with the heterogeneity of the products concerned, it is proposed to
established a catch all regime covering all hypothetical other manufactured tobacco products
that cannot be classified otherwise, and a special regime, for traditional ‘non-harmonised’
smokeless products, like chewing tobacco and nasal tobacco, but not including snus which is
only allowed for sales in Sweden.98
▪ Related products. The second category proposed concerns related products, such as smokeless
products for final consumption that contain nicotine but not tobacco and which are intended for
the intake of nicotine by the human body. Two regimes are also proposed: a catch all regime
to capture a multitude of products for nicotine intake through chewing, dissolving, sniffing,
etc., and a special regime for nicotine pouches, which is the main emerging product in this
area. However, some nicotine-containing products should be explicitly excluded from the scope
of these categories, such as approved nicotine replacement therapies99
, industrial nicotine100
,
and products containing a minimal amount of nicotine.101
Regarding the EU minima for other manufactured tobacco, three options are proposed.
The rationale for option 1 is to introduce these products in the scope of the Directive with a basic EU
minimum rate, reflecting the marginal and declining consumption of smokeless tobacco products. 102
The proposed rate is EUR 26/kg (or 10% of retail selling price (RSP).
Under option 2 a limited EU minima of EUR 107/kg (or 40% of RSP) is proposed, to align with the
minimum rate proposed for other smoking tobacco (OST) under this scenario. This approach aims at
preventing tax-induced substitution and risks of abuse of this new category.
97
Member States tax authorities expressed a clear consensus for harmonising and introducing new oral products within
the scope of the Directive. The consensus varies across products from almost unanimous for nicotine pouches and other
oral products containing nicotine but not tobacco. Respondents to the public consultation were not against harmonising
and creating EU minima on these goods (53%) and 57% of respondents other than citizens were clearly in favour.
98
Placing on the market of tobacco for oral use (|without prejudice to Article 151 of the Act of Accession of Austria,
Finland and Sweden) is prohibited under Article 17 of the Tobacco Products Directive.
99
As it is under current provisions of Article 2 of the Directive ‘products containing no tobacco and used exclusively for
medical purposes shall not be treated as manufactured tobacco’.
100
Both extracted from tobacco and obtained by synthesis - which is produced and traded B2B in a concentration higher
than the 20 mg/ml limit established for liquids for intended uses other than intake into the human body. This is a chemical
substance which is covered by the hazardous substances legislation.
101
A hypothetical threshold of 0.01 mg/ml is put forward.
102
According to available market data, chewing tobacco sales have decreased by 13% since 2020, and in 2023 were below
19 tonnes EU-wide. Moist snuff sales (except snus) amounted to 128 tonnes in 2023 and were rather stable since 2020
(External study).
35
Under option 3, following the same approach as for OST under the high increase option, a gradual
increase of the fixed minimum over 4 years to EUR 143/kg of the product is proposed. The gradual
phase-in of the tax increase is justified by the considerable evolution from the current situation where
no EU minimum is applicable.
Regarding the EU minima for related products, the same rates are proposed for simplicity and
considering the similarity in consumption patterns between nicotine pouches and chewing tobacco
103
. Regarding the structure, only an ad valorem excise rate (based on the retail selling price) is
proposed as it is unrelated to the product’s substrate or how it is prepared for sale. Indeed, as a
heterogeneous category, the excise structure should be sufficiently flexible to adjust to different
product characteristics.
Options for EU minima for other manufactured tobacco and related products
Products EU minima
Option 1
(basic
amount)
Option 2
(limited
amount)
Option 3 (high
amount) gradual
increase over 4 years
Other
manufactured
tobacco
Smokeless
tobacco products
(nasal, chewing
tobacco)
Fixed minimum
(EUR/kg)
26 107 143
Relative minimum (% of
the retail selling price)
10% 40% 50%
Catch all regime
Fixed minimum
(EUR/kg)
26 107 143
Relative minimum (% of
the retail selling price)
10% 40% 50%
Related
products
Nicotine pouches
Fixed minimum
(EUR/kg)
26 107 143
Relative minimum (% of
the retail selling price)
10% 40% 50%
Catch all regime
Relative minimum (% of
the retail selling price)
10% 40% 50%
5.3.3. Options discarded at an early stage
Minimum rates set per nicotine content
The ‘per nicotine’ approach (i.e. taxation proportional to the concentration of nicotine contained in
the liquid) is endorsed by some public health stakeholders on the hypothesis that it would discourage
users to consume liquids with a higher concentration of nicotine, a highly toxic and addictive
substance. However, the current market price of liquids is not linked to nicotine concentration,
consequently, setting EU minima to be proportional to nicotine concentration could be too disruptive
of the current market practice. Finally, an entirely ‘per nicotine’ approach would exclude nicotine-
free liquids from taxation, would require more burdensome procedures for economic operators and
tax authorities to verify tax declarations, and would magnify the incentives behind the illicit trade of
pure nicotine, which is a risk frequently highlighted by Member States. None of the Member States
has adopted a ‘per nicotine’ approach to the taxation of liquids for e-cigarettes.
Excluding nicotine free liquids from taxation
103
Smokeless tobacco product available loose or portioned (in pouches resembling tiny tea bags) and consumed by placing
the pouch or a pinch between the gum and upper lip for a period of time.
36
Excluding nicotine-free liquids would fail to address ‘do it yourself’ practices, especially in the case
of positive excise duty rate for nicotine containing liquids104
. Liquids still have a negative health
impact (e.g. leading to cancer, pulmonary and cardiovascular diseases) because of the harmful
products (e.g. formaldehyde, heavy metals) they contain. Among other things, SCHEER found a
moderate to strong risk of adverse health effects for heavy users of e-cigarettes, while adding that
more research and data are needed to estimate long-term effects, as these products are relatively
new105
. While the relative health risks of e-cigarettes are still debated, excluding nicotine free liquids
from taxation would hamper the pursuit of the public health goals in Member States as there is strong
evidence that e-cigarettes play a role in the initiation of smoking, especially for young people106
.
Finally, the need to include into the scope of the Directive nicotine free liquids is supported by an
overwhelming majority of tax authorities.
5.4. Enlarging the scope to raw tobacco
Harmonising excise duty rules for raw tobacco would resolve disparities in interpretation of the
demarcation between manufactured tobacco products and raw tobacco for excise purposes and would
imply the application of movement and control requirements under the Horizontal Directive. This is
supported by most tax authorities surveyed (75%). Also, more than two thirds of the respondents to
the public consultation expressed support for monitoring raw tobacco movements through the Excise
Movement and Control System (EMCS), to curb illicit manufacturing.
5.4.1. What is the baseline from which options are assessed?
The baseline for the harmonisation of the tax regime for raw tobacco assumes no change in EU policy.
Raw tobacco would not be covered by the Directive, hence would not be harmonised at EU level and
would be free to move unsupervised by national authorities throughout the EU. Member States would
continue applying their own tax regimes and control measures.
5.4.2. Description of the policy options
The options propose creating a new excise category for raw tobacco. Taking into account Member
States’ practices107
, raw tobacco would be defined in contrast with the existing manufactured tobacco
categories, i.e. the definition of raw tobacco would include any form of tobacco that is neither a live
plant nor a manufactured tobacco product. In practice it would include tobacco leaves and
intermediate products.
As a result of harmonisation, the same as for new products as already presented in section 5.3.2, the
excise movement and control requirements established in the Horizontal Directive108
would apply to
raw tobacco, but with an exemption for the movements from cultivation areas (where the tobacco is
104
In the majority of Member States with excise duty in place, all liquids are taxed with a positive rate.
105
Opinion on electronic cigarettes. Scientific Committee on Health, Environmental and Emerging Risks SCHEER.
106
WHO, ‘WHO report on the global tobacco epidemic 2021: addressing new and emerging products’. July 2021.
107
See ANNEX 15: section 2 for details.
108
See ANNEX 17: section 2 for details.
37
grown) to the first processing109
facility, as at this stage the risk of fraud is limited110
. The EMCS
would therefore start applying when raw tobacco is eventually received by the first processor. As
most of the imported raw tobacco is first processed, this option would ensure equality of treatment as
the EMCS obligation would apply at the same stage to both EU and non-EU grown raw tobacco.
As regards to EU minima, two options are proposed.
Option 1: Zero EU minimum
Under this option a fixed minima of EUR 0/kg of the product is proposed111
. This option is supported
by almost all tax authorities.
Option 2: Positive EU minimum
Under this option a fixed minima, the same rate as for other smoking tobacco (OST), is proposed,
with a gradual increase of the fixed minimum over 4 years to EUR 143 per kg. It should be noted that
this option would be in line with the current practices of Member States which use taxation as a
deterrent for trading raw tobacco outside of the recognised supply chain. In these countries, the tax
rate applied to raw tobacco is typically the rate of OST112
.
5.4.3. Options discarded at an early stage
Application of excise movement and control requirements at the initial stage of the supply chain
This option would include applying the control requirements established in the Horizontal Directive
at the initial stage supply chain stage113
, i.e. to tobacco growers and their organisations. It would
imply high administrative burden for economic operators, typically SMEs, who are not generally
involved with the manufacture of tobacco products and their placing on the market. Furthermore,
national agricultural legislation already imposes registering obligations to tobacco growers. This
option has been discarded as disproportionate.
109
First processing of tobacco includes a variety of activities that transform ‘leaf’ tobacco into ‘processed’ tobacco which
manufacturers can use to produce tobacco products (cigarettes, FCT, cigars etc). The first processing includes inter alia:
(a) threshing (separation of tobacco laminas from stems and veins); (b) cutting; (c) stabilisation; and (d) sorting into lots
(i.e. grading of the products by quality). ‘Second processing’ designates a range of activities that transform tobacco by-
products, originating from processing/manufacturing activities into reconstituted tobacco or other intermediate products
(such as ‘expanded stems’), which can be used for the manufacturing of final products. By-products include tobacco
stems, lamina scraps, dust and fines etc., which are typically classified as ‘refuse tobacco.’ (External study).
110
Movements of harvested tobacco from field to farm or collection centres, and then to first processing facilities, would
not occur under EMCS. Collection centres are collective warehouses, where curing is often also performed, located nearby
the cultivation areas and typically managed by producers’ organisations. When administrative arrangements are in place,
to make farming of tobacco conditional upon the existence of contracts with first processors, these collection centres are
usually not allowed to directly sell their members’ products, but the situation can vary from Member State to Member
State and possible cases of collection centres operating in their private capacity have also been reported (External study).
111
0 is not the same as exemption. In practical terms, the exemption would mean that raw tobacco would continue to fall
outside the scope of the Directive and excise movement and control requirements established in the Horizontal Directive
would not apply.
112
E.g., Lithuania, Sweden.
113
In this early stage, tobacco is moved from field to farm or collection centres and/or curing facilities in bulk.
38
6. What are the impacts of the policy options?
This section gives an overview of the main impacts of the options considered under the revision of
the Directive by comparing them to the baseline. The impacts of the policy options for three revision
areas have been assessed mainly on the basis of the External study.
The ‘no EU policy change’ scenario is based on a dynamic baseline. In this analysis, external factors
e.g. fiscal developments at national level, other EU initiatives (e.g. in the context of anti-fraud or
tobacco control policy) and broader economic and socio-cultural trends were considered. The baseline
analysis focused on these specific aspects that are relevant to each of the three areas of intervention.
For instance, in the area of new products, the External study looked at market value and price of e-
cigarettes, heated tobacco products, other tobacco and related products, the number, type of consumer
and consumption patterns, existing legal frameworks, estimated tax revenues in countries where taxes
have been introduced, issues related to ad hoc regimes and disparities of treatment, related
administrative burden for businesses and administrations.
The significant impacts considered in detail for each policy option relate to: (1) impacts on excise
duties and on the market (including tax revenues and the impact on fraud and tax evasion); (2)
administrative costs and savings (including the impact on SMEs and on competitiveness) taking into
account digital aspects; (3) public health effects (smoking prevalence and related social costs); (4)
impacts on employment.
The quantification of the impact of each policy option on the prices, quantities sold, and excise
revenue was carried out following a partial equilibrium approach augmented with a module for intra-
EU movements. The first step of the estimate was to identify, for each policy option, which Member
States would have to increase their excise duties, for each market segment; this is because, in almost
all cases, Member States currently levy higher excises than mandated by the Directive. Once
determined which excises would have to be increased in each Member State, the resulting price
increase was calculated taking into account that producers of tobacco and related products typically
absorb part of the tax increase within their profit margin, adapting the price less than proportionately.
On the basis of historical patterns, the expected degree of tax shifting to the consumer was determined
by the External study at 0.7. The resulting impact on the demand for the various tobacco products
was finally determined based on estimates for the price elasticity of demand calculated by the External
study. The methodology also involved estimating how much consumption would shift from one
product to another (notably from cigarettes to FCT, but also between higher- and lower-priced market
segments of the same product), following a price increase. For new products, the pass-through rate
was modulated to account for segment-specific price and demand dynamics, based on empirical
evidence (see ANNEX 4: for details). The impact on revenue was finally calculated by adjusting the
increase in unit tax revenue for the expected reduction in volume. Additionally, the analysis of market
impacts has included a specific assessment of the expected variations in cross-border flows and of
tax-driven substitution between cigarettes and FCT.
The External study assumed, conservatively, that only directly affected Member States would raise
excise duties, ignoring the possibility that other Member States would ‘follow the example’ and hike
their excise duties voluntarily.
This assumption was needed to disentangle the expected effects of the proposed revisions from other
changes that would occur as a result of Member States’ internal excise policies. In this sense, these
39
scenarios should not be seen as a prediction of future evolution in excise and price levels across the
EU.114
Details of the analytical methods are provided in ANNEX 4:.
Regarding impact on SMEs, the relevant impacts based on the SME check are presented in ANNEX
6:.
General impacts are expected in other areas. However, they are not assessed in detail because they
are similar in all policy options and are less direct and significant. These are:
▪ Environmental impacts. Tobacco products are characterised by a peculiar environmental
footprint in the various phases of their lifecycle. In particular, tobacco is characterised by being
a crop with very high water demand, whose manufacturing can be seen as relatively energy-
intensive, both because of curing requirements and because its complex logistics and
distribution require a notable number of km be travelled. According to the WHO, tobacco
growing is significantly more water-intensive than food crops such as tomatoes, rice or
potatoes.115
Tobacco production requires substantial amounts of energy (oil), with
consequential adverse environmental effects in terms of CO2 emissions. Discarded cigarette
butts present a danger to the environment, as filters do not biodegrade and can remain in the
environment for very long periods of time in the form of microplastics. The European
Commission has identified tobacco filters among the top five most common pieces of litter
found on beaches.116
Any reduction in tobacco consumption triggered by taxation would, in
theory, reduce such impact. This in line with the goals of the European Climate Law117
and
other EU environmental legislation. As regards e-cigarettes, heated tobacco and smokeless
tobacco products, there is a notable paucity of information on environmental impacts. However,
it is reasonable to assume that e-cigarette emissions and waste are a significant source of
environmental pollution.118
All the options and the baseline scenario considered the principle
of ‘do no significant harm’ to the environment. For more details see ANNEX 17: section 5.
The right to a high level of human health protection is enshrined in the EU Charter of Fundamental
Rights and already addressed under public health impacts. The interaction of the Directive and the
potential impact of the policy options on other fundamental rights was not considered significant, in
light of the fact that the scope of the Directive is limited to setting minimum taxation levels, and
therefore is not assessed in detail.
114
According to the feedback received, 10 out of 19 the Member States which responded reported planned increases of
national rates in the coming years.
115
Maria Zafeiridou, Nicholas S Hopkinson, Nikolaos Voulvoulis, ‘Cigarette smoking: an assessment of tobacco’s global
environmental footprint across its entire supply chain, and policy strategies to reduce it’, 2018
116
Joana Mira Veiga, David Fleet, Susan Kinsey, Per Nilsson, Thomais Vlachogianni, Stefanie Werner, François Galgani,
Richard C. Thompson, Jeroen Dagevos, Jesús Gago, Paula Sobral and Richard Cronin, Identifying Sources of Marine
Litter, p. 18.
117
Set the long-term direction of travel for meeting the 2050 climate neutrality objective through all policies, in a socially
fair and cost-efficient manner. European climate law sets a binding Union climate target of a reduction of net greenhouse
gas emissions by at least 55% by 2030 compared to 1990.
118
Ngambo G, Hanna EG, Gannon J, Marcus H, Lomazzi M, Azari R. A scoping review on e-cigarette environmental
impacts. Tob Prev Cessat. 2023 Oct 2;9:30. doi: 10.18332/tpc/172079. PMID: 37789930; PMCID: PMC10542855.
40
6.1. Revising the EU minima and certain categories for traditional tobacco products
6.1.1. Baseline
In 2023, smoking prevalence in the EU amounted to 24%, i.e. one percentage point less than 2020
and four points down compared to 2012 levels. Tobacco related healthcare costs attributable to
tobacco are close to EUR 48 billion annually. In terms of years of life lost, the burden of tobacco is
close to 11.3 million annually, which in economic terms may translate in EUR 587 billion for the EU
overall (see Table 2). 119
Under the baseline, smoking prevalence is likely to decrease by 1.7% a year, due to Member States
spontaneous tax increases and the impact of other factors like tobacco control policies, and broader
change in cultural attitude. The EA 2021 study estimated that such factors would reduce the social
costs of tobacco consumption by roughly EUR 37 billion by 2025.
Table 2. Smoking prevalence and health costs
Smoking prevalence Health impacts
Consumpti
on (items
bn)
No. of
smokers*
(population
mil)
Smoking
prevalence
* (%)
Tobacco-
related
deaths
(thousand)
Tobacco-
related
DALYs
(thousand)
Value of
years of
life lost
(EUR bn)
Health-
care costs
(EUR bn)
Productivit
y losses
(EUR bn)
Total
monetised
burden
(EUR bn)
Baseline 502 92.1 24% 498 13 200 587 48 13 650
Source: External study based on TEDB / Euromonitor (unit consumption) and Eurobarometer (smoking prevalence and
smokers’ population). Baseline values refer to 2023. Health impacts are based on Global Burden of Disease data and
Eurostat.
Legend: DALY=Disability adjusted life years.
Notes: FCT and OST have been converted into sticks applying a 0.75g=1 stick equivalence. (*) The estimates for these
variables are presented with a higher degree of granularity for the sole purpose of showing the possible different impact.
Excise duty revenue from tobacco products in the EU for 2022 was estimated at approximately EUR
79 billion.120
Table 3 shows how the market is expected to evolve under the baseline (current EU
minima unchanged).
Table 3. Traditional tobacco products under the baseline
Cigarettes FCT Cigarillos Cigars OST
EU average excise duty at WAP
level (EU average) (2023)
EUR 187/1 000
units
EUR 153/kg
EUR 137/1 000
units
EUR 727/1 000
units
EUR 132/kg
EU average WAP (2023)
EUR 301/1 000
units
EUR 264/kg
EUR 497/1 000
units
n/a* EUR 263/kg
Annual market sales (2023)
393 billion
units
70 million
kg
8.7 billion units 1.0 billion units 4.8 million kg
Source: External study
119
External study.
120
Over the 2020 – 2022 period excise duty revenues continued increasing in nominal terms, moving from EUR 77.3
billion to over EUR 78.9 billion. However, the rate of increase (2.1%) has been much smaller than inflation rate for the
same period (19.5%) so, in real terms the total amount of receipts actually declined (by around 14%). As actual excise
rates applied in Member States have generally increased faster than the inflation rate, this downturn is mostly attributable
to a decline in recorded consumption (External study).
41
Notes: * Given the inherent heterogeneity of cigars, it is impossible to compute a meaningful overall representative price,
i.e. a WAP.
Under the baseline, the substitution between FCT and cigarettes is expected to decrease progressively
in line with current trend, as the tax gap has been bridged progressively over time, through both
scheduled increase in the EU minimum for FCT and Member States tax policies.121
However, the last
increase mandated by the Directive entered into force in 2020 and there are no further required
increases. Sales of FCT increased while COVID – 19 restrictions were in place, suggesting
substitution increased during that time, possibly due to reduced access to (cheaper) cross-border
products, however, FCT sales have since declined between 2020 and 2023.
6.1.2. Impacts on excise duties and the market
Table 4 presents the economic impacts of the three options presented for each traditional tobacco
product (see section 5). For cigars, cigarillos and OST, a gradual increase of the fixed minimum from
EUR 107 to EUR 143 over 8 years is proposed in option 2 and over 4 years in option 3. The impacts
presented are those relevant to the EU minima at EUR 107 (for option 1) and EUR 143 level (for
option 2 and 3). Disparities between Member States are greater for cigars and cigarillos, compared to
cigarettes, so the proposed increases will inevitably have different impacts, with very low taxing
Member States required to significantly increase rates, while others remaining unaffected. In absolute
terms, the proposed increase would increase the average excise duty from EUR 137 (per 1 000 units)
to between EUR 143 and EUR 150 for cigarillos, and from EUR 727 (per 1 000 units) to between
EUR 732 and EUR 740 for cigars.
The impact on the price of traditional tobacco products would depend not only on the extent of excise
duty increases prompted in Member States, but also on how much of the increase is passed on to
consumers or, conversely, absorbed by manufacturers by reducing profit margins or implementing
portfolio optimisation strategies. Price level increases would in turn reduce demand and sales of
tobacco products. The EU average price (WAP) for 1 000 cigarettes is estimated at EUR 319 in option
1, at EUR 336 in option 2 and at EUR 368 in option 3. For 1 kg of FCT, it is estimated at EUR 277
under option 1, at EUR 282 under option 2 and at EUR 294 under option 3.
Table 4. Estimated impacts on excise duties, revenues and market
Cigarettes FCT Cigars Cigarillos OST Total
Option 1: Limited increase of EU minima
Average increase
of excise duty for
Member states in
%
11% 11% 14% 23% 12%
Member States
affected
19 9 5 6 6
Market sales (%) - 5% -6% -2% -10% -9%
Impact on
revenues (EUR
million)
+ 4 090 + 661 + 55 + 46 + 4 900
Option 2: moderate increase of EU minima
121
Over the past decade, excise duty levels for FCT have been increasing at an average annual rate of over 7%. More
specifically, compared to the tax levels in 2020, the increase was, 27% in 2023, i.e. more than in the case of cigarettes
(22%). Over the 2020 – 2023 period, excise duty levels remained unchanged in four Member States and increased in all
remaining countries (External study).
42
Average increase
of excise duty for
Member states in
%
22% 15% 26% 42% 26%
Member States
affected
21 11 9 8 12
Market sales (%) -9% -6% -5% -13% -12%
Impact on
revenues (EUR
million)
+ 7 992 + 806 + 91 + 77 + 9 000
Option 3: high increase of EU minima
Average increase
of excise duty for
Member states in
%
41% 24% 26% 42% 26%
Member States
affected
21 17 9 8 12
Market sales (%) -14% -9% -5% -13% -12%
Impact on
revenues (EUR
million)
+ 12 582 + 1 185 + 91 + 77 + 14 000
Source: External study
Notes: Estimates refer to the EU-wide aggregated market. For tax-driven price increases, a pass-through rate of 0.7 is
assumed. The impact on demand is calculated assuming an elasticity coefficient of -0.54. Figures are rounded.
Traditional tobacco products consumed in the EU are mostly manufactured within the Union and,
obviously, manufacturers could be affected by reduced demand, even if some losses could be offset
through exporting. The impact of increased EU minima on market sales would affect primarily large
companies, which dominate the cigarettes segment, whereas SMEs, which are more present in the
FCT, cigars, and cigarillos segments, would be comparatively less affected. Certainly, the degree of
market power that the four large transnational tobacco companies are capable of exercising may allow
for raising prices, even beyond that required by higher taxes, in order to minimise reduced
profitability.122
The impact on general retail is expected to be negligible, as retailers rarely sell only
tobacco products. The impact may be more felt by first and second processors who depend directly
on sales volumes and are typically bound to local markets.
Regarding the impact on fraud, while price levels may act to incentivise the illicit trade of tobacco
products (ITTP) the main driver is not the relative levels of price or taxation123
, instead other drivers
are at play such as the permeability of borders; the severity of sanctions for offenders; the geographic
proximity to illegal production and/or distribution sites.124
The World Health Organisation contends
that weak governance has a greater influence on the scale of the illicit tobacco trade than price
differentials.125
By contrast, within the EU, tobacco is subject to strong fiscal and regulatory controls,
overseen by Member States with effective administrative frameworks.
122
R. Branston, Industry profits continue to drive the tobacco epidemic: A new endgame for tobacco control?, Tobacco
Prevention & Cessation, 2021; Z.D. Sheikh, J.R. Branston, A.B Gilmore, Tobacco industry pricing strategies in response
to excise tax policies: a systematic review, Tobacco Control, 2021.
123
World Bank, Tobacco Tax at the Crossroads of Health and Development: A Multisectoral Perspective. 2017, p. 18.
124
Member States that are more exposed to smuggling from external borders are generally more concerned about the
unintended consequences of increasing EU minimums.
125
WHO technical manual on tobacco tax policy and administration. Geneva: World Health Organization; 2021. Licence:
CC BY-NC-SA 3.0 IGO, p 176
43
Evidence from Ireland, which is the Member State with the highest tobacco taxes and prices in the
EU, has shown that sustained tax and price increases can coexist with a general downward trend in
the use of illicit tobacco products126
.
In other words, there is no direct proportionality between tax levels and the level of illicit trade (also
see ANNEX 17: section 1.1.).
The traceability and security features system for monitoring distribution of tobacco products in the
EU under the Tobacco Products Directive is now well in place127
in Member States for cigarettes and
FCT. Since May 2024 it has been expanded to cigars, cigarillos and smokeless tobacco products.
Finally, the risk of ITTP should also be addressed by appropriate enforcement actions.
Impact on the consumer price index. The increase in the price of tobacco products, consequent to
increased taxation, would impact inflation rates in the Member States, somehow proportionally to the
extent of the increase and of the weight of products on consumer’s basket - as measured by Eurostat’s
Harmonised Index of Consumer Price (HICP). Overall, EU aggregate HICP would increase by 0.18
percentage points in the case of option 1, 0.34 in the case of option 2 and 0.55 in the case of option
3 (see ANNEX 17: section 1.2).
Overall, the projected impact contributes in a limited way to inflation dynamics. However, it should
be noted that price increases deriving directly from consumption tax increases usually fall outside the
definition of inflation relevant for monetary policy purposes.128
Moreover, it should be understood
that the consumer price impact calculated is a purely arithmetic average between a zero impact for
non-smokers and a higher (but intentional) impact for smokers, assuming other things being equal.
Separate categories for cigarillos and waterpipe tobacco (WPT) would allow Member States to
adopt a more tailored taxation regime for these products according to their consumption patterns and
risk analysis for these specific products.129
A separate sub-category for WPT with a modest EU minima increase would improve legal certainty,
allow tax authorities to monitor the WPT market more effectively, which could reduce illicit trade
and tax evasion and give Member States more flexibility to adapt the WPT rate to discourage the
illicit trade. According to the External study, while a lack of robust market data hampers a quantitative
estimation, a decline in illicit sales is expected, especially under option 1. As regards the impact on
annual tax revenue, an increase of EUR 10 million for option 1 and EUR 20 million for options 2 and
3 are expected.
6.1.3. Impact on substitution between products
Increase in the demand of FCT caused by substitution is likely to exceed the decline in sales caused
by FCT own price increase. Regarding other products, the options proposed would mitigate tax-
126
Dutta, S., Confronting Illicit Tobacco Trade: a Global Review of Country Experiences (English). WBG Global
Tobacco Control Program Washington, D.C. World Bank Group, p 124.
127
Commission Report on the application of Directive 2014/40/EU, COM(2021) 249 final.
128
Firstly, monetary policy is concerned about a ‘core inflation’ that excludes some volatile items from the HICP inflation,
usually including tobacco products. Secondly, changes in the indirect taxation belong to the list of exemptions that allow
central banks to “look through” such changes when interpreting inflation developments.
129
For WPT, market operators claim that the current homogenisation of taxation levels with ‘other smoking tobacco’
causes the prices for these products to become disproportionate.
44
induced substitution across products130
because current levels are well below the new EU minima
proposed.
6.1.4. Impact on cross-border flows of cigarettes and FCT
Although the increase of the EU minima will foster price convergence among EU Member States to
some extent, it will not eliminate the incentive for cross-border shopping131
. However, the results,
summarised in Table 5, show that the increase of EU minima would be associated with a reduction
of cross-border flows132
. Cross-border purchases of cigarettes are expected to reduce by
approximately 1.8 to 5.8 billion cigarettes (equivalent to 6.4 % and 20.5% respectively) depending
on the option.
Table 5. Impact on cross-border flows of cigarettes and FCT
Volumes Changes in volumes with respect
to baseline
Baseline Option 1 Option 2 Option 3 Option 1 Option 2 Option 3
Cigarettes (mln sticks) 28 400 26 600 25 000 22 600 -6.4% -11.9% -20.5%
FCT (t, lb) 8 300 8 100 8 050 7 800 -2.1% -2.9% -6.2%
FCT (t, ub) 14 000 13 700 13 600 13 150
Source: External study
Note: lb and up stand for the lower and upper bound, respectively. Numbers were rounded with different precision applied
to different products
6.1.5. Public health impacts
According to WHO estimates, an increase of tobacco prices by 10% decreases tobacco consumption
by about 4% in high-income countries and about 5% in low- and middle-income countries.133
Any
reduction in tobacco consumption triggers health benefits (defined as reduced health costs). The
number of smokers would reduce between 5 and 12 million approximately, depending on the option.
The smoking prevalence (aged 15+) would drop from a minimum of 1.2 percentage points up to 3.2
depending on the option, and under the most ambitious option it would drop to 20.8% (from the
current 24%) (see Table A17-1 in ANNEX 17:). This corresponds to the opinion of public health
experts and NGOs who consider that increasing taxation of conventional tobacco products and closing
tax differentials between cigarettes and other tobacco products were high priority for achieving the
objectives of Europe’s Beating Cancer Plan.
As presented in
130
However, during public consultation some businesses claimed that increasing the minima for cigars and cigarillos,
would have hardly any effect on product substitution trends with cigarettes, as prices are already well above cigarettes
and consumption habits are different.
131
Stakeholders of public consultation also have doubts that EU excise harmonisation mechanism based on common EU
minima will harmonise taxation levels soon and therefore will not reduce abuse of cross-border trade flows motivated by
tax opportunities.
132
Changes in the volume of flows was estimated using the econometric model developed in the External study. For more
details see ANNEX 8: section 2.1
133
WHO, Factsheet on Tobacco, accessed 18 April 2025
45
Table 6, in line with the above projections of smoking prevalence, the proposed options would lead
to possible savings in terms of social costs of between EUR 32 and 55 billion for option 1 and 2 and
EUR 85 billion for option 3 by 2025 compared with the baseline.134
Table 6. Impacts on public health costs
Options
Tobacco-
related
deaths
(thousand)
Tobacco-
related
DALYs
(thousand)
Value of
years of life
lost (EUR
bn)
Health-care
costs (EUR
bn)
Productivity
losses
(EUR bn)
Total
monetised
burden
(EUR bn)
Option 1 -25 -700 -29 -2 -1 -32
Option 2 -42 -1 100 -50 -4 -1 -55
Option 3 -66 -1 700 -77 -6 -2 -85
Source: External study
Notes: Estimates based on Global Burden of Disease data and Eurostat. Figures are rounded.
Legend: DALY=Disability adjusted life years.
6.1.6. Impacts on administrative costs and savings and on SMEs
The increase of EU minima would negatively affect consumers’ ability to buy the products (and hence
lead to reduced sales for economic operators) but would not per-se entail relevant increase of
administrative costs for business and Member States.
6.1.7. Impacts on employment
The employment impact is likely to depend on the market segment. There are no official statistics on
jobs linked to tobacco because these fall across three different sectors: growing of tobacco in the
primary sector, tobacco manufacturing, and retail. These sectors differ considerably in terms of their
production function, labour intensity and market structure; as such the impacts will be
correspondingly diverse. Even within the sectors, the impact on each individual business will vary
depending on its product mix.135
In overall it can be concluded that impacts on economy-wide
employment would be marginal and concentrated in a handful of Member States.136
Tobacco
manufacturing employment has tended to decline for years as growing automation and mechanisation
has made the tobacco product industry capital intensive. It should be mentioned that to minimise
possible negative impact it is at Member State (or regional) level that initiatives must be taken to
organise retraining courses for tobacco sector workers, which is supported at EU level through policy
frameworks (such as the European Pillar of Social Rights Action Plan, the 2020 European Skills
Agenda137
) and funding (such as the European Social Fund, Recovery and Resilience Facility, Just
Transition Fund, Erasmus+). One particular action that the sector could take is to set up a partnership
135
Employment directly dependent from tobacco in the retail sector is marginal as in most cases tobacco products are
only sold as a part of the product mix.
136
Bulgaria is the most exposed Member States with a relatively high concentration of tobacco growers. Manufacturing
is concentrated in Germany.
137
The 2020 European Skills Agenda aims to empower individuals to learn and make sure their skills are fit for the
changing labour markets. The European Pillar of Social Rights Action Plan further supports these labour market
adjustments and sets an EU target of at least 60% of adults aged 25 -64 to participate in training annually by 2030, from
some 37% today.
46
within the Pact for Skills138
, bringing together actors (authorities, companies, unions, training
providers etc.) to analyse and respond to the skills challenges of the sector.
6.2. Enlarging the scope to new products
6.2.1. Baseline
Under the baseline scenario, Member States would continue to apply various national regimes for
new products.
Regarding heated tobacco products, excise duty levels vary greatly, from EUR 55 to EUR 1 000
per kg (EUR 226 on average), which translates into EUR 73 per 1 000 units on average for the most
popular product on the market and taking into account the different rates applied in some Member
States139
.
Regarding liquids for e-cigarettes, Member States have adopted heterogeneous tax regimes as
regards the tax base (per volume of liquid or per nicotine concentration) and scope (whether nicotine-
free products are within scope or not). Whereas the average rate applied by those Member States who
tax liquids for e-cigarettes is 0.20 per ml, positive rates vary significantly, from EUR 0 .09 to EUR
0.70 per ml.
Certain traditional ‘other manufactured tobacco’ markets are broadly in decline, whereas related
products, such as nicotine pouches are becoming increasingly popular, particularly among youth,
and their market share is expected to grow substantially in the next five years. Not considering
markets where nicotine pouches are banned or not taxed, the EU average rate applied is around EUR
88 per kg.
6.2.2. Impacts on excise duties and market
6.2.2.1. Heated tobacco products (HTP)
The impacts of proposed options 1 and 2 are based on the application of the excise duty ‘per unit’, as
the near totality of HTP currently on the market would fall under this regime.
The main estimated impacts of harmonised excise duty minima for HTP are presented in Table 7.
The average excise duty level at EU level would increase by EUR 32 (option 1) and EUR 39 (option
2) per 1 000 units compared to the baseline. Under option 1 the average excise rate would be EUR
105 per 1 000 items, and EUR 122 under option 2. Under these options, 17 and 18 Member States
respectively would be affected, with an increase exceeding 100% in some Member States.
Table 7. Impacts of proposed EU minima on excise duty, market, price levels, sales and excise
duty revenues for heated tobacco products
EU minima
Average
excise duty
(EUR /
1000 units)
Average
price
increase
(%, 1
000
units)
Average
price level
(EUR/1 000
units)
Impact
on sales
(%)
Impact
on sales
(billion
units)
Number
of
MS
affected
Impact
on
revenues
(EUR
billion)
Fixed
minimum
(EUR/1
000 units
Relative
(% of
RSP)
Option 1 88 45% 105 8% 271 -16% -8 17 +4
138
Pact for Skills promotes joint action to maximise the impact of investing in improving existing skills (upskilling) and
training in new skills (reskilling).
139
France, Estonia, Denmark and Sweden.
47
Option 2 108 55% 122 17% 293 -27% -13 18 +4.1
Source: External study
Notes: Relative=relative minimum condition. The impact on demand is calculated assuming an elasticity coefficient of -
1.36. For more details on methodology and assumptions see ANNEX 4: and ANNEX 17: section 3.1. Figures are rounded.
The new excise duty levels are expected to influence the selling price, and consequently the sales of
HTP products as shown in
Table 7. The retail price (WAP) would potentially increase by 8% under option 1 and 17% under
option 2 on average with great variation across Member States (from 0% up to possibly 36% under
option 1 and 55% under option 2). The impact on demand would be magnified by the price-sensitive
nature of these products. Considering that over the past few years the HTP market has been
growing140
, the anticipated impacts would translate into a growth deceleration rather than a decline
of this market. Excise duty revenues collected would increase by 40 % in option 1, by 55% in option
2.
6.2.2.2. Liquids for e-cigarettes
Under option 1 (zero EU minimum rate for all liquids), no significant impact on excise duty and price
levels is expected. The main impact would be a harmonisation of EU rules and placing these products
under the excise movement and control system. For options 2 and 3, the main estimated impacts are
shown in Table 8.
Table 8. Impacts of proposed EU minima on excise duty, market, price levels and revenues of
liquids for e-cigarettes
Options
Average
excise duty
(in EUR/ml)
Price
increase (%)
Average
price levels,
EUR/ml
Impact on
sales (%)
Impact on
sales
(million ml)
Affected
Member
States
Impact on
revenues
(EUR
million)
Option 1:
EUR 0/ml
+370
Option 2:
EUR 0.36/ml
(or 40% of
retail price)
0.37 21% 1.60 -40% - 1.4 23 +750
Option 3:
- above 15
mg/ml -
EUR 0.36/ml
(or 40% of
RSP)
- up to 15
mg/ml -
EUR 0.12/ml
(or 20% of
the RSP)
0.23 5.3% 1.39 -17% -0.6 22 +530
Source: External study
Notes: Average price for all products is EUR 1.32/ml (2023). For the tax-driven price increase a pass-through rate of 0.25
is assumed. The impact on demand is calculated assuming an elasticity coefficient of - 1.36. Figures are rounded.
140
In 2023 the value of total sales exceeded EUR 12 billion, i.e. more than doubling the value recorded in 2020 (50 billion
HTP sticks were sold in the EU in 2023).
48
Option 2. The impact of option 2 would be more substantial and would require 23 Member States to
raise their tax levels. The average price of standard liquids would increase possibly by 21% Overall,
consumption is expected to go down 40 %, which would markedly affect the sector. Nicotine-free
liquids could be more affected, as in the baseline scenario they are less or not taxed in some Member
States.
Option 3. The EU minima envisaged under option 3 would lead to a moderate price increase. 22
Member States would need to adapt their tax regime. Sales would possibly decline by 17% over 2023
levels.
The new tax regimes are expected to have positive effects on tax avoidance by limiting the incentives
for ‘do-it-yourself’ behaviours.141
More importantly, a reduction in tax evasion could be expected,
since all transactions would be subject to movement and control rules. Cross-border movements for
commercial purposes would be subject to the EMCS and, therefore, bulk movements of e-cigarettes
would be tracked. However, controls on business-to-consumer duty-paid distance sales would remain
complex and burdensome to enforce. Furthermore, as products would be subject to excise duty in
countries where they are not currently taxed, the incentive for cross-border shopping would reduce.
6.2.2.3. Other manufactured tobacco and related products
In Member States where nicotine pouches are taxed the average rate applicable is EUR 88 per kg,
although there are substantial variations, from EUR 19 to EUR 429. For smokeless tobacco products,
the average rate is EUR 103, varying from EUR 32 to EUR 211.
Depending on the scenario adopted, average prices for nicotine pouches would be expected to rise
from EUR 293 per kg, to be between EUR 311 and EUR 406. For smokeless tobacco products, the
average price is expected to increase from EUR 307 per kg to between EUR 368 and EUR 472.
Smokeless tobacco products and nicotine pouches. The market impact of option 1 would be very
limited, with an indicative decline in smokeless tobacco products consumption of 1%. Under options
2 and 3, the decline could reach 38% and 44% respectively. As regards nicotine pouches the market
impact of option 1 would be limited while under option 2 and 3 consumption could go down by 38%
and 52% respectively (see Table 9).
The overall impact on excise revenues would be positive from nicotine pouches and smokeless
tobacco products. The expected excise revenue would be EUR 150 million under option 1, EUR 280
million under option 2 and EUR 290 million under option 3.
Table 9. Impact on price, market and revenues of smokeless tobacco products
Options Average price
increase (%)
Impact on
sales (%)
Impact on sales
(tonnes)
Smokeless tobacco products
Option 1: EUR 26/kg or 10% of RSP 20% - 1% - 2
Option 2: EUR 107/kg or 40% of RSP 44% - 38% - 56
Option 3: EUR 143/kg or 50% of RSP 54% - 44% - 65
Nicotine pouches
Option 1: EUR 26/kg or 10% of RSP 6% - 5% - 300
141
Consumers would be discouraged to buy separately ‘nicotine boosters’ and the basic ingredients of liquids including
propylene glycol, vegetable glycerine and flavourings for self mixing .
49
Option 2: EUR 107/kg or 40% of RSP 26% - 38% - 1 700
Option 3: EUR 143/kg or 50% of RSP 38% - 52% - 2 300
Source: External study
Notes: Estimates for these products are presented with a higher degree of granularity for the sole purpose of showing the
possible different impact of scenarios, but they have to be considered as indicative142
. The impact on demand is calculated
assuming an elasticity coefficient of -1.36. Figures are rounded.
The introduction of excise movement and control provisions on other manufactured tobacco and
related products may contribute to the reduction of irregular flows,143
and induce consumers of
smokeless products to purchase products taxed in their country of residence, thus increasing the total
excise revenues collected.
6.2.3. Impacts on administrative costs and savings144 and on SMEs
Introducing new harmonised tax categories would generate compliance costs for economic
operators. These costs include:
- administrative costs which are primarily related to general excise arrangement obligations such as
to obtain authorisation, adopt record-keeping tools and procedures, fill-in tax declarations.
- adjustment costs to establish and operate a tax warehouse (where required), to install and operate IT
software for excise control and movement system management, and to issue financial guarantees
(where required) by the Member States of operation.145
Overall, estimated costs for the whole new product sector would amount to EUR 9.6 million of one-
off costs and EUR 6.3 million of recurrent costs in each subsequent year depending on the option.
The bulk of additional costs would be incurred by SMEs operating in the e-cigarette liquids
segment146
, especially those based in countries where no national tax regimes are currently in place.
Indeed, operators in the HTP and other manufactured tobacco sector (especially the nicotine pouch
segment) are likely already compliant with the majority of obligations as both segments are largely
controlled by transnational tobacco companies.147
Focusing on SME’s and on competitiveness, the following impacts can be expected:
142
Nicotine pouches: in Belgium, Germany, Lithuania and the Netherlands nicotine pouches are currently prohibited.
For Bulgaria, Cyprus, Greece, Spain, Luxembourg, Latvia, Portugal and Slovenia no market data are available. The EU
average excise duty includes all countries, including those where these products are not marketed (and possibly banned).
Smokeless tobacco products: estimates refer to the EU aggregated market, including chewing tobacco and moist snuff
(but not including Swedish snus). The analysis is based on the 6 markets for which data are available (Bulgaria, Czechia,
Denmark, Spain, Hungary, and Slovakia), but the EU average excise duty includes all countries (except Sweden as
Euromonitor’s market data do not allow to distinguish between snus and chewing tobacco).
For Member States where the products concerned were not in the market in the baseline year, the tax revenue impact is
assumed to be nil.
143
Irregular online sales of oral tobacco products can involve operators based in various extra-EU countries like
Switzerland, Norway and Russia.
144
See ANNEX 17: section 3.2 for details on costs for economic operators and public authorities.
145
The costs of financial guarantees can be considered as being an indirect burden, given that these depend on Member
States-level implementation.
146
An estimated 3 400 companies in the EU, with a market share of about 30% of the e-cigarette liquids segment (External
study).
147
transnational tobacco companies (Philip Morris International, British American Tobacco, Japan Tobacco International
and Imperial Brands).
50
▪ The expected reduction of sales that would follow tax increases would especially affect the
SME component of the e-cigarette sector, with consolidation leading to a reduction in the
number of SMEs, from the current 3 100 to between 1 600 and 2 400, depending on the option
adopted. However, this impact must be put in perspective, considering the number of total
SMEs in the EU (23 million) as well as the dynamics in the e-cigarettes market, which is
evolving rapidly and where concentration is already underway. Similar consolidation processes
have been registered and reported at Member State level (e.g. in Romania, Portugal, and Italy)
after the introduction of national ad hoc tax regimes. In turn, this may push a number of
operators out of the market and accelerate the expansion of large companies, which are better
equipped to face more challenging competitive conditions. Market shares of large companies
has already increased significantly in the past 3 years and would likely continue to rise. With
the new regulation requirements (including the tobacco products regulation at EU level, and in
all but four of the Member States ad hoc taxation), the withdrawal from the market or expected
consolidation is part of the evolution of the market. The additional costs incurred would amount
on average to EUR 1 800 annually. The impact on the costs of the final product would be
minimal, less than 0.2 cent per ml of liquid.
Single market improvements and cost savings. The proposed excise harmonisation of new products
would remove the market barriers caused by the fragmentation of Member State rules and regimes,
improving the overall coherence of the regulatory framework, thus facilitating intra-EU trade and
ensuring a level playing field across the single market for economic operators, and especially
SMEs.148
Setting an EU-wide regulatory framework by adopting a uniform, regulated approach across the
single market would put economic operators on an equal footing to compete, giving them the
necessary legal certainty to further their projects and develop their commercial strategies. By acting
at the EU level, operators get the assurance of an equal treatment across the single market.
The harmonisation would contribute to removing disparities in taxation levels, which are behind
unfair competition practices like direct business-to-consumers sales online from excise-free
countries, and cross-border shopping. This issue affects primarily the liquids for e-cigarettes sector,
which mostly consists of SMEs. There is a substantial degree of consensus among all categories of
stakeholders that a clarified and harmonised EU-wide approach to new products will reduce trade
uncertainties and increase legal certainty by reducing the divergent interpretations around product
definition, administrative difficulties and associated costs for Member States and economic operators.
The application of holding, movement and control requirements from the Horizontal Directive
(including computerised movement supervision through EMCS149
) will ensure the secure movement
of excise goods, simplified procedures for traders while contributing to the fight against tax evasion
with real-time information and checks on goods.
As regards the administrative impact for public authorities, the introduction of harmonised regimes
for the new products would require some adjustments in the legal and administrative frameworks for
national excise duty. They would incur administrative costs due to extending the scope of excise duty,
including IT systems, to products not previously covered and enforcement costs and savings
148
HTP is entirely dominated by large companies. The share of transnational tobacco companies is growing in the e-
cigarette liquids sector. The other manufactured tobacco/related products sector composition appears mixed, with the
traditional smokeless segment (chewing and nasal tobacco) largely made of small operators, while large companies are
increasingly venturing in the nicotine pouches segment.
149
See ANNEX 17: section 2 for details on movement and control requirements from the Horizontal Directive.
51
connected to control and prosecution of abuses. Where national tax regimes are already in place for
new products, it is assumed that additional regulatory costs would be negligible. Regulatory costs
incurred by Member States with the extension of certain movement and control rules to operators and
products which are not currently subject to those provisions would amount to EUR 10 million of one
-off and around EUR 0.5 million for each subsequent year. According to Member States authorities,
the benefits of harmonisation would clearly outweigh the costs.150
6.2.4. Public health impacts
Whereas the public health debate is still ongoing regarding the health effects of these relatively new
products, none of these products have been deemed to be safe or risk free.151
The debate on the health
risks of these products continues to advance and it is currently not possible to provide a detailed
picture. However, there is strong evidence that e-cigarettes play a role in the initiation of smoking,
especially for young people152
. Based on the same assumption used for traditional tobacco products,
that an increase in price decreases consumption, the introduction of taxation will reduce the incentive
to initiate smoking and contribute to a reduction in consumption.
6.3. Enlarging the scope to raw tobacco
6.3.1. Baseline
As possible obligations and control measures only apply at national level, cross-border movements
of raw tobacco would remain poorly controlled. The diversion of raw tobacco to illicit manufacturing
will continue. This could further prompt illicit manufacturing and trade activities. Consequently,
Member States would continue to lose revenue.
6.3.2. Reduction of fraud and tax evasion
Irrespective of the excise duty rate levied (zero or positive rate), the establishment of a harmonised
category for raw tobacco in EU excise legislation would trigger the application of EU rules and
procedures related to excise goods. Member States authorities would therefore have access to readily
available IT tools (e.g. EMCS) that allow punctual monitoring of supply-chain operations, and could
more easily detect irregularities and potential diversion routes. The output of the illicit manufacturing
in the EU can amount to roughly 13 billion cigarettes, annually (i.e. around 30% of the total
consumption of illicit cigarettes in the EU). According to the simulation153
, an improved monitoring
system could potentially detect up to 20% of illicit raw tobacco movements (i.e. twice the current
estimated detection levels) and up to an estimated 20% to 30% of the volume of illicitly manufactured
150
It would improve administration and enforcement of the excise system. The perceived benefits regard aspects that are
directly connected with the excise system administration and enforcement, particularly: the reduction of uncertainties
with product definition and – to a lesser extent – the disparities of interpretations in cross-border movements, as well as
improved monitoring, and facilitating detecting and tackling irregularities and fraud.
151
New products not containing nicotine still have a negative health impact (e.g. leading to cancer, pulmonary and
cardiovascular diseases) because of the various chemicals (e.g. formaldehyde) they contain.
152
WHO, ‘WHO report on the global tobacco epidemic 2021: addressing new and emerging products’. July 2021.
https://www.who.int/publications/i/item/9789240032095
153
The simulations developed in the External study are purely speculative, since there is neither research nor empirical
data allow for a more robust assessment. Therefore, numerical results have to be considered as rough orders of magnitude
of expected impacts. The assumptions proposed are based on qualitative discussions with informed stakeholders and the
review of law enforcement reports and studies. See ANNEX 15:.
52
cigarettes. Besides national regulations in place154
the application of a coordinated and effective
mechanism at EU level to monitor cross-border movements will create clear and significant EU added
value. Improved coordination at EU level and better prevention tools will contribute to the measures
already in place155
to fight against the illicit manufacture and sale of tobacco products.
The proposed measure would affect raw tobacco diverted from the legitimate supply chain in the EU,
but would not address irregularly imported (or cultivated) raw tobacco.
However, the reduction of EU-manufactured illicit products would not necessarily entail a reduction
in the overall availability of illegal tobacco products, given that the former can be compensated - to
varying degrees - by an increase in smuggling flows from non-EU countries, the extent of which
cannot be predicted.156
6.3.3. Impacts on tax revenues
The reduction of illicit manufactured tobacco would have direct positive effects on Member States
tax revenues, as the losses caused by tax fraud will be partially recovered. Based on the estimated
decline in illicit product volumes a reduction in foregone tax revenues of approximately EUR 1.3
billion under option 1 (i.e. with the zero rate applied) and of nearly EUR 2.6 billion under option 2
(i.e. with a positive excise duty applied) is anticipated157
. Considering that the total excise duty loss
associated with illicit trade of tobacco products is estimated to exceed EUR 12.5 billion (including
illicit products not manufactured in the EU), the impact of the proposed measures, in relative terms,
would translate into recovering about 10% to 20% of current tax fraud.158
6.3.4. Impact on administrative and adjustment costs and savings
Economic operators. Compliance costs for economic operators triggered by the proposed reform
would amount to EUR 0.1 million for one off costs and EUR 2 million for annual, recurrent costs
under option 1 and to EUR 40 million for one off costs and EUR 4 million for annual recurrent costs
(under option 2).159
These include both the administrative costs primarily related to general excise
arrangement obligations such as the need to obtain authorisation, to adopt record-keeping tools and
procedures, to fill-in tax declarations and the adjustment costs to establish and operate a tax
warehouse, to install and operate IT software for EMCS management, and to issue financial
guarantees (where required) by the Member States. The costs of financial guarantees can be
considered as being an indirect burden, given that these depend on Member States-level
implementation.160
The most substantial cost component relates to the setting up and operation of tax
warehouses for the storage and control of raw tobacco. The burden could be comparatively greater
154
For example, the obligation to notify competent authorities of any movements (including transit) with very short notice
(e.g. 2 days), and the obligation to sell/buy tobacco only to/from recognised supply chain operators, with penalising
conditions applied to other types of traders (External study).
155
The FCTC Protocol on illicit trade aims to eliminate any form of illicit trade in tobacco products. Among other things,
the Protocol requires the Parties to establish tracking and tracing systems and a global information sharing focal point
(Art. 8 of the Protocol, with a view to secure the supply chain of tobacco products). Additionally, the Protocol prescribes
a series of measures to be adopted by governments including e.g. licensing of operators, record-keeping requirements,
regulation of online sales, prosecution measures, international cooperation (information sharing, law enforcement
cooperation, administrative cooperation), control of the raw tobacco supply chain etc.
156
See ANNEX 17: section 4.1 for details on the impact on illicit manufacturing and trade.
157
External study.
158
Due to methodological limitations, these figures have to be considered as indicative.
159
External study.
160
Member States can abate these costs by lowering the guarantee required or even waiving it.
53
for those operators who engage in very frequent cross-border movements, due to the specificities of
their business.
Impact on competitiveness. Introduction of control requirements at EU level would reduce the
availability of illicit tobacco and tobacco products in the market, so that legal players would
experience lower competitive pressure from the illegal value chain, and this could compensate for
some of these extra costs. Furthermore, some manufacturers are already willing to pay a premium for
tobacco sourced from verified suppliers, mitigating the cost of implementing EMCS.
The additional costs of compliance, estimated above, will affect economic operators’ competitiveness
differently, depending inter alia on their size (due to economies of scale) and position in the supply
chain. The estimated additional costs are primarily of a transactional nature, the impact would be
largely proportional to the volume of activities. Option 2 would affect the competitiveness of EU-
grown tobacco more than imported tobacco while under Option 1 only negligible effects on their
competitiveness are expected. Nevertheless, sectoral rearrangements could take place. The possible
impacts on the sector would need to be monitored to address any unintended or disproportionate
adverse effects.
Public authorities. The introduction of a harmonised excise category for raw tobacco would require
Member States to revise their national administrative and legal framework, with a possible moderate
increase in overall costs. They would incur administrative costs due to including new economic
operators in excise system (registration and authorisation), and related IT systems and movements
control under EMCS, and enforcement costs and savings connected to control. Overall, estimated
costs161
are as follow:
▪ One-off costs would be around EUR 9.7 million. The bulk of the estimated additional costs
relates to the adjustment of the IT system and related training costs.
▪ Recurrent costs would amount to EUR 0.7 million per year, mostly in relation to EMCS
transactions.
As regards cost savings, EMCS and other control measures are expected to facilitate cross-border
investigations and the prosecution of fraud. Moreover, harmonised movement and control
requirements could make at least some national control measures (e.g. registration, authorisation)
redundant, which would mitigate the administrative burden for both economic operators and public
authorities. Finally, the definition of raw tobacco in the Directive would increase legal certainty162
.
6.3.5. Public health impacts
The proposed options would have a direct and positive impact on tobacco control: the increased price
of illicit products and diminished availability of raw tobacco would increase the effectiveness of
taxation policies in curbing consumption. The options would also have a positive but more indirect
impact, due to the reduced availability of low-price illegal products. Health inequalities in
implementing tobacco control policies would also be reduced as a result. However, the impact would
be different across Member States, because the composition of illicit trade and, specifically, the share
of products originating from outside of the EU, vary greatly.
161
The costs do not include costs already incurred in Member States where a fiscal regime for raw tobacco is already in
place.
162
See ANNEX 17: section 4.3 for details on regulatory cost for business and public authorities.
54
6.3.6. Impacts on employment
As for tobacco growing, while worldwide this is the greatest employment creator in the sector, less
than 4% of the worldwide annual tobacco crop is grown in the EU. The number of EU growers in
2024 can be estimated at about 14 500-15 000. Their number has constantly declined in the past
decade from an estimated 60 000 in 2010 (including for comparability Bulgaria and Croatia). The
largest number is found in Bulgaria (approximately 6 200), followed by Greece (4 600) and Poland
(3 500)163
; in the other Member States tobacco growing is practised in two thousand farms or less. It
is reasonable to assume that a reduction in demand for tobacco will have an impact on EU tobacco
growers, but its size is not straightforward and not necessarily proportional. First, the agricultural
market is highly dependent on policy decisions on subsidies, tariffs and quotas on imports; this is
particularly the case for tobacco, as the vast majority of it is imported.164
Indeed, the decline in EU
production of tobacco165
was particularly steep after the discontinuation of decoupled EU aid in 2014,
with some 32% reduction in output. Second, the final impact on employment may be dampened by
switching to other crops, which is frequent in agriculture.
7. How do the options compare?
This section compares the various options’ impacts. The options are assessed against the criteria of
effectiveness in reaching policy objectives, efficiency, as well as coherence with other EU policies.
The comparison of options has been performed for each thematic area separately.
The baseline is used as point of comparison against which the other options are assessed, and is thus
scored zero.
7.1. Revising the EU minima and certain categories for traditional tobacco products
Table 10 provides a comparison of the policy options for increasing the minimum rates for cigarettes,
fine-cut tobacco, cigars, cigarillos and other smoking tobacco, as well as the introduction of separate
categories for cigarillos and waterpipe tobacco (WPT).
Table 10. Comparison of the options
Options Baseline Option 1:
limited
increase of
EU minima
Option 2:
moderate
increase of
EU minima
Option 3:
high
increase of
EU minima
Introduction of separate
categories for cigarillos and
WPT
EFFECTIVENESS
Increased relative price levels 0 + + ++ 0
Reduced substitution 0 + 0/+ 0/- +
Legal certainty 0 0 0 0 ++
Harmonisation of tax rates and
regimes
0 0/+ 0/+ + 0/+
Effective excise administration 0 0 0 0 ++
163
Differences between Member States can relate to the variety of tobacco cultivated. The main varieties cultivated in
Bulgaria and Greece are entirely hand-grown, extremely labour intensive and require small mountain fields where
extensive mechanised cultivation is not possible – External study.
164
Raw tobacco available for manufacturing in the EU amounted about 440 thousand tonnes in 2020 whereas only roughly
140 thousand tonnes were grown in the EU in 2019.
165
This reduction is in line with the drop in cultivated surface, which nearly halved in ten years, from an estimated 112
000 ha to less than 60 000 ha in 2019. Information collected indicates that this trend has continued in recent years. Tobacco
leaf growing employed, according to the International Labour Organisation, close to 38 000 people in Bulgaria.
55
EFFICIENCY
Tax revenue 0 + + ++ +
Impact on economic operators 0 0/- - - 0/+
Administrative costs 0 0 0 0 0/-
COHERENCE
Europe’s Beating Cancer Plan 0 + ++ ++ 0/+
Internal market 0 0/+ + + +
EU policy on illicit trade 0 0 0 0/- +
Legend:
Negative impact Somewhat negative
impact
Negligible impact Somewhat positive
impact
Positive impact Very positive
impact
Effectiveness. Overall, all the proposed options would help reduce the relative affordability of
tobacco products, to a high or very high extent depending on the options. Option 3 could lead to
significant excise duty increase in 8 to 21 Member States depending on products, with unpredictable
market effects.166
However, the PPP-adjusted approach would mitigate most extreme effects, and the
transitional period envisaged would partly absorb market shocks. Regarding substitution, all the
scenarios would reduce the tax gap between different products. On the other hand, option 3 is more
likely to encourage consumers to switch from cigarettes to fine-cut tobacco.
Efficiency. The proposed measures display a positive cost/benefit ratio for Member States. Efficiency
would be even greater if the impacts on the social costs of smoking are considered. Member States
would raise additional revenue under all options, proportional to the extent of the EU minima increase
under the different options. Economic operators in the tobacco sector would face reduced sales of
between 5% and 14%, depending on products and options. Minor administrative costs would stem
from the introduction of separate categories for cigarillos and waterpipe tobacco, possibly mitigated
by savings brought by increased legal certainty.
Coherence. All the proposed options are conducive to meeting Europe’s Beating Cancer Plan
target.167
Option 3 would allow a higher reduction of smoking prevalence, i.e. a one-off decrease of
smoking prevalence from the current 24% to an estimated 20.8%, and related social costs. All the
proposed options risk incentivising illicit trade by increasing the price of tobacco products. This
would be particularly salient under option 3, as it would entail unprecedented tax increases in certain
countries.
Enlarging the scope to new productsTable 11 provides a comparison of the policy options for
harmonising the excise duty for HTP, e-cigarette liquids and other manufactured tobacco and related
products respectively.
Table 11. Comparison of the options for enlarging the scope to new products
Options Baseline
Heated Tobacco
Products
Liquids for E-Cigarettes Other manufactured tobacco
Option 1
moderate
Option 2
higher
Option 1
zero
Option 2
higher
Option 3
mixed
Option 1
basic
Option
2
limited
Option 3
high
166
For cigars and cigarillos, the increase could be of up to more than 400% and be associated with ‘negative demand’ in
some Member States.
167
In Europe’s Beating Cancer Plan, the EU has endorsed the WHO’s long-term objective of creating a ‘Tobacco-Free
Generation’, where less than 5% of the population will use tobacco by 2040
56
EFFECTIVENESS
Increased relative price
levels
0 + ++ 0 ++ ++ 0 + ++
Reduced substitution 0 0/+ + 0 + ++ 0/+ + +
Legal certainty 0 ++ ++ + + + + + +
Harmonisation of tax rates
and regimes
0 ++ ++ 0/+ ++ + + + +
Effective excise
administration
0 + + + + + + + +
EFFICIENCY
Tax revenue 0 + ++ 0 + + 0 + ++
Impact on economic
operators
0 0/- - - - - 0/- - -
Administrative costs 0 0 0 - - - 0/- 0/- 0/-
COHERENCE
Europe’s Beating Cancer
Plan
0 + ++ 0 ++ ++ 0 + +
Internal market 0 ++ ++ + ++ ++ + + +
EU policy on illicit trade 0 0 0 0 0 0 0 0 0
Legend:
Negative impact Somewhat negative
impact
Negligible impact Somewhat positive
impact
Positive impact Very positive
impact
Effectiveness. For heated tobacco products, option 2 would be more effective in raising relative price
levels and also reducing tax-induced substitution from traditional tobacco products. For e-cigarettes
liquids, option 1, in addition to not reducing consumption, would be less effective in terms of
harmonisation and reducing substitution. Option 3 would possibly generate more variety among
Member States tax regimes.
EU wide harmonisation of excise duty rates for liquids for e-cigarettes and other manufactured
tobacco and related products would remove the market barriers caused by the fragmentation of
Member State rules and regimes, creating new opportunities for operators, and especially SMEs, to
expand their activities to other markets. On the other hand, their competitiveness may be affected
because of their limited capacity to absorb cost increases compared to large companies.
Efficiency. All the proposed options would generate a moderate increase in compliance costs for
economic operators, which can occasionally be more significant for SMEs (mainly in the e-cigarettes
segment) due to the need to implement movement and control requirements applying to excise goods.
Transnational tobacco companies active in the segment of new products are already equipped to deal
with these rules.
Additional administrative burden for tax authorities would also be moderate. Member States that have
introduced excise duties for HTP and liquids for e-cigarettes already apply similar rules and control
measures as for conventional tobacco products. Although option 3 for e-cigarette liquids could appear
to bring additional complexity for competent authorities, according to Article 20 of Tobacco Products
Directive, Member States are already responsible for controlling appropriate levels of nicotine
content, as well as ensuring that unit packets and any outside packaging of electronic cigarettes and
refill containers include an indication of the nicotine content and the delivery per dose.
High increases of EU minima (option 2 for HTP and e-cigarettes, option 3 for other manufactured
tobacco and related products) can lead to additional tax revenue. While the proposed minima for
57
liquids are smaller than for option 2, option 3 would also better address the ‘do-it-yourself’ practices
and related tax avoidance.
Coherence. All options are coherent with the goals of Europe’s Beating Cancer Plan, targeting the
youth in particular, except option 1 for e-cigarette liquids, other manufactured tobacco and related
products which would send a signal that appear in contradiction with public health objectives. Option
3 for e-cigarettes liquids, by placing an additional tax burden on high-nicotine strength products,
would offer a good level of public health protection in spite of not proposing the highest increases.
7.2. Enlarging the scope to raw tobacco
Table 12 provides a comparison of the policy options for the introduction of raw tobacco in the scope
of the Directive.
Table 12. Comparison of options of the introduction of raw tobacco in the scope of the Directive
Options
Baseline
Option 1: create an excise
category for raw tobacco
with a zero EU minimum
Option 2: create an excise
category for raw tobacco with a
positive EU minimum
EFFECTIVENESS
Increased relative price levels 0 0 0
Reduced substitution 0 0 0
Legal certainty 0 + +
Harmonisation of tax rates and regimes 0 + +
Effective excise administration 0 ++ ++
EFFICIENCY
Tax revenue 0 0/+ +
Impact on economic operators 0 0 0/-
Administrative costs 0 - -
COHERENCE
EU policy on illicit trade of tobacco products 0 ++ ++
Europe’s Beating Cancer Plan 0 + +
Internal market 0 + +
Legend:
Negative impact Somewhat negative
impact
Negligible impact Somewhat positive
impact
Positive impact Very positive
impact
Effectiveness. Under both options, enlarging the scope of the Directive to raw tobacco would
automatically trigger the application of movement and control measures set out in the EU excise duty
legislation. Together with effective tax administration and control, this would lead to a reduction in
tax fraud. Option 2 would enhance the deterrent effect against diversion to illicit manufacturing,
because fraudulent movements would become liable to duty payment (in addition to the sanctions
envisaged in the country’s legislation). That being said, option 1 would still give flexibility to Member
States to adopt positive excise duty rates according to the level of tax evasion they face.
Efficiency. The anticipated reduction in sales of illicit manufactured tobacco would have direct
positive effects on Member States tax revenue under both options 1 and 2, as the losses caused by tax
fraud would be partially recovered. However, while generating more revenue, option 2 would trigger
substantial compliance costs for economic operators, although the amount ultimately depends on
Member State level implementation.168
168
E.g. actual excise duty rate, guarantees required, which is usually linked to the amount of excise duty due.
58
Coherence. Both options are coherent with and would contribute to EU policy on illicit trade of
tobacco products, mainly the 2nd Action Plan to fight the illicit tobacco trade 2018-2022169
, setting
up operational tools to better monitor and control cross-border movements of raw tobacco. Both
options are also coherent with the FCTC Protocol on illicit trade. All the proposed options would
have moderate benefits on public health induced by the reduced availability of low-price illegal
products.
8. Preferred option
This section provides an overview of the preferred options in each thematic area through which the
revision of the Tobacco Taxation Directive could effectively and efficiently contribute to the delivery
of the policy objectives.
8.1. Revising the EU minima and certain categories for traditional tobacco products
Based on the analysis carried out in this impact assessment, the preferred option for cigarettes, fine-
cut tobacco, cigars, cigarillos and other smoking tobacco is option 3 - high increase of the EU
minima with transitional period of 4 years for cigars, cigarillos, waterpipe tobacco and other
smoking tobacco (with minima partially expressed in Purchasing Power Parities).
This option would be the most effective in curbing tobacco consumption. It would reduce smoking
prevalence from current 24% to 20.8%, putting the EU firmly on the path to meet Europe’s Beating
Cancer Plan target. The contribution is therefore tangible, although further steps, including the use of
complementary non-fiscal policy, will evidently be necessary at a later stage. Associated savings in
terms of social costs would potentially be significant (in the range of EUR 85 billion overall).
This option would generate EUR 14 billion of tax revenue for EU-27. It would nonetheless have a
strong impact on consumers and economic operators in a number of Member States (notably Bulgaria,
Cyprus, Luxembourg, Poland). The average increase of excise duty rates would be substantial
(estimated at 41%) and reach up to 94% in the case of cigarettes, 24% in the case of fine-cut tobacco,
while for cigars and cigarillos a few Member States would face an increase of national levels
exceeding 300%.
The impact would be softened by the proposed ‘partial PPP approach’ because it would mitigate the
risk of disproportionate impacts on Member States where, in nominal terms, excise duty levels are
the lowest but where the price of tobacco products, relative to income levels, is high. Furthermore,
this approach would extend the EU minima effects to Member States that have traditionally been
unaffected, despite the relative affordability of tobacco there. In this sense, this approach would
introduce more equity in EU minima implementation. The increase of EU minima for fine-cut
tobacco, cigars, cigarillos and other smoking tobacco are designed to progressively bridge the gap
with the rate for cigarettes to achieve a progressive convergence between products, to minimise the
risk of cross-product substitution.
Importantly, option 3 could incentivise the illicit trade of tobacco products, although other factors are
also at play. For example, the permeability of borders, the severity of sanctions against offenders and
in general the capacity of local authorities to detect and prosecute illicit activities.
169
ANNEX to the Communication from the Commission to the European Parliament, the Council and the European
Economic and Social Committee (europa.eu)
59
Option 3 would provide a strong signal. The significant public health benefits of option 3, as well as
the excise duty revenue generated, would largely compensate the expected impact on consumers and
economic operators as well as the risks of rising illicit trade.
The proposed revision of the minimum EU tax rates for tobacco products does not imply any
discrimination between domestic/imported products as excises duties are charged in the place of
consumption (i.e. it is not linked to the place of origin of the excisable goods). Minima are already in
place for manufactured tobacco products.
With respect to the cross-border shopping effect, it is important to note that increasing minima would
mitigate, albeit moderately, price-level differences among Member States. Hence the economic
incentive behind cross-border flows, particularly as regards irregular cross-border flows will remain.
In parallel, the introduction of a separate sub-category for cigarillos would allow Member States to
adopt a more tailored taxation regime. Similarly, a separate sub-category for waterpipe tobacco within
the larger ‘smoking tobacco’ category would improve legal certainty and help Member States fight
illicit trade.
8.2. Enlarging the scope to new products
The preferred option is to introduce new excise categories for each of these product categories
with high amount of excise duty (partial PPP): option 2 for heated tobacco products; for liquids
for e-cigarettes option 3 is preferred, combining two flat rates for low and high-nicotine content
products; option 3 for other manufactured tobacco and related products with a gradual increase of the
fixed minimum over 4 years to EUR 143.
First, establishing new excise categories for HTPs, liquids for e-cigarettes, other manufactured
tobacco and related products would close a regulatory gap and remove substantial fragmentation
caused by different national regimes. It would also be coherent with the orientation of the FCTC and
WHO recommendations on the taxation of these products.
Establishing harmonised definitions, tax treatment and movement and control requirements, would
enhance the functioning of the market for these products. The preferred option relies on the extension
of already proven IT systems for handling excise goods. Related administrative obligations follow
the ‘digital by default’ principle. In line with the regimes currently in place in most Member States,
the simple tax structures proposed would be straightforward and efficient to implement.
The increased legal clarity of the regulatory framework at EU level would support businesses acting
across borders and ultimately improve their competitiveness. Also, it would guarantee the fair
treatment of all products across business sectors. On the other hand, SMEs, present in particular in
the e-cigarettes sector, would be less capable overall to deal with new administrative requirements
and absorb cost increase than large companies, and therefore would be disproportionally affected.
Regarding the proposed excise duty rates, the introduction of high EU minima would decrease the
tax gap between new products and traditional tobacco products and so reduce tax induced substitution.
The proposed introduction of minimum excise duty rates would not imply any discrimination between
domestic/imported products as excises duties are charged in the place of consumption (i.e. it is not
linked to the place of origin of the excisable goods). On the other hand, it would trigger an increase
in consumer prices in most EU countries, leading to marked drops in sales, affecting companies
operating in the new products sector.
For HTP, option 2 would set the minimum excise rates closer to the taxation of cigarettes. For e-
cigarette liquids, option 3 would better address the variety and peculiarities of the products and related
60
consumption patterns. Indeed, this approach introduces a modulation of rates based on health
considerations (low- and nicotine-free products are taxed less) and to some extent discourages ‘do-
it-yourself’ practices (by taxing nicotine boosters more). For other manufactured tobacco and related
products, option 3 would prevent the risk of regulatory loopholes.
The introduction of a high amount of excise duty for a range of new products, which are particularly
appealing to young people, who are at risk of developing addiction, would contribute to achieving
the long-term goal of Europe’s Beating Cancer Plan of a tobacco-free generation.
8.3. Enlarging the scope to raw tobacco
The specific analysis carried out in this impact assessment suggests option 1 - new excise category
for raw tobacco with a zero minimum rate as the best option to tackle the problems specified in
section 2.
The establishment of a harmonised category for raw tobacco in the EU excise legislation, even with
a zero rate, would extend the movement and control measures set out in the EU excise duty legislation
to raw tobacco. This option envisages applying the EMCS system to cross-border movements. In this
sense, Member States authorities would have access to a readily available tool that allows monitoring
of supply-chain operations, and therefore assists in detecting irregularities and potential diversion
routes. Related administrative obligations follow the ‘digital by default’ principle.
The implementation of this option would generate additional costs for Member States authorities and
supply-chain operators. In the case of authorities, such costs would be offset, and possibly overcome,
by the benefits of a reduction in tax fraud. Regarding economic operators, the costs would be
mitigated through the exemption of the first steps of the raw tobacco supply chain.
By introducing a zero rate, the mechanism remains proportionate with the objective of addressing tax
evasion, fraud and avoids double taxation. At the same time, it will give flexibility to Member States
in setting positive rates according to the level of tax evasion they face.
8.4. REFIT (simplification and improved efficiency)
The administrative and adjustment costs and savings related the revision of the Directive is different
for each area of intervention. The increase in excise duty for traditional tobacco will affect demand
and thus lead to reduced sales but will not increase administrative costs for economic operators and
public authorities.
Enlarging the scope to new products, the bulk of additional costs (estimated for the whole new-
product sector of EUR 9.6 million of one-off costs and EUR 6.3 million annually would be incurred
by SMEs operating in the e-cigarette liquids segment, especially those based in countries where no
national tax regimes are currently in place. Operators in the HTP and other manufactured tobacco
sector (especially the nicotine pouch segment) are considered already compliant with the majority of
obligations as both segments are largely controlled by transnational tobacco companies. Regulatory
costs incurred by Member States would amount to EUR 10 million of one -off and around EUR 0.5
million for each subsequent year.
Including raw tobacco in the scope of the EMCS and making it subject to other control measures set
out in the Horizontal Directive would lead to additional regulatory costs. Compliance costs for
economic operators would amount to EUR 0.1 million for one off costs and EUR 2 million for annual,
recurrent costs while for public authorities it would amount to EUR 9.7 million of one -off and around
EUR 0.7 million for each subsequent year. However, doing so is expected to facilitate cross-border
61
investigations and the prosecution of cases of fraud. Moreover, harmonised movement and control
requirements could lead to the abandonment of at least some national control measures (registration,
authorisation and additional control measures). This could in turn mitigate the administrative burden
for both economic operators (as presented in ANNEX 3: on ‘one in, one out’ approach) and public
authorities.
Additional administrative and adjustment costs incurred by economic operators because harmonising
new products and raw tobacco of would amount to 9.7 million of one-off costs and to EUR 8.3 million
of recurrent costs.
Finally, Member States authorities consider that the benefits of harmonising new products and raw
tobacco and application of movement and control requirements would be expected to outweigh the
costs (in total it would amount to EUR 19.7 million of of one -off costs and to EUR 1.2 million of
recurrent costs).
9. How will actual impacts be monitored and evaluated?
9.1. Indicators for monitoring and evaluation
The table below provides an overview of the objectives, the indicators to measure whether they will
be achieved, and the tool for monitoring them.
Objectives Indicators Data sources
Approximate tax rates and
regimes
Excise duty rates in Member States Commission excise statistics
Prevent tax induced substitution
between different tobacco
products and their substitutes
Market structure, prices of and demand for
different tobacco products and their substitutes
More equal tax burden
Market analysis (E)
Questionnaires to/interviews with
industry (E)
Statistics (E)
Increase relative price levels to
influence consumption
behaviours
Smoking prevalence
Prices of and demand for different tobacco
products and their substitutes
Market analysis (E)
Questionnaires to/interviews with
excise administrations (E)
Statistics (E)
Ensure legal certainty for all
stakeholders
Number of disputes (including CJEU cases) Work of the Committee on Excise
Duty/ the Indirect Taxation
Expert Group
Questionnaires to/interviews with
excise administrations (E)
Strengthen the fight against fraud
and tax evasion
Excise fraud:
- number of audits
- number of controls
- reported fraud
- suspected fraud
Enforcement costs for excise and customs
authorities
Impact on revenues (collected and foregone)
Questionnaires to/interviews with
excise administrations and with
industry (E)
Ensure effective excise
administration by expanding
application of the movement and
control provisions
Administrative costs and gains for excise
administrations
Questionnaires to/interviews with
excise administrations (E)
Legend: E: evaluation study.
62
9.2. Monitoring structures
Tobacco taxation is regularly monitored, at least once a year by collecting information from Member
States on the basis of the Commission Implementing Decision of 28 July 2011 concerning the list of
statistical data on the structure and rates of excise duty applied on manufactured tobacco to be
provided by the Member States pursuant to Council Directives 92/79/EEC and 92/80/EEC.170
Moreover, DG TAXUD and Member States update the information database on the applicable tax
rates twice a year (Taxes in Europe Database). The Commission’s traceability and security features
system, established by the Tobacco Products Directive, allows for real-time monitoring of the tobacco
supply chain.171
The Committee on Excise Duty, an advisory committee on excise issues chaired by the Commission
in which representatives of all Member States participate, will monitor the implementation and
functioning of the revised rules. The Committee on Excise Duty will report on implementation issues
and the evolution of problems identified in this impact assessment. It will discuss and clarify possible
interpretation issues between Member States. In case new legislative developments are required, the
Indirect Taxation Expert Group might be further consulted.
Finally, in view of the fast evolution of the market for heated tobacco, liquids for electronic cigarettes,
nicotine pouches and other nicotine products the Commission will review minimum levels of excise
duties for those products after 2 years after the application date of the new legislation taking into
account regulatory and market developments.
9.3. Evaluation
Member States shall communicate to the Commission relevant information to jointly examine and
evaluate the functioning and evolutions of the new legislation, including in respect of legal certainty,
market and economic distortions, excise fraud, the application of the new provisions on raw tobacco,
etc. It will be used to evaluate the effectiveness, efficiency, coherence with other interventions with
similar objectives, and continued relevance and EU added value of the new legislation. The evaluation
should also collect input from all relevant stakeholders as regards the level and the evolution of their
administrative burden and compliance costs. The Commission will prepare the evaluation at the
earliest 5 years after the application date of the new legislation, allowing the markets to adjust and
the results and impacts to materialise.
170
Commission Implementing Decision of 28 July 2011 concerning the list of statistical data on the structure and rates of
excise duty applied on manufactured tobacco to be provided by the Member States pursuant to Council Directives
92/79/EEC and 92/80/EEC, OJ L 197, 29.7.2011, p. 17–19.
171
In respect of cigarettes and roll-your-own tobacco since 20 May 2019 and for all other tobacco products from 20 May
2024.
63
ANNEX 1: PROCEDURAL INFORMATION
1. Lead DG, Decide Planning/CWP references
The lead Commission service for this file is DG TAXUD. The Decide reference for this initiative is
PLAN/2020/8656.
In June 2020, following publication of the Commission evaluation of the Directive, the Council
invited the Commission to submit a legislative proposal for the revision of the Directive on the basis
of an impact assessment.
This initiative is part of Europe’s Beating Cancer plan, which notes the pivotal role of taxation in
reducing tobacco consumption. It is also included in the Commission work programme 2021.
2. Organisation and timing
The following DG were invited to the Inter-Service Steering Group (ISSG): AGRI, OLAF, SANTE,
SG, LS, GROW, TAXUD and JRC.
Between 2020 and 2021 a consortium led by Economisti Associati s.r.l. (EA) and commissioned by
DG TAXUD undertook the assignment titled ‘Impact analysis of the review of tobacco excise duty
rules’ (‘EA 2021 study’). The EA study 2021 study relies on the findings of the previous external
studies carried out by EA in 2017 (‘EA 2017’172
) and in 2019 (‘EA 2019’173
). In particular, the study
expands and updates the previous works in the light of market developments and new emerging
issues.
The study carried out an accurate analysis of existing policy issues and consistently with other EU
policies on tobacco (in particular tobacco control policies and the policies against illicit trade of
tobacco products and related tax fraud) in order to elaborate policy options which could be introduced
to address these issues. It also assessed and compared the expected impacts of different possible
options and reviewed their feasibility.
Additionally, EA assisted the Commission in conducting a public consultation to collect citizens’
comments and feedback on the initiative and the possible options envisaged for the revision of the
Directive.
The ISSG reviewed and approved the following documents:
▪ all ISSG meetings' minutes;
▪ questionnaires (public consultation, Member States, economic operators) for the stakeholders'
consultation;
▪ inception and interim reports174
of the External study;
▪ final report of the External study;
▪ Commission's Impact Assessment Report (this document).
172
Study on Council Directive 2011/64/EU on the structure and rates of excise duty applied to manufactured tobacco,
2017.
173
Study on Council Directive 2011/64/EU on the structure and rates of excise duty applied to manufactured tobacco,
2019.
174
Intermediate deliverables, describing the problems, options, methodology and approach of the study.
64
As the impact assessment was not followed by a legislative proposal at that time, a study was
commissioned in 2024 to provide for an update of market and regulatory developments and related
analysis. The update study (‘EA 2025 study’) provided a comprehensive update of EA 2021 study
addressing market and fiscal changes and conducted a focused consultation to collect feedback from
stakeholders.
Throughout, DG TAXUD engaged directly with stakeholders, organising a stakeholder event on the
revision of the Tobacco Taxation Directive in May 2022 and participating in a Fiscalis workshop
concerning new tobacco products, hosted by Poland, in October 2024.
The chronology of the main events is as follow:
16/11/2020 First ISSG meeting on the draft inception impact assessment.
12/01/2021 Kick-off meeting of the EA 2021 study.
26/02/2021 Approval of the public consultation questionnaire by the ISSG.
30/03/2021
Public consultation in all EU languages.
to
26/06/2021
28/05/2021
ISSG meeting on the External study interim report and on the available
policy options.
24/09/2021 ISSG meeting on final report of the ISSG meeting on the External study.
05/05/2022 1st
ISSG meeting on the draft Impact Assessment Report
18/05/2022 Tobacco taxation stakeholder event (online)
02/06/2022 2nd
ISSG meeting on the draft Impact Assessment Report
03/10/2024
Fiscalis workshop ‘Exchange of information and practises on
implementation of excise duty for new products (heated tobacco, liquids
for electronic cigarettes and other)’, Warsaw
09/01/2025 Kick-off meeting of the EA 2025 study.
19/12/2024
Focussed stakeholder consultation.
to
12/02/2025
04/04/2025 ISSG meeting on the draft final report of the EA 2025 study.
65
3. Consultation of the RSB
On 22 June 2022, DG TAXUD submitted the draft Impact Assessment to the Regulatory Scrutiny
Board and the Board meeting took place on 19 July 2022. The opinion of the Board, as issued on 22
July 2022, was positive with reservations.
The Board’s recommendations have been addressed as presented in the table below.
Board recommendation What has been done? Where?
(1) The report should make better use
of the available evidence to better
demonstrate how taxation can be an
effective and critical policy
instrument to reduce tobacco
consumption on health grounds.
The problem section should more
clearly link the problems and their
drivers with the scope and objectives
of the revision. The report should add
a visual setting out the intervention
logic underpinning the revision of the
Directive.
The recommendation was addressed
by making clearer the evidence
from different sources (WHO,
World Bank and academic
evaluations) supporting the
essential role of taxation in reducing
tobacco use. At the same time it was
emphasised that tobacco taxation
policies and other tobacco control
policies work synergistically.
The recommendation was addressed
by adding the intervention logic
diagram underpinning the revision
of the Directive and clarifying
connections between drivers,
problems and specific objectives.
The report elaborated on the origin
of the three general objectives in
line with the goals and
responsibilities set by the EU
Treaty. Based on the evaluation of
the Directive it was clarified that in
general the regulatory burden
(including current excise duty
structure for tobacco products) is
neither an issue for Member States
authorities nor for economic
operators. However, certain
provisions of the Directive related
to tobacco products (definitions, EU
minima, recent market
developments of new products, the
lack of proper control system for
raw tobacco) need to be revised.
Finally, the synergies with relevant
Sustainable Development Goals
(SDG) were clarified.
Section 2
Sections
1, 2 and 4
ANNEX 3: section
3
(2) The report should further assess
how economic operators will be
The recommendation was addressed
by expanding the analysis of
Section 6 (more
specifically,
66
impacted. The impacts should be
presented in a more detailed and
systematic way whenever
disaggregated data is available. This
should include the assessment of the
impacts on SMEs on the basis of the
SME test. The mitigation measures
should be made more explicit. The
analysis should also include a
territorial impact analysis, since
tobacco producers seem to be
concentrated in a limited number of
geographic clusters. Given this
concentration, the report should
assess potential labour and social
impacts for the regions concerned.
impacts for economic operators and
inclusion of new sections (6.1.6 and
6.3.6) on impacts on employment
taking into account the concentrated
nature of the tobacco sector.
Impact on SMEs was clarified based
on the SME test. Moreover impacts
on SMEs (most relevant for the e-
cigarette liquids sector, highly
dominated by SMEs) is put into
perspective as a very small
proportion of the total number of
SMEs in the EU. Additionally, the
dynamics of the e-cigarettes market
are considered, with the withdrawal
of some operators and increased
consolidation, an expected part of
market evolution.
sections 6.1.2;
6.1.6; 6.2.3; 6.3.6.)
ANNEX 6:
(3) The report should better explain
the risk of potential unintended
consequences. In particular, the risk
of the increase in the illicit trade of
tobacco products caused by higher
prices should be assessed, taking into
account the importance of other, non-
tax specific, factors.
The recommendation was addressed
by explaining in a more transparent
manner the impact of the increase of
EU minima on illicit trade. Based on
WHO estimates and the experience
of the Member State with the
highest tobacco taxes and prices in
the EU, explanations are given on
the role of governance.
Section 6.1.2
(4) The report should better explain
the econometric modelling of the
expected reduction in tobacco
consumption and additional tax
revenue, integrating it with the recent
available evidence of consumers’
behaviour during the COVID-19
emergency. It should explain how the
expected reduced sales and reduced
demand were factored into the
estimates of additional tax revenues.
It should clarify how the potential
increase in illicit trade was included
in the modelling.
The recommendation was addressed
by further clarifying the methods,
key assumptions, and baseline of the
econometric modelling. It was
clarified that the quantification of
the impact of each policy option on
the prices, quantities sold, and
excise revenue was carried out
following a partial equilibrium
approach augmented with a module
for intra-EU movements. The
methodology also involved
estimating how much consumption
would shift from one product to
another. Finally, it was explained
that the modelling did not
specifically include the effects from
the recent COVID-19 epidemic as it
would be risky to derive
quantitative inferences from an
Section 6
ANNEX 4:
67
abnormal situation. Similarly, illicit
trade was not specifically modelled
owing to data unavailability.
Furthermore, it was highlighted the
lack of a strong direct relationship
between tax levels and illicit trade.
(5) The report should improve the
cost benefit analysis with a more
systematic and comparable approach
and clearer presentation. It should
provide the assessment of all types of
relevant impacts for all options.
It should be clearer about the health
benefits and explain why they were
not estimated for the options related
to enlarging the scope to new
products and raw tobacco.
The report should provide overview
tables of costs and benefits under each
policy area and for the preferred
option, including costs and cost
savings in scope of the One In, One
Out approach.
All relevant impacts have been
presented in a more structured way.
Environmental impacts are
presented, bearing in mind that the
Directive is not motivated by any
environmental rationale.
The report does not include more
accurate and precise impacts of the
proposed options for new products
as the debate on the health risks of
these products continues to
advance. The excise harmonisation
proposal in respect of new products
is assessed in the report in terms of
the risks to fiscal revenues and the
internal market.
As regards raw tobacco the impacts
of the proposed options are
presented through possible indirect
effects: the diminished availability
of raw tobacco and increased prices
of illicit products would increase the
effectiveness of taxation policies in
curbing consumption.
The recommendation was addressed
by presenting in a more structured
way the costs and benefits under
each policy area in overview tables,
including clarifications of costs and
cost savings in scope of the One In,
One Out approach.
However for the sake of clarity, the
combined impact analysis is not
presented as the three areas of
intervention have different
objectives (as presented in the
overview of the intervention logic),
and therefore a different costs and
benefit analysis impacting a
Section 6
ANNEX 17:
ANNEX 3: section
2
68
different set of economic operators
and markets.
Finally, annexes (mainly annexes 4,
6, 7 and 12) were revised and
shortened, focusing on the
information more specifically
relevant to the impact analysis.
Cross-references were revised to
facilitate access to more detailed
information provided in relevant
annexes.
(6) The report should indicate in more
detail to what extent the preferred
option is futureproof. It should better
explain the effect of inflation on the
success of a PPP-based EU excise
duty system. It should clarify which
other variants or combinations of the
proposed partial PPP system have
been assessed and better justify the
one included in the preferred option.
The choice of PPP approach was
described upfront as it would be
applicable to all the products to be
covered by the Directive (traditional
and new ones). It was clarified that
the main weakness of the current
fixed nominal minima, is their
inability to remain relevant in case
of changes in the general price level,
within each Member State as well as
between Member States. Given that
inflation is a normal monetary
phenomenon, the effect of any fixed
nominal minimum is doomed to be
eroded over time. Also it was
explained that this approach would
ensure that affordability of tobacco
and related products at national
level is better reflected in the rates
to have a more targeted impact on
consumption (as Member States
have specifically asked in the
Council conclusions of 2020 to take
into account their social and
economic conditions).
Finally, the role of two IT systems
related to excise goods (System for
Exchange of Excise Data and
Excise Movement and Control
System) were clarified in relation to
the inclusion of new products listed
in the initiative.
Section 5.1.
ANNEX 17:
section 2
(7) The report should more
systematically present the views of
different stakeholder categories
throughout the text, in particular on
The recommendation was addressed
by including references and further
insight from the feedback obtained
from different stakeholder during
the public consultation. Views of
Sections 2.1.3; 5.1;
5.3.2.3; 5.4.2;
6.1.4; 6.1.5; and
6.2.3.
69
the problems, options and their
impacts.
different stakeholders on the
problems, different policy options,
as well as on anticipated impacts
have been integrated in the body of
the report.
4. Evidence, sources and quality
The evidence for the impact assessment report was gathered through various activities and from
different sources:
▪ Evaluation of the Council Directive 2011/64/EU of 21 June 2011 on the structure and rates of
excise duty applied to manufactured tobacco, SWD(2020) 33 final;
▪ Council conclusions concerning the structure and rates of excise duty applied to manufactured
tobacco;
▪ Europe's Beating Cancer Plan, SWD (2021) 13 final;
▪ PwC PricewaterhouseCoopers LLP, ‘Study assessing articles 32 and 36 of Council Directive
2008/118/EC concerning the general arrangements for excise duty’, 2020;
▪ Economisti Associati, ‘Study on Council Directive 2011/64/EU on the structure and rates of
excise duty applied to manufactured tobacco’, 2019 and 2021 (EA 2019 and EA 2021 study);
▪ Economisti Associati, ‘Study on the impact analysis of a review of tobacco taxation rules:
update with recent market and regulatory developments’, 2025 (EA 2025 study);
▪ Feedback on the published Inception Impact Assessment and from the public consultation;
▪ Results of the seminar organised by DG TAXUD with participation with experts from Members
States on raw tobacco;
▪ Desk research.
70
ANNEX 2: STAKEHOLDER CONSULTATION (SYNOPSIS REPORT)
1. Consultation strategy
The consultation strategy incorporated a range of different activities to comprehensively gather
stakeholder opinions through interviews and various, general and specific surveys. In particular, the
following activities were carried out:
A. Feedback on the Inception Impact Assessment. The consultation on the Inception Impact
Assessment was launched on 8 December 2020, and closed on 5 January 2021, and it obtained
134 feedbacks mainly from Italy (52) and France (23). The majority of the replies came from EU
citizens (94). There were also several replies from industry representatives (20) and NGOs (8).
B. An online Public Consultation (30 March 2021 - 22 June 2021 ), to which economic operators
(businesses), business associations, professionals, public health and consumers NGOs,
academicians, researchers, local authorities and EU and third country citizens, responded. The
consultation, though not statistically representative, elicited 7262 responses, covering all EU
Member States but also third countries (including UK), with 235 position papers. The vast
majority of contributions came from EU citizens (88%). The presence of repeated open comments
with identical wording suggested that some feedback could have been coordinated. Open
comments also suggested that respondents were consumers of e-cigarettes concerned with the
possible taxation of these products.
C. A virtual tobacco event was organised on 18 May 2022. This small-scale event was opened to
any stakeholder interested in tobacco taxation and the upcoming proposal. It gave the opportunity
for all interested parties to express their views on the latest developments in the area. Participants
appeared to support the increase of EU minima, the regulation of novel products (although
opinions on taxation of nicotine free products diverged) and the control of raw tobacco to address
illicit manufacturing.
D. Targeted consultations with Member States’ public authorities. It consisted of a questionnaire
survey sent to:
a) tax and customs authorities competent for tobacco excise duty legislation and
administrative implementation: 25 respondents from 27 Member States;
b) public health authorities that are members of the Commission Expert Group on Tobacco
Policy: 18 respondents from 27 Member States.
E. In-depth interviews with Member States authorities, Commission staff, industry representatives,
public health experts and NGOs, professionals, research institutions and other stakeholders for a
total of 97 interviewees. Most of interviews were ‘deep-dives’ from a sample of selected
countries, namely: France, Italy, Sweden, Poland, Bulgaria, Croatia, Ireland, Denmark, Czechia
and Finland. Regarding economic operators, interviews addressed companies operating at
different stages of the tobacco value chain, i.e. growers, first and second processors, storage
companies, manufacturers, and retailers organisations. In terms of products, consultations
included manufacturers from all ‘traditional’ tobacco products (cigarettes, fine-cut tobacco
(FCT), pipe tobacco, cigars and cigarillos, waterpipe tobacco (WPT), traditional chewing tobacco
and snus) and from new products like e-cigarettes, heated tobacco products (HTP), nicotine
pouches and the Cannabidiol industry.
F. A call for data (19 December 2024 - 12 February 2025) was conducted to collect factual evidence
(e.g. data, reports, studies, legal acts etc.) in the context of the update of the External study. 53
responses were received, of which 19 from Member States authorities and 34 from industry
representatives operating in various segments. Despite the call addressed also public health
71
NGOs, no feedback was received from this group. Eight interviews have been carried out,
involving European Commission relevant staff, national tax authority and law enforcement
authorities, mostly revolving around unrecorded tobacco.
G. A Fiscalis workshop ‘Exchange of information and practises on implementation of excise duty
for new products (heated tobacco, liquids for electronic cigarettes and other)’ (3 October 2024)
allowed to collect up-to-date information from experts from the Member States on tax policies
and measures in place for the monitoring of new products (heated tobacco, liquids for e-cigarettes
and others).
The stakeholder consultation gathered views and evidence in four broad areas namely on:
▪ Member States’ legal and operating frameworks, as well as the situation and dynamics of the
corresponding national markets;
▪ opinions on the perceived performance of the current EU legislation and key issues to be
redressed;
▪ hypothetical statements about the possible evolution of legal frameworks and markets in the
absence of EU intervention;
▪ stakeholders’ expectations and stated preferences on the diverse possible policy scenarios
outlined.
2. Feedback on the policy problems
➢ Product substitution
The public consultation confirmed the importance of tackling the increasing substitution of factory-
manufactured cigarettes with existing harmonised products and even more so, for new unregulated
ones. It risks eventually eroding tobacco excises tax base and undermining tobacco control policy
efforts. The importance of product substitution varies for the different forms used. Substituting
cigarette-mimicking cigarillos is of growing concern in a small subset of Member States. Nonetheless,
no Member State sees this as declining and can be therefore, a potential threat. It is substituting
cigarettes and HTP and, to a lesser extent, e-cigarettes and FCT that has attracted considerable
attention over the past three years. Despite citizens and industry respondents resisting the idea of
increased taxation for a number of products, a majority conceded that further action to close excise
rate gaps between cigarettes, FCT and cigarillos could be justified. Academics, NGOs, Public Health
Experts and other respondent categories almost universally agreed that taxation had to be increased
and existing gap levels, closed.
Among the latest developments, many Member States reported increasing consumption of FCT at the
expense of traditional cigarettes as a consequence of the COVID-19 epidemic. This has been
empirically confirmed through other sources. The increase is attributed to income-related factors with
substantially increasing cigarette prices and availability constraints of cheaper illicit and cross-border
products due to lockdown restrictions.
While the above trend is likely to reverse once the situation is back to normal, substituting cigarettes
with HTP is deemed a structural market phenomenon not driven by income-related factors, as prices
are similar to traditional cigarettes in many Member States. Similarly to previous evaluation study
findings, it appears that substantial consensus has been reached among public health experts that
taxation should be equivalent at a ‘single act of consumption’. This implies that cigarette and FCT
excise rates be substantially equalised and HTP taxed on a stick basis equivalent to cigarettes excise
duties.
72
So far sudden and major increases of cigarette substitute’s, market shares were short-lived and
plateau quickly, as seen for instance with e-cigarettes in some national markets. However, there is
growing concern among public health experts that an increasing variety of substitute products with
poorly harmonised fiscal treatment would eventually decrease the effectiveness of current tobacco
control policies, particularly in taxation. Of particular concern is nicotine-based products other than
e-cigarettes, particularly nicotine-pouches that are gaining market share in some Member States, at
the expense of both traditional tobacco including ‘old’ smokeless products, such as snus, and chewing
tobacco. This is supported by public health authorities survey results citing nicotine pouches, as a
more serious tobacco control problem faced by Member States over the last few years. Some public
health experts were particularly concerned about consequences of these trends in the long-term, as
new nicotine products can induce addiction that could lead to consuming other tobacco products,
including traditional smoking ones. This concern is also shared by public health authorities that
consider alternative products appearing as a more serious threat to the future effectiveness of tobacco
control policies than cross-border flows or illicit trade.
Conversely and similar to previous consultations, new product users and economic operators
(especially of e-cigarettes) considered that tobacco products and their substitutes should be taxed
according to the concept of harm reduction. They expressed strong concerns about taxation
discouraging smokers switching from conventional tobacco to new products, which in their view are
less harmful.
➢ Affordability of tobacco products and excise duties
Overwhelming consensus remains in favour of taxation as the single most effective tool to curb
smoking prevalence, and for factoring affordability into taxation levels. Taxation is especially
important for fast growing Eastern Europe countries that should capitalise on its deterrent effect on
consumption before income-related factors over compensate taxation increases.
Individual respondents to the public consultation from one third of the Member States and particularly
from Southern and Eastern Europe acknowledged that traditional tobacco products including
cigarettes and FCT remain affordable. It appears therefore that statistical affordability based on a
population’s ‘average income’ can be biased by broader urban/rural disparities and pensioners or
income-dependent individuals’ weight on the population’s structure and not necessarily reflect
consumers’ perceptions. Perceived affordability of tobacco products vary from product to product
and tend to increase as one moves from cigarettes to FCT and to cigars and cigarillos. These are
deemed affordable by around half of respondents across Europe overall.
Moreover, slightly less than half of public authorities in questionnaire replies were able to confirm
that tobacco’s overall affordability decreased in their countries in the last three years. This was
possibly also, as a result of the COVID-19 pandemic and its impact on income levels rather than an
explicit taxation effort raising prices. This is also in line with what public health experts reported as
taxation losing its momentum in controlling consumption in some Member States in the last few
years, while others made significant efforts to reduce affordability through taxation.
Public health authority’s survey results confirmed this loss of traction, where a majority admitted that
their smoking prevalence reduction objectives over the last few years could be achieved only to some
moderate or limited extent, particularly among young people and women. Few public health
authorities were satisfied (or very) with observed domestic consumption trends. Moreover, public
health authorities considered increases in excises as second in importance after national restrictions
(bans on sales, etc.) in contributing to decrease smoking prevalence. Natural market trends and the
73
surge of e-cigarettes and oral products also contributed to this result, although at the price of continued
nicotine addiction.
Various stakeholders largely agreed that the EU should consider income levels disparities when
setting minimum tax rates. Tax and customs authorities expressed a less positive view, which reflects
the need to carefully assess the concrete functioning and impact of this reform as the number of
Member States affected by EU minima would increase. Some experts would support a tax that reflects
affordability but expressed doubts about using purchasing power parity index.
➢ Cross-border flows
Strong consensus remains among all stakeholders that the EU tobacco taxation policy should
contribute to reduce differences in taxation between Member States and therefore decrease any
incentive to irregular cross-border flows. However, it is also widely recognised as unlikely that EU
excise harmonisation mechanism based on common minima will harmonise taxation levels soon and
therefore will not reduce abuse of cross-border trade flows motivated by tax opportunities. The
awareness of this structural limitation has led some stakeholders to imagine radically new
mechanisms for reshaping EU tobacco taxation policy from scratch. These range from introducing
price capping for cigarettes and other tobacco products, to regional-level weighted average prices, as
well as restricting the amount of tobacco that can be legally sold at the point of sale.
Since cross-border flows are poorly known and measured with a degree of approximation, a
considerable level of uncertainty remains for Member States authorities about its evolution in the last
three years. Most respondents concur that cross-border trade has not changed substantially, although
this assessment tends to prevail in countries openly admitting no change in tobacco affordability.
While those more active in increasing domestic taxation and curbing domestic affordability, also tend
to be among those more concerned by a general worsening of cross border flows and are more vocal
about the need to take action.
Although many report a lack conclusive data to assess, both tax and customs authorities and public
health authorities’ survey respondents reported a substantially unchanged situation as to the
significance of cross-border flows. For the interviewees, the evidence clearly indicates greatly
increased sales of domestic duty-paid products in regions bordering countries with much lower tax
and price levels as a result of the COVID-19 enforced travel restrictions. This further supports the
evidence already gathered in EA 2017 and 2019 studies175
, showing price differentials as a major
driver of cross-border flows. A majority of public consultation respondents also believe this, as they
maintain that reducing Member States price differentials as key to effectively tackling cross-border
trade, irrespective of additional administrative measure on travel allowances to further mitigate the
problem.
➢ Illicit manufacturing and trade of tobacco products
A majority of public consultation respondents see the need to fight illicit tobacco trade and
manufacturing as a priority. There is a notable increased consensus that the fight against illicit
manufacturing should include, as a key policy, a better regime for monitoring raw tobacco, including
175
Economisti Associati ‘Study on Council Directive 2011/64/EU on the structure and rates of excise duty applied to
manufactured tobacco’, 2017
Economisti Associati, ‘Study on Council Directive 2011/64/EU on the structure and rates of excise duty applied to
manufactured tobacco’, 2019
74
fiscal sanctions for diverting trade flows at the origin, although major differences between
stakeholders’ groups were noted. In particular, both survey and interviews show a sizeable share of
industry representatives and some academics remained broadly unpersuaded - also on proportionality
grounds - that the availability of raw tobacco for illicit production could be dealt with using fiscal
controls. They suggested the problem could be better tackled using an ad hoc administrative
mechanism rather than including raw tobacco in the scope of excise goods. Conversely, enforcement
practitioners, tax and customs authorities, citizens and tobacco control NGOs overwhelmingly
favoured this as practical and enforceable. Some proposed the regime be extended to the tobacco
plant itself. For those more sceptical, of this approach, it should only be considered at the EU level
after a proper evaluation of Member States pilot experiences. However, an increasing number of
Member States have adopted this solution, including tobacco producing countries often over and
above the strengthening of their ordinary administrative controls on domestic tobacco agricultural
production. These early adopters have generally reported that implementing fiscal monitoring
measures has been successful in curbing illicit domestic manufacturing, but gaps in monitoring cross-
border trade flows remain.
The salience of illicit domestic tobacco manufacturing as a source of illicit products in the EU has
increased since the latest consultations. Conversely, fiscal and public health authorities indicate a
moderate increase in the availability of illicit products. Nowadays, broad consensus between industry
representatives and public authorities at EU and national levels could be found in estimating the share
of illicit products (8 to 11%) in the overall tobacco market in the region. For specific products,
cigarettes remain the most smuggled and illicitly manufactured. Member States most affected are
those with the highest prices and taxes, although supply factors are also at play. A number of sources
have also agreed that illicit factories are usually close to countries with high taxation levels and
markets for which they cater.
However, while there is broad consensus for fiscal regulation of raw tobacco in the EU and 60 % of
Member States fiscal authorities consider the poor control of the raw tobacco supply chain as a key
driver of illicit domestic manufacturing, uncertainty about the phenomenon’s size remains. In
particular, 30% of respondents estimated the share of EU-made (non-domestic) illicit cigarettes of
seizures at no more than 10%. Finally, for new products (e.g. both e-cigarettes and HTPs), there is
growing and poorly recognised illicit trade already in place, and this would also threaten to distort
the legal market and the competitiveness of the players without a degree of tax and price
harmonisation.
➢ Incoherent treatment of certain new non-harmonised products
Stakeholder consultations also confirm new products, in particular HTPs and e-cigarettes, while
progressively gaining traditional tobacco products’ market shares, are not yet fiscally harmonised and
are increasingly seen as requiring attention. This is not only because divergences in their fiscal
treatment hinder their free circulation in the internal market, but also because a common and more
stable approach to classification for fiscal reasons is warranted to avoid products expressly designed
to exploit loopholes and constantly changing definitions to keep up with market developments. This
would increase legal certainty among market operators and public authorities.
Diverging practices were confirmed. A majority of Member States tax HTP as non-harmonised
products, but a sizeable share of Member States treat them as harmonised products. Furthermore, the
tax base for HTPs also changes with a majority of Member States opting for a per weight approach,
other ad valorem or per unit criteria have also been reported. There are diverging e-cigarette taxation
practices. While a vast majority of Member States tax all substances for use in these devices, others
75
restrict taxation to nicotine-containing liquids. Volume of the e-cigarettes liquid is by far the preferred
tax base, but a few Member States have also introduced specific tax rates for products with a high
concentration of nicotine.
A majority of public consultation respondents would like harmonised tax rules and minimum rates
for HTP. Whether e-cigarettes should be harmonised at EU level remains deeply controversial among
consumers. However, a number of very similar replies to the public consultation survey specifically
on this subject were received. As a result, a majority of public consultation respondents, particularly
among citizens, appear against fiscal harmonisation of e-cigarettes in general, and particularly liquids
without nicotine. Whether this fiscal harmonisation should be accompanied by a minimum rate at EU
level is even more controversial. One public health authority replied that this was not its priority.
Whether to use taxation to discourage e-cigarette uptake or to grant them a privileged tax status as a
smoking cessation tool, remains a hotly debated issue among public health experts. Although,
compared to previous studies, the importance attributed to discouraging youth from using e-cigarettes
and avoiding nicotine addiction appears on the increase. The latter argument is often the rationale
behind, specifically taxing nicotine content.
Strongly diverging views remain also for new smokeless products. There is unanimous consensus
among tax and customs authorities for including them in the scope of the EU excise legislation.
Although opinions then differ on how best this could be implemented. The public consultation
confirms that, for this category of product, once product classification definitions are agreed and
clarified, there is no prevailing view on implementing a minimum EU tax among stakeholders.
Industry representatives generally consider classification under the same smokeless category of novel
and traditional products as either inadequate or fiscally inefficient for the wide variety of oral products
on the market and which generally target different consumers’ groups compared to traditional ones.
3. Feedback on specific policy options
This last section reviews stakeholders’ feedback on proposed policy options for change. These are
grouped into three areas: (1) increase EU minima and articulate current excise categories; (2) review
of modalities through which novel products can be harmonised and, finally, (3) the way raw tobacco
can be included in the scope of the excise system for monitoring and control purposes of related flows
and not to raise revenues. According to the Flash Eurobarometer 562 on Citizens’ attitudes towards
taxation, the highest share (48%) of respondents believes that taxes on tobacco and alcohol are the
taxes to be raised first if taxes need to be increased to pay for public services.176
➢ Increase of EU minima and excise duty categories
There appears to be substantial agreement among public consultation respondents that taxation levels
be adjusted to income differences between Member States, and this was broadly shared by tobacco
industry representatives. Some industry stakeholders underlined that attempts to equalise excise
levels across Member States in nominal terms will not support, but work against, the internal
functioning of the EU single market. Hence, in revising excise duties, it would be important not only
to adjust the minima according to indicators capable of reflecting the real level of prices and tobacco
affordability across the EU, but also to review excise levels as a whole. This will prompt real
harmonising and converging between Member States. However, very few tax and customs
authorities’ respondents see such a reform having positive impact. The majority do not anticipate any
major impact. However, a third anticipate it will have a negative impact on tax convergence with
176
Flash Eurobarometer 562 – Citizens’ attitudes towards taxation (2025). Unpublished.
76
neighbouring countries or reduce stability in the level of domestic prices and raise risks of market
disruptions. Others even anticipated possible negative impacts in reducing tobacco affordability
where most needed.
Similar concerns voiced by some public health experts, for whom implementing an income
equalisation principle could eventually risk running counter to the objective of decreasing tobacco
affordability in lower income countries with high smoking prevalence. Therefore, they called for
explicitly including tobacco affordability indicators in the mechanisms to calculate ‘real’ excise levels
inclusive of local available income considerations or proposed the principle be somehow mitigated
or weighted by other criteria such as smoking prevalence.
Some industry interviewees expressed scepticism at the feasibility of this option, claiming that in the
long run automatic adjustment mechanisms can have the unintended side effect of enforcing too low
a minima, barely significant for the majority of Member States, or excessively high ones,
disproportionately affecting EU countries with the lowest purchasing power parity and disposable
income, and where the bulk of growth in these parameters can be anticipated.
Opinions did substantially vary on the proposed revised levels of excise duty minima to be applied to
conventional tobacco products (cigarettes, fine-cut tobacco, cigars and cigarillos and other smoking
tobacco) to ensure achieving these tobacco control objectives. In particular, for cigarettes, some tax
and customs authorities’ respondents would like to see no change in current levels of fixed and
relative minima respectively. This is broadly in line with public consultation findings where the
number of different stakeholders in favour of increasing the minima slightly exceeds those who
maintain they remain unchanged or decrease. Completely diverging opinions were reported in
interviews with public health experts and tobacco control NGOs. There, it was widely recognised that
increasing taxation of conventional tobacco products and closing tax differential gaps between
cigarettes and other tobacco products were high priority for achieving the objectives of Europe’s
Beating Cancer Plan.
There was considerable uncertainty identifying appropriate relative minimum rates as a share of the
weighted average price (WAP), particularly as far as products other than cigarettes were concerned.
More than half of tax and customs authorities respondents did not consider the proposed rates as
adequate, or were in no position to state which could be most appropriate to implement.
While there appears to be growing consensus among public health experts in favour of making
taxation rates equivalent for any single act of consumption irrespective of underlying products, this
view is not shared by a majority of public consultation respondents. They see a market rationale in
taxing traditional tobacco products differently. The prevailing view in the public consultation is that
tobacco products should not necessarily be taxed at equivalent levels. However, there is a degree of
consensus among all stakeholders and citizens for further bridging the tax gap between cigarettes,
FCT and cigarillos. However, for cigars and cigarillos, some market operators claimed that increasing
the minima would have hardly any effect on product substitution trends with cigarettes, as prices are
already well above cigarettes and consumption habits are different.
Establishing a separate tax category for cigarillos has not elicited the support of the majority of tax
and customs authorities’ respondents, while it has for waterpipe tobacco. The need for the latter is
particularly felt by market operators who claim that the current homogenisation of taxation levels
with ‘other smoking tobacco’ causes the prices for these products to become disproportionate. This
opens huge arbitration opportunities for illicit traders to profit. Nevertheless more than half of tax and
customs authorities’ respondents are in favour of creating one, but maintaining the same minima
levels as other smoking tobacco.
77
➢ Harmonisation of new products (liquids for e-cigarettes, HTP, other manufactured
tobacco and related products
The EU harmonisation of new products, starting with HTP, was generally deemed necessary by all
stakeholders (survey and interviews). It is expected to bring several benefits, and particularly more
efficiency in the regulation of these products in the internal market. Inclusion in the excise movement
and control system (EMCS) should reduce administrative and transaction costs for market operators
and allow Member States to implement better tailored and efficient fiscal policies. The risk
highlighted by some industry stakeholders is that a new tax category, if not accurately defined, may
create opportunities for ‘borderline’ products, which would exploit any definition ambiguity. Finally,
tax and customs authorities deem related administrative adaptation costs as negligible or modest. The
only exception might be represented by the additional costs connected to updating the underlying IT
system.
As regards HTP minimum rates, the prevailing view is that they be aligned with those of fine-cut-
tobacco or cigarettes. This is followed by alignment with ‘other smoking tobacco’. Very little support
was given for aligning EU minima with rates for cigars and cigarillos. Unsurprisingly, public health
experts unanimously supported HTP that the taxation being fully aligned with cigarettes. In the public
consultation, where consumers were overrepresented, the clear preference was for taxation to be
similar to the FCT rate, not cigarettes.
A similar degree of consensus exists concerning EU level harmonising of e-cigarettes and an
overwhelming majority of tax and customs authorities would also include nicotine-free products.
Respondents from companies qualifying as SMEs (394) supported the harmonisation of e-cigarette
liquids containing nicotine at 57% (64% of medium-sized companies, 65% of small-sized companies,
54% of micro-sized companies), and not containing nicotine at 46% (40% of medium-sized
companies, 52% of small-sized companies, 44% of micro-sized companies). A majority of public
consultation respondents were also in favour of including cannabidiol-based products, if they were
expressly for smoking. The rationale behind taxing nicotine-free liquids was variously to: 1) avoid
encouraging illicit trade of pure nicotine; 2) eliminate fiscal incentives for consumer ‘do-it-yourself’
behaviour and 3) simplify the classification burden on national administrations caused by tax
exemption of nicotine-free products. There was a general concern about fiscal harmonisation
encouraging consumers to switch to ‘do-it-yourself’ products. Member States tax authorities have
generally deemed administrative adaptation costs as negligible, modest or moderate. These are,
however expected to be higher than those for HTP on average because of different underlying market
structures that are more fragmented and complex to monitor and manage.
The prevailing view on minima for e-cigarettes converged around the minimum common
denominator of some EUR 0.10 per ml, while both higher EUR 0.30 per ml rates and the zero rate
option elicited less support. In the public consultation where e-cigarette consumers were, however,
overrepresented, respondents preferred the zero minimum rate option, closely followed by the EUR
0.10 per ml option, while the EUR 0.30/ml value was preferred by a very small subset of stakeholders.
45% of the companies qualifying as SMEs expressed a preference for the EUR 0.10 per ml option
(36% of medium-sized companies, 56% of small-sized companies, 43% of micro-sized companies),
while 40% of them preferred no taxation at all (48% of medium-sized companies, 29% of small-sized
companies, 42% of micro-sized companies). Economic operators emphasised setting adequate tax
levels, to ensure fair market competition, without destroying it with exceedingly high excise rates,
which would enhance cross-border flows from extra-EU countries, smuggling and tax avoidance
practices.
78
Finally, tax and customs authorities had strong consensus for harmonising and bringing new oral
products within the scope of the EU excise legislation. The consensus varies across products from
almost unanimous for nicotine pouches and other oral products containing nicotine but not tobacco.
Conversely, only a few Member States deem it important to introduce other oral tobacco products
(e.g. ‘snus’) within the EU excise legislation. Tobacco for oral use cannot be commercialised legally
in any Member State other than Sweden according to the Article 17 of the Tobacco Products
Directive. As already noted with e-cigarettes most consumer respondents replying to the public
consultation voiced their opposition to fiscally harmonising and creating EU minima on these goods.
Finally, as mentioned, the tax and customs authorities survey also shows a lack of agreement on the
best method of including these products in a new EU excise regime, since neither the option of
creating a comprehensive excise category covering all relevant smokeless products containing or not
nicotine nor that of creating a separate excise subcategory to distinguish between tobacco-containing
and free-products had a clear consensus.
There were a number of different opinions on adequate levels of minimum rates for other smokeless
products. Tax and customs authorities respondents were split into three roughly equal groups: those
who believe that the proposed minima should be commensurate to FCT, those who benchmarked
HTP and finally those who would set equal tax levels for liquids and e-cigarettes. The public
consultation confirmed that respondents either proposed a minimum rate corresponding to that of
HTP; or proposed no minimum tax at all. A sizeable share, however, admitted to having no idea of
what should be an efficient rate.
Many stakeholders reiterated the importance of defining newly introduced categories with a high
degree of flexibility, to accommodate new products that could be developed and be consumed by
means other than oral. Furthermore, for a tax base, the ‘per weight’ approach is seen as most adequate,
and for avoiding revenue losses due to unpredictable market developments. Finally, it is worth also
mentioning that there were dissenting voices among industry stakeholders claiming that harmonising
smokeless products as a whole was unnecessary because: 1) its negligible market share would lead
to higher administrative and collecting costs for Member States than revenue collected and 2) the
category is composed of so many product varieties that including all in one will be inaccurate and
inefficient from a normative and fiscal perspective.
➢ Inclusion of raw tobacco among excisable goods
Including raw tobacco in the scope of excisable goods was supported by a large majority of tax and
customs authorities’ respondents. A definition of raw tobacco for fiscal monitoring purposes should
be as broad as possible and include: 1) non-processed leaf tobacco; 2) first-processed tobacco; 3)
tobacco refuse and 4) homogenised / reconstituted tobacco. This is in line with reported growing
trends towards a comprehensive domestic fiscal regulation of these products, complementing and
supplementing the agricultural regulation in tobacco producing countries. There are just a few
Member States where raw tobacco is not currently regulated either as an agricultural product or a
fiscal good. One Member State reportedly regulated raw tobacco in its health legislation.
Hence, most tax and customs authorities (75%) confirmed that they would be in favour of extending
the same monitoring and control obligations that apply to conventional harmonised tobacco products
to raw tobacco, but without imposing a positive rate. Almost all Member States would be in favour
of imposing a zero rate on raw tobacco. This is mainly expected to deter illicit manufacturing
activities. Over the last three years, seizures of raw tobacco increased in 8 Member States, of which
for 3 significantly and, no Member State reported a decrease in seizures.
79
Public consultation findings confirm high levels of consensus, with more than two third in favour of
the harmonised monitoring of raw tobacco movements through EMCS, to curb illicit manufacturing.
This is higher than those favouring other administrative approaches over EMCS.
For implementation, many support registering and authorising operators as the most stringent
requirement. Other desired features frequently mentioned include: adding administrative sanctions,
followed by suspending or withdrawing infringement authorisation, criminal sanctions and, lastly,
product seizures. In terms of effectiveness, the majority of Member States believe that if obligations
mentioned are included in the EU excise system; with adequate monitoring and control measures,
they will prove beneficial in dealing with illicit trade.
Harmonising raw tobacco is expected to lead to additional administrative and enforcement costs for
tax administrations, but these were deemed moderate in magnitude. Stronger resistance was voiced
by industry stakeholders claiming possible significant operational costs connected to raw tobacco
harmonisation, even when in favour of it. Particular concerns were voiced by logistic operators, for
which a transaction-based system would significantly increase costs and reduce competitiveness, due
to the huge amounts of raw tobacco currently stored and moved across the EU (including tobacco not
destined for the EU market). Another frequently-voiced concern regards change in weight of raw
tobacco during processing and storage operations, which would require complicated and burdensome
reconciling in record-keeping and excise duty liability risks. Finally, in particular for the EMCS, some
economic operators were sceptical about the effectiveness of these measures in tackling illicit flows
of raw tobacco, as smugglers would never comply.
This would therefore result in imposing additional administrative costs only on legal economic
operators, thereby harming their market competitiveness and further enhancing illegal players’
advantages.
80
ANNEX 3: WHO IS AFFECTED AND HOW?
1. Practical implications of the initiative
This initiative affects national authorities. On the one hand, it would incur costs related to the update
of national IT systems. On the other hand, they would benefit from cost reduction due to
harmonisation, legal certainty, and public health improvement in the long run.
This initiative affects a wide range of economic operators. It would incur compliance and
administrative costs for those involved in manufacturing, holding and movement of traditional
tobacco products and new products, as well as raw tobacco processors and traders.
On the other hand, this initiative would reduce the legal uncertainties that currently exist and
competitive distortions between economic operators involved in cross-border trade.
Most of the economic operators affected by this initiative are large companies. However, the
introduction of new products in the scope of the Directive is expected to affect mainly SMEs
(especially in liquids for e-cigarettes sector).
Finally, EU citizens are affected by this initiative, in terms of tobacco product price increase for
consumers, while benefitting from public health improvement and related costs savings.
2. Summary of costs and benefits
The tables here below summarise the costs and benefits (in million euros) of the options under each
policy area and of the preferred option.
First area: revision of the minimum rates for traditional tobacco products
I. Overview of Benefits (million euros)– Preferred Option
Description Amount Comments
Direct benefits
Healthcare and social
costs savings
85 000 Preferable option is conducive to meeting
a long term Europe’s Beating Cancer
Plan’s target of creating a ‘Tobacco-Free
Generation’, where less than 5% of the
population will use tobacco by 2040. The
smoking prevalence* (aged 15+) would
drop to 20.8% from the current 24%. In
line with the above projections of
smoking prevalence, the preferable option
would lead healthcare costs savings for
national authorities which include (1) the
expenses incurred because of the illnesses
caused by smoking; (2) the value of lost
production because of reduced working
time; (3) early mortality from smoking-
related diseases; (4) productivity losses.
Excise duty revenue 14 000
Indirect benefits
Environmental impact Reduction in CO2 emissions by 4-12 Mt, water
depletion by 1,100-3,100 Mt, and solid waste
by 1.2-3.5 Mt.
Reduction in environmental impacts
associated with the reduction in
81
consumption associated to increased EU
minima for traditional tobacco products.
Note:* One-off impact from smoking prevalence value 24% (2023), i.e. directly attributable to EU minima revision.
Impact on smoking prevalence calculated assuming the reduction in the demand for tobacco equal to the reduction in
sales volume.
First area: revision of the minimum rates for traditional tobacco products
II. Overview of costs - Preferred option
Description Amount Comments
For citizens:
- impact on inflation
Very low The increase of price of tobacco products would
contribute in a limited way to inflation dynamics.
For businesses (market
sales)
Decline in market sales:
Cigarettes: - 14%
FCT: - 9%
Cigarillos: - 13%
Cigars: - 5%
OST: -12%
First area: revision of the minimum rates for traditional tobacco products
III. Application of the ‘one in, one out’ approach - Preferred option
[M€]
One-off
(annualised total net present
value over the relevant
period)
Recurrent
(nominal values per year)
Total
Businesses
New administrative
burdens (INs)
0 0 0
Removed
administrative burdens
(OUTs)
0 0 0
Net administrative
burdens*
0 0 0
Adjustment costs** 0 0
Citizens
82
New administrative
burdens (INs)
0 0 0
Removed
administrative burdens
(OUTs)
0 0 0
Net administrative
burdens*
0 0 0
Adjustment costs** 0 0
Total administrative
burdens***
The increase of EU minima would not impact administrative costs for business and
Member States.
(*) Net administrative burdens = INs – OUTs;
(**) Adjustment costs falling under the scope of the OIOO approach are the same as reported in Table 2 above. Non-
annualised values;
(***) Total administrative burdens = Net administrative burdens for businesses + net administrative burdens for citizens.
Second area: introduction in the scope of the Directive of e-cigarettes liquids, heated tobacco products (HTP),
other manufactured tobacco and related products (million euros)
I. Overview of Benefits – Preferred Option
Description Amount Comments
Direct benefits
Tax revenues
for new
products
HTP 4 100 Introduction excise duty rates for new
products will lead to increase of revenue
EUR 4 920 million under preferred
option
Liquids for e-
cigarettes
530
Other products 290
Reduction of tax evasion and fraud Introduction of holding, movement
and control requirements for new
products and will improve monitoring
of cross-border movements.
Less scope for tax evasion and avoidance.
Indirect benefits
Impact on market, competition
and SMEs
Potentially lower substitution between traditional tobacco and new products will
lead to less market and competition distortions.
Harmonisation of taxation of new products will improve market integration and
monitoring of market trends. Economic operators who are currently compliant
with the tax rules will benefit from ensuring their competitors also pay their fair
share. Greater transparency and legal certainty may result in fairer competition
and improve the ease of doing business cross-border. The proposed
harmonisation for new products would help establish a level playing field, whose
benefits will be mostly reaped by small players.
83
Public health, and healthcare
system
Harmonised taxation of new products
will reduce affordability, benefitting
especially young people.
Introduction excise duty rates for new
products, higher excises for
traditional tobacco product will lead
to potentially lower substitutability,
cross-border flows and affordability.
The debate on the health risks of these
products continues to advance and it is
currently not possible to provide an
overall detailed picture. The impacts of
proposed harmonisation of excise duty for
new products are coherent with the policy
recommendations issued by WHO, and
more generally by public health
authorities.
Second area: introduction in the scope of the Directive of e-cigarettes liquids, heated tobacco products (HTP),
other manufactured tobacco and related products (million euros)
II. Overview of costs – Preferred option
Citizens/Consumers Businesses Administrations
One-off Recurrent One-off Recurrent One-off Recurrent
Registrati
on in the
excise
system
Direct
adjustment costs
- -
Direct
administrative
costs
- - 0.5 0.2
Less than
0.1
Citizens/Consumers Businesses Administrations
One-off Recurrent One-off Recurrent One-off Recurrent
Set
up/operat
e
warehous
e
Direct
adjustment costs
9.1
Direct
administrative
costs
1.0
Citizens/Consumers Businesses Administrations
One-off Recurrent One-off Recurrent One-off Recurrent
Obligatio
ns related
to the
EMCS
Direct
adjustment costs
- - 4.4 9.6
Direct
administrative
costs
- - 0.92 0.5
Description Amount Comments
For businesses (market
sales)
Decline in market sales of HTP: - 27%
Note: No direct regulatory fees and charges, no direct enforcement and no indirect costs are anticipated.
84
Second area: introduction in the scope of the Directive of e-cigarettes liquids, heated tobacco products (HTP),
other manufactured tobacco and related products (million euros)
III. Application of the ‘one in, one out’ approach – Preferred option
[M€]
One-off
(annualised total net present
value over the relevant
period)
Recurrent
(nominal values per year)
Total
Businesses
New administrative
burdens (INs)
0.5 1.9 2.4
Removed
administrative burdens
(OUTs)
0 0 0
Net administrative
burdens*
0.5 1.9 2.4
Adjustment costs** 9.1 4.4
Total administrative
burdens***
0.5 1.9 2.4
(*) Net administrative burdens = INs – OUTs;
(**) Adjustment costs falling under the scope of the OIOO approach are the same as reported in Table 2 above. Non-
annualised values;
(***) Total administrative burdens = Net administrative burdens for businesses + net administrative burdens for citizens.
Third area: introduction in the scope of the Directive of raw tobacco (million euros)
I. Overview of Benefits - Preferred option
Description Amount Comments
Direct benefits
Tax revenues 1 300 Reduction in foregone tax revenues due to
new category for raw tobacco
Reduction of tax evasion and fraud The proposed measure could translate
into recovering about 10% of current
excise fraud.
Introduction of holding, movement and
control requirements for raw tobacco will
improve monitoring of cross-border
movements of tobacco products.
Indirect benefits
Public health, and healthcare
system
It is expected to decrease health inequalities in implementing tobacco control
policies, as it will increase the effectiveness of tobacco control measures on the
layers of the population more sensitive to income constraints and for which they
risk being less effective. Also, it would reduce availability of low-price illegal
products.
85
Impact on market, competition
and SMEs
Introduction of control requirements EU level for raw tobacco would increase
administrative and adjustment costs for operators, thus reducing their
competitiveness, although many businesses operating in these segments are
already compliant with EU requirements or similar requirements at national level.
At the same time the availability of illicit tobacco and tobacco products in the
market could be reduced so that legal players will experience lower competitive
pressure from the illegal value chain.
Third area: introduction in the scope of the Directive of raw tobacco
II. Overview of costs – Preferred option (million euro)
Citizens/Consumers Businesses Administrations
One-off Recurrent One-off Recurrent One-off Recurrent
Registrati
on in the
excise
system
Direct
adjustment costs
- - - - - -
Direct
administrative
costs
- - 0.1 - 0.1
Less than
0.05
Citizens/Consumers Businesses Administrations
One-off Recurrent One-off Recurrent One-off Recurrent
Obligatio
ns related
to the
EMCS
Direct
adjustment costs
- - - 0.07 9.7 -
Direct
administrative
costs
- - 0.2 1.3 0.7
Note: No direct regulatory fees and charges, no direct enforcement and no indirect costs are anticipated.
Under the zero-rate option, operators are assumed to opt for the duty-paid procedure instead of the duty suspension and
would therefore not be compelled to set up a tax warehouse.
Third area: introduction in the scope of the Directive of raw tobacco
III. Application of the ‘one in, one out’ approach – Preferred option
[M€]
One-off
(annualised total net present
value over the relevant
period)
Recurrent
(nominal values per year)
Total
Businesses
New administrative
burdens (INs)
0.1 1.3 1.4
Removed
administrative burdens
(OUTs)
0 0 0
86
Net administrative
burdens*
0.1 0.1 1.4
Adjustment costs** 0 0.7
Total administrative
burdens***
0.1 0.1 1.4
(*) Net administrative burdens = INs – OUTs;
(**) Adjustment costs falling under the scope of the OIOO approach are the same as reported in Table 2 above. Non-
annualised values;
(***) Total administrative burdens = Net administrative burdens for businesses + net administrative burdens for citizens.
Note: no administrative burdens are anticipated for citizens.
Application of the general excise arrangements obligations under Horizontal Directive for new
products and raw tobacco will lead to not significant increase of burden for Member States authorities,
likely offset by the legal and administrative benefits of harmonisation and reduction in tax fraud.
Increase of regulatory burdens it is anticipated for economic operators, which can occasionally be
significant for smaller, EU-based operators. The bulk of additional costs would regard the e-cigarettes
liquids segment, since HTP operators can be considered already compliant with the majority of
obligations (as this segment consists exclusively of transnational tobacco companies, and ‘other
manufactured tobacco segment (including related products)’ is small and largely controlled by
transnational tobacco companies (especially the nicotine pouch segment).
In the case of raw tobacco, costs are very depending on the volume of cross-border transactions and
on Member State-level implementation rules177
.
3. Relevant sustainable development goals
IV. Overview of relevant Sustainable Development Goals – Preferred Option(s)
Relevant SDG Expected progress towards the Goal Comments
SDG No 2. Zero hunger
- No 2.4: By 2030, ensure
sustainable food
production systems and
implement resilient
agricultural practices that
increase productivity and
production, that help
maintain ecosystems, that
strengthen capacity for
adaptation to climate
change, extreme weather,
drought, flooding and
other disasters and that
A reduction in tobacco consumption will
reduce incentives to grow tobacco, allowing
land currently for tobacco cultivation to be
used for productive and sustainable
agriculture, contributing to greater food
security.
177
Operator’s choices would also be influenced by other factors, which could not be considered in the simulation model,
and relate for instance to individual operator’s capacity, size and type of operations, local business environment, etc. The
calculations of costs are based on how the EU raw tobacco sector is currently composed and structured but the simulations
provided refer to the current situation, as it is not feasible to predict how players, practices and flows would change as a
consequence of the reform (e.g. shift toward shorter / domestic supply chains, storage at farm level, recourse to offshore
processing, establishment of storing facilities outside of the EU, and, possibly, reliance on non-EU raw tobacco etc.).
87
progressively improve
land and soil quality.
SDG No 3. Good health
and well-being.
- No 3.a: Strengthen the
implementation of the
WHO Framework
Convention on Tobacco
Control in all countries.
Expected reduction in the smoking prevalence
among the general population (ages 15+) from
approximately 24% today to 20.8 %.
Reduced tobacco consumption leads to
benefits for Member States. Due to the
reduction in tobacco consumption from
24% today to 20.8% the public health
benefits would amount to approximately
EUR 85 billion in social costs savings
(EUR 6 billion savings in healthcare
costs; EUR 77 billion savings related to
value of years of life loss and EUR 2
billion savings related to productivity
losses).
Reduced consumption of new products
will bring public health benefits that can
be considered proportional to the
expected reduction in consumption.
SDG No 6. Clean water
and sanitation
- No 6.4: By 2030,
substantially increase
water-use efficiency across
all sectors and ensure
sustainable withdrawals
and supply of freshwater to
address water scarcity and
substantially reduce the
number of people suffering
from water scarcity.
A reduction in tobacco consumption will
consequentially reduce the water required to
grow the plants. It might reduce water
depletion by 1 00-3 100 Mt.
SDG No 7. Affordable and
clean energy
A reduction in tobacco consumption will
consequentially reduce tobacco cultivation,
manufacturing, and distribution, all of which
activities consume energy.
SDG No 8. Decent work
and economic growth
- No 8.4: Improve
progressively, through
2030, global resource
efficiency in consumption
and production and
endeavour to decouple
economic growth from
environmental
degradation, in accordance
with the 10-year
framework of programmes
on sustainable
consumption and
production, with
Apart from the negative health consequences
arising from the consumption of tobacco, its
production cycle requires the use of pesticides,
land, water and energy, and generates post-
consumption waste. A reduction in tobacco
consumption can be expected to reduce
incentives to produce tobacco, so reducing
environmental degradation.
88
developed countries taking
the lead.
SDG No 10. Reduced
inequality
- No 10.4: Adopt policies,
especially fiscal, wage and
social protection policies,
and progressively achieve
greater equality.
As low-income groups are more sensitive to
price increases, the health, social and
economic benefits of higher taxes – fewer
people starting to smoke and more quitting –
accrue much more to these groups.
SDG No 11. Sustainable
cities and communities
- No 11.6: By 2030, reduce
the adverse per capita
environmental impact of
cities, including by paying
special attention to air
quality and municipal and
other waste management.
A reduction in tobacco consumption will
reduce the adverse impact of tobacco smoking
on air quality.
Tobacco smoking results in high local
concentrations of pollution and also make
a measurable contribution to ambient air
pollution within a city.
SDG No 12. Responsible
production and
consumption.
SDG No 13. Climate
action.
SDG No 14. Life Below
Water.
- No 14.1: By 2025,
prevent and significantly
reduce marine pollution of
all kinds, in particular from
land-based activities,
including marine debris
and nutrient pollution.
SDG No 15. Protect,
restore and promote
sustainable use of
terrestrial ecosystems,
sustainably manage
forests, combat
desertification, and halt
and reverse land
degradation and halt
biodiversity loss.
Any reduction in tobacco consumption can be
expected to have consequences, as incentives
to grow tobacco will decrease. This reduces
the use of pesticides, the need for surface water
for agriculture, the need for energy and the
CO2 footprint. In terms of production, reduced
tobacco consumption not only reduces energy
demand and CO2 emissions, but also reduces
the need for transport, packaging, reduces
paper consumption and thus deforestation,
reduces wastewater emissions and post-
consumption waste, in particular litter from
cigarette butts. Finally, reduced consumption
brings reduced contribution to outdoor air
pollution.
89
SDG No 17.
Partnerships. 17.1.
Strengthen domestic
resource mobilisation
<…> to improve domestic
capacity for tax and other
revenue collection.
Due to improved excise administration a
reduction in fraud and tax evasion is expected.
Due to the introduction of movement and
control requirements under the Horizontal
Directive:
- recovery of about 10% of current tax
fraud in illicit sales of manufactured
tobacco;
- improved excise duty collection from e-
cigarettes liquids178
.
178
Only about one-fifth of the theoretical tax is actually collected (theoretical – EUR 230 million, factual – EUR 35
million).
90
ANNEX 4: ANALYTICAL METHODS
1. Introduction
An External study179
was undertaken by the contractor to support the impact assessment for the
revision of the Directive. More particularly, due to notable changes in the market – i.e. the decline
of traditional products, increasingly replaced by new products, including the rapidly emerging
nicotine pouches market – and in the fiscal legislation applied in Member States – i.e. the adoption
of non-harmonised taxes in a growing number of countries, the update of the EA 2021 study was
necessary. To ensure methodological continuity and coherence the updated results as presented in the
EA 2025 study followed the same approach (where feasible) as in the EA 2021 study by only
extending the analysis to new evidence, i.e. market or policy evolutions occurred in the 2020-2024
period. The stakeholder consultations and the case studies carried out in 2021 were not repeated.
However, in the following cases the methodology used has been expanded:
▪ In addition to the standard methodology used previously, an alternative approach has been
introduced for impact analysis in the area of new products. This approach regards in particular
the ‘pass-through’ factor applied in the impact simulation model – i.e. the extent of tax increase
that would be passed on to retail prices. Indeed, for these products, the standard simulation
model returned estimates indicating unrealistic market effects in some Member States, whereas
experience from Member States where similar tax measures were introduced recently shows
that segment specific price and demand dynamics should be accounted for. Alternative
assumptions have therefore been developed, based on the empirical evidence – see section 8
for more details. These estimates are presented in the impact analysis, while the estimates
derived from the standard methodology are presented in ANNEX 17 section 3.1.
▪ Another area where some departure from the previous methodological setting was envisaged
regards the estimation of cross-border flows. On this topic, issues not covered previously (new
products) were investigated and sources not available before (e.g. national household budget
survey data, studies on the impact of COVID-19 restrictions on cross-border flows etc.) were
exploited.
The methodological approach for the revised and new EU minima and the respective impacts took
into account the evolution of the Harmonised Index of Consumer Prices (HICP) that occurred in the
period 2021-2024, namely an increase by 19.2%.
Regarding estimation on cross-border flows see ANNEX 8: dedicated to this topic.
2. Data collection
The following Table A4-1 provides an updated overview of the main data and sources that have been
used: (1) excise duty rates and structures; (2) tax revenues; (3) market size data; (4) price levels and
179
The EA 2021 study involved an extensive consultation of relevant stakeholders, including Member States tax, public
health authorities; economic operators and their organisations; tobacco control experts; and the general public (as
presented in ANNEX 2:). In addition to comprehensive data from various sources, the desk work involved a substantial
review of literature and documentary sources, market and sectoral analyses, and scientific literature on tobacco economics
and tobacco control policies. Finally, findings of the five ‘case studies’ carried out in 2021 on specific thematic aspects
were used where relevant. Finally, five ‘case studies’ on specific thematic aspects are presented. The purpose of the case
studies was primarily to collect concrete evidence on the national measures in place and assess their effectiveness and
efficiency for the design of the EU policy in the most revealing problem areas.
91
affordability; (5) unrecorded tobacco consumption; (6) raw tobacco; (7) consumption data; (8) public
health impact data.
Table A4-1. Data sources
Data Main sources
Excise duty
rates and
structures
Data collected from the Taxes in Europe Database (TEDB)180
and complemented
by information on tax regimes applied to non-harmonised products provided by
Member States authorities either through the call for data or a survey of Member
States authorities carried out in June 2024.181
Tax revenues Same sources as above. To ensure consistency, the baseline values of tax
revenues used in the impact simulation model have been reconstructed (based on
volume sales and applicable rates).
Market size
data
The main sources used include: (1) RFC published on TEDB; (2) market data
published by Euromonitor International182
, and (3) other specific estimates
gathered through the ‘call for data’.
Price levels and
affordability
Price levels data come from the same sources of the previous point, with the
addition of TEDB for data on WAP (where available). Relative income price (i.e.
measure of affordability) has been estimated used Eurostat’s GDP per capita data.
Unrecorded
tobacco
consumption
Based on triangulation of sources (since there are no official data available),
including: (1) seizure data provided by the European Commission and Member
States; (2) consumer survey data, i.e. Eurobarometer and national surveys; (3)
third-party modelled estimates, i.e. Euromonitor International and KPMG; (4) a
review of scientific papers published on this subject and (5) the estimation model
applied by the contractor.183
Raw tobacco Based on information collected through Eurostat (Prodcom, Comext),
complemented by inputs from the call for data.
Consumption
and Public
health impact
data
The main sources used were the Eurobarometer survey (various editions) and the
Global Burden of Disease data published by IHME.184
Where relevant, this has
been complemented by estimates and data collected from Eurostat, WHO and
stakeholders (through the ‘call for data’), as well as by relevant scientific
literature.185
Other economic
and statistics
Various Eurostat-sourced indicators and data on sociodemographic trends,
Member States’ macroeconomic variables, purchasing power parities, etc.
180
In accordance with Commission Implementing Decision of 28 July 2011, concerning statistical data to be provided by
the Member States pursuant to Directives 92/79/EEC and 92/80/EEC
181
Survey ‘Taxation of liquids for electronic cigarettes, heated tobacco and other modern oral products’, June 2024
(unpublished).
182
The Euromonitor’s coverage of tobacco and related market has substantially improved over time. The use of a single
source also enhanced the consistency of estimates across market segments and product categories. Regarding data the
following disclaimer apply: “While every attempt has been made to ensure accuracy and reliability, Euromonitor
International cannot be held responsible for omissions or errors of historic figures or analyses”.
183
External study.
184
See: https://www.healthdata.org/research-analysis/gbd.
185
For instance, Dean T Jamison et al., Global health 2050: the path to halving premature death by mid-century, the
Lancet, Volume 404, Issue 10462, p1561-1614October 19, 2024.
92
3. Desk research
The results of the External study are also based on desk review activities which involved the mapping
and review of various types of documents, such as legal frameworks (Directive, the Horizontal
Directive and other EU excise legislation), policy documents (the public health policy framework,
the policy framework concerning the fight against illicit trade of tobacco and fraud, relevant customs
administrative framework and etc.), CJEU jurisprudence, market and consumption reports and
surveys, reports, studies (including PwC PricewaterhouseCoopers LLP, ‘Study assessing articles 32
and 36 of Council Directive 2008/118/EC concerning the general arrangements for excise duty’,
2020186
), research papers, scientific and grey literature both published and unpublished. Desk research
also includes more recent documentary sources (see Table A4-2).
Table A4-2. Documentary sources
Category Sources
EU policy
and
regulatory
frameworks
EU tobacco control policy, including the Tobacco Products Directive and the reports
and studies produced in the context of the evaluation of the legislative framework for
tobacco control.187
Internal documents produced by the European Commission on this subject
(unpublished).
International
sources
The WHO Framework Convention on Tobacco Control (FCTC), and related
documents from most recent Conference of the Parties (COP) sessions, i.e. the 9th
(2021) and the 10th
(2023) sessions, as well as related implementation database,
global progress reports, and other WHO background work.
FCTC Protocol to Eliminate Illicit Trade in Tobacco Products, and the documents
related to the Third Session of the Meeting of the Parties (MOP3) that took place in
Panama in February 2024.188
Policy
frameworks
in Member
States
Review of selected policies and measures put in place by Member States to tackle
ITTP, cross-border shopping, and practices undermining national tobacco control
policies, including studies and reports on their implementation and impact.
Review of selected policies and measures put in place by Member States for the
taxation and monitoring of new products, including Member States presentation made
at the Fiscalis 2024 Workshop on the taxation of new products and survey of Member
States authorities carried out in June 2024 results on this topic.
Other
sources
Report, studies and other documents on unrecorded tobacco issued by EU entities –
such as EMPACT189
reports, and documents from the European Commission expert
group on the Fight against Illicit Trade in Tobacco.
Recent publications on modelling and analysing tobacco market dynamics, especially
on new products.
Recent publications on trends and factors underlying demand for tobacco products
and smoking prevalence, including the relative impact of taxation and other tobacco
186
Study assessing articles 32 and 36 of Council Directive 2008/118/EC concerning the general arrangements for excise
duty - Publications Office of the EU
187
Evaluation of the legislative framework for tobacco control - European Commission
188
Third Session of the Meeting of the Parties
189
The European Multidisciplinary Platform Against Criminal Threats.
93
control measures on demand, as well as publications on the public health burden of
tobacco use.190
Recent publications estimating and analysing cross-border flows of harmonised
products and/or new products in EU countries, especially in relation to the restrictions
to cross-border movements in place during the COVID-19 period.
A variety of stakeholder’s suggested publications as well as internal report, papers
and data sheets, collected through the ‘call for data’.
4. Call for a data
Methodology also involved a focused consultation of stakeholders (national authorities and other
stakeholders, e.g. industry representatives, public health NGOs and civil society organisations, and
other experts/ professionals) via call for data and in-depth interviews.
The call for data focused on collecting factual evidence (e.g. data, reports, studies, legal acts etc.)
rather than views and positions of respondents to address data and information ‘gaps’, especially in
areas poorly covered by the available datasets and it allowed involving stakeholders in the process,
while keeping the consultation on a pure technical level.
The call was launched on 19th
December 2024 12th
February 2025. 53 responses were received, of
which 19 from Member States authorities and 34 from industry representatives (see Table A4-3).
Despite the call addressed also public health NGOs, no feedback was received from this group.
Table A4-3. Participants to the call of the data
A) Participants to the call for
data for national authorities
B) Participants to the call for data for stakeholders
Overall participants: 19
Countries represented:
Austria, Belgium, Cyprus,
Czechia, Denmark, Greece,
Finland, Croatia, Ireland,
Italy, Luxembourg, Malta,
the Netherlands Poland,
Portugal, Romania, Sweden,
Slovenia, Slovakia
Overall participants: 34
Countries represented: Belgium, Bulgaria, Germany, Greece,
Spain, France, Italy, Luxembourg, , BG, DE, EL, ES, FR, IT, LU,
the Netherlands Poland, Romania (in addition to 9 ‘EU-level’
stakeholders
Respondents by sector:
▪ Tobacco products industry: 10 (including 2 for
cigars/cigarillos and 1 for WPT)
▪ E-cigarettes industry: 7
▪ Raw tobacco sector:7
▪ Other: 1 (retailers)
Eight interviews have been carried out, involving (1) European Commission relevant staff; (2)
national tax authorities; and (3) law enforcement authorities engaged in the fight against unrecorded
tobacco. Most interview discussions revolved around unrecorded tobacco, and specifically (1) cross-
border flows and the measures put in place in Member States to implement existing rules (or
additional national measures in place); (2) illicit trade, illicit manufacturing and how criminal
190
https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(24)01439-9/abstract
94
operations have evolved; and (3) source of data and estimates of the magnitude of unrecorded tobacco
consumption.
5. Case studies
The contractor in 2021 implemented five ‘case studies’ on specific thematic aspects: (1) Cross-border
flows; (2) Illicit manufacturing and trade; (3) Raw tobacco; (4) Heated tobacco products (5)
Electronic cigarettes (see Table A4-4). This approach aimed to provide deeper analysis of impacts
and comparison of different options. Findings of the case studies were incorporated were relevant in
the impact analysis.
Table A4-4. Case studies and Member States
Cross-border
flows
Illicit manufacturing
and trade
Raw tobacco
Heated
tobacco
products
Electronic
cigarettes
France, Ireland,
Sweden,
Denmark,
Finland,
Bulgaria
France, Ireland, Bulgaria,
Poland, Czechia, Croatia
Italy, Poland,
Czechia,
Croatia,
Bulgaria,
Sweden
Italy, Poland,
France,
Portugal
Croatia, Poland,
Sweden, Portugal
6. Methodological limitations
Mixed methodologies and tools have been employed for the impact analysis by the contractor. Every
quantitative or qualitative methodology used is prone to a set of limitations which can be roughly
grouped as follows: (1) limitations related to the robustness of underlying data used; (2) intrinsic
limitation of the assessment model adopted; (3) limitations related to the validity of findings; and (4)
limitations related to unforeseeable intervening factors.
Data validity limitations regard the availability/completeness of data (e.g. market data for new
products and for products with marginal consumption are significantly less robust than cigarettes
data); and the reliability (e.g. third-party estimates on illicit trade and cross-border flows).
The analytical models used. Particularly complex was the estimation of impact related to unrecorded
consumption as, by definition, no reliable data exist. Regarding the limitations in the estimation of
regulatory costs, it should be mentioned that, while the Standard Cost Model method is widely
accepted, its implementation largely relied on costs parameters elaborated in existing previous
assessments. The validity of findings is based primarily on the triangulation of different data sources.
Most of the information gathering activities focused on factual and verifiable evidence regarding
tobacco and other relevant products, market conditions, evolutions and legal and administrative
frameworks.
In various cases, impacts have been estimated using the baseline situation as benchmark. However, a
series of unpredictable intervening factors may occur, which can alter the results. These include, of
course, exogenous factors (an example was the COVID-19 pandemic, which have modified
consumption patterns and cross-border flows). More importantly, it also includes endogenous factors,
like Member States reaction to revised EU rules, changes in the business practices, product
developments, market consolidation, demand evolution in unforeseeable directions etc., which are
likely (affected operators will certainly take measures to minimise the adverse effects on their
95
businesses) but cannot be properly factored in the analysis. Also in this case, the more radical is the
change of rules, the weaker impact predictions are.
The limitations of the stakeholder consultations conducted in 2021 could be summarised as follows:
▪ Representativeness. Despite the large participation, the open public consultation inevitably
remains a consultation tool subject to a strong self-selection bias. Participants typically have a
direct interest in the subject matter, so respondents cannot be considered as a representative
sample of the population. The vast majority of responses received to the open public
consultation came from e-cigarettes consumers, concerned about the possible taxation of these
products. The identification of repeating patterns in the open-ended questions suggests a
possible degree of coordination in responses.
The tax authorities’ survey saw large participation and can be considered fully representative.
The participation in the public health authorities’ survey was partly lower (two-thirds of the
Member States), hence a certain bias can be assumed.
In-depth interviews have, by default, no intent of offering an accurate representation of the
groups involved. However, to ensure that all perspectives and interests on the subject matter
were adequately covered, the interview programme was particularly broad and included full
range of relevant stakeholders from several countries.
▪ Validity of evidence. The consultation activities also involved the collection of stakeholders’
views and considerations on policy problems and possible solutions. Considering that all
stakeholders involved have a clearly identifiable interest in the subject matter (as a regulator,
trader, public health expert etc.) this kind of statement has an inherent bias that needs to be
understood and made explicit. As a rule of thumb, this risk has been addressed by posing the
same questions to stakeholders having different perspectives and interests, to reconstruct the
full picture from all angles, and to mutually cross-check and verify the information provided.
▪ Interpretation of answers. Lastly, it is worth mentioning that the survey has intrinsic limitations
regarding the correct interpretation of the answers. Close-ended questions have the advantage
of returning clear and straightforward pictures of stakeholders’ views on a given subject, but
the nuances and caveats are inevitably ironed out, and respondents may interpret the same
questions differently. Some open-ended questions were added to the questionnaire, to allow
respondents to elaborate on their feedback, but this option was not frequently used.
7. Baseline scenario
Baseline scenario besides indicators listed below includes predictions on the future evolution of the
baseline191
(quantitative modelling, which can predict market evolutions under a business-as-usual
situation; review of industry strategies; analysis of the literature on consumers’ behaviour and cultural
trends; analysis of policy trends and legal frameworks at national level; direct feedback from
stakeholders, e.g. authorities, public health experts, economic operators, market intelligence sources
etc.)
7.1. Traditional tobacco products
Table A4-5 and Box A4-1 provides an outline of baseline indicators for traditional tobacco products.
191
The baseline year is 2023.
96
Table A4-5. Baseline indicators
Impact area Baseline indicators
Tax rates and
revenues
• Tax rates and structures applied to cigarettes and other manufactured
tobacco in the Member States.
• Tax revenue trends, in relation to actual rates and price levels.
Market data • Volume and value of sales of tobacco products in Member States.
• Retail price levels of cigarettes and other manufactured tobacco in Member
States (average price, lowest market price).
Unrecorded
consumption
• Estimated cross-border shopping, and impact on Member States tax
revenues.
• Estimated illicit manufacturing / trade, and impact on Member States tax
revenues.
Public health
impact
• Smoking prevalence trends by demographic and socio-economic groups.
• Public health burden associated to tobacco use.
Box A4-1. Estimation source and methodology for baseline variables
▪ The excise duty level ‘baseline situation’ in Member States has been calculated based on
data collected and published on TEDB.
▪ Excise duty yield (EDY) indicator refers to the excise duties applicable to the WAP
(weighted average price level). A few Member States apply MED which is higher than the
sum of the specific and ad valorem components at the WAP level. In those cases, the EDY
coincides with the MED. Where Member States reported a MED value that includes also
VAT (‘minimum total tax’), the latter component has been removed to ensure
comparability of the calculations.
▪ The EDmin indicator refers to the excise duty applicable on the lowest price category in
the market (Pmin). Again, in some Member States the EDmin coincides with the MED.
▪ In the case of cigars and cigarillos, some Member States applies a tax structure per kg
instead of per unit. However, in some Member Staes the distinction is only apparent as the
weight applied is conventional weight and not the ‘real’ weight (e.g. 1 kg = 800 cigarillos
or 400 cigars). In all other cases a conversion has been applied in line with the typical weigh
of these products, i.e. 1.33g for cigarillos and 2.7g for cigars.
▪ The WAP was calculated based on Euromonitor sales data, except for official estimates
published on TEDB (cigarettes – and in some cases FCT).
▪ The Pmin (lowest price in the market) was estimated based on the information gathered
through the call for data. Where unavailable, the average proportion between WAP and
Pmin was used for reference.
▪ Sales volume of cigarettes and FCT is based on ‘releases for consumption’ (RFC) figures
reported by Member States to the Commission. RFC is a proxy indicator of consumption,
however, it does not coincide with actual consumption because of (a) unrecorded
consumption (cross-border flows and illicit products); (b) forestalling practices and (c)
possible time lags in the registration of RFC. Some countries do not separate FCT RFC
from OST ones. In those cases, the respective proportion has been estimated through
Euromonitor International’s sales data.
▪ Sales volume of other tobacco products (cigars, cigarillos, OST) are based on Euromonitor
sales data, except waterpipe tobacco (WPT) whose market volume is estimated combining
97
call for data feedback, External study 2021 data and assumptions on the proportion between
pipe and WPT within the OST category.
▪ To ensure consistency in the analysis of impact, Member States tax revenues have been
recalculated based on the sales figures and the applicable excise duties. The results do not
always coincide with the tax revenue values communicated by Member States for various
reasons, including time lags in the payment / registration and the effects of the MED.
Furthermore, various Member States do not provide disaggregated data between products.
▪ Regarding public health and social costs the baseline value have been calculated updating
healthcare expenditure data in the EU with most recent Eurostat statistics (i.e. 2022) and
assuming that the share attributable to tobacco is 2.9%.192
For the current impact of tobacco
consumption on avoidable mortality, the Global Burden of Disease’s most recent estimates
were used.193
In terms of years of life lost, the burden of tobacco is calculated based on a
conventional value of life year lost (VLYL) of EUR 52 000 in accordance with the
estimates used in the studies underpinning the Tobacco Products Directive.
Indirect costs include also impact on employment and productivity caused by tobacco-
related health conditions. In particular, economic loss of productivity can take the form of:
1) workplace absenteeism and the resulting loss of income from the days off work, and 2)
premature retirement due to smoking-induced illnesses.194
The following assessments were
used:
- It is well established in the literature195
that smokers, on average, have a higher rate of
workplace absenteeism than non-smokers.
- The cost of smoking-related absenteeism amounts to roughly 5% of its related estimated
direct healthcare costs.196
Smoking can also represent a cause of permanent disability
and early retirement due to the incapacity to work. Roughly 25% of cases regard those
incapacitated by the typical smoking-related diseases.
Illicit manufacturing and trade
Measuring the illicit tobacco trade is complicated and there is no widely accepted methodology197
.
The most recent ITTP trends in the EU have been assessed by triangulating three main data sources:
192
The 2.9% value eventually retain comes from Tobacco Products Directive background impact assessment studies and,
specifically: GHK, A study on liability and the health costs of smoking, DG SANCO, April 2012 (External study).
193
Data source: https://www.thelancet.com/lancet/visualisations/gbd-compare
194
The premature deaths of smoking employees during productive years would also cause productivity losses, but this
component is already accounted for in the value of life year lost.
195
Bunn WB, Stave GM, Downs KE, et al. Effect of smoking status on productivity loss. J Occup Environ Med 2006.
196
The source was the preparatory study for the Tobacco Products Directive, which used the results of a major EU survey
on absenteeism from work in Germany and AustriaT to extrapolate EU-level estimates. Results were that in 2009 some
0.8% of total days lost from work were deemed directly attributable to smoking. In monetary terms, this amounted to a
total of EUR 1.3 bn EU-wise.
197
OLAF commissioned a study (RAND 2020) reviewing the main existing methodologies. These include:
- empty-pack surveys (collection of discarded cigarette packs to obtain a sample of packs that is representative of the
patterns of cigarette consumption in a given area);
- consumer surveys with and without pack inspection: with inspection – survey of tobacco users asking about various
aspects of their smoking behaviour. During the survey respondents present their latest tobacco product for inspection or
surrender the product to the research team for verification; without inspection - survey of tobacco users asking about
various aspects of their smoking behaviour without any request or requirement for physical evidence.
98
(1) Euromonitor International’s estimates (2) the KPMG illicit cigarettes report (2023 edition)198
,
based on empty pack surveys (commissioned by tobacco manufacturers); and (3) statistics on ITTP
seizures that the Commission gathers from Member States authorities. Further evidence has been
collected from the call for data. However, only a minority of Member States was in the position to
provide an estimate of the magnitude of ITTP (between 5 and 10 Member States, depending on the
type of tobacco product), and in most cases the source of estimates was the KPMG Report.199
7.2. New products
Heated tobacco products. The key variables for the baseline scenario were based on the following
sources:
▪ National tax regimes have been gathered through the call for data and Member States’ survey
conducted in June 2024.
▪ Market sales data for each Member States (volumes and value) have been drawn from
Euromonitor International, distinguishing between devices and consumables.
▪ Price data (WAP) have been calculated based on Euromonitor International’s sales data.
Liquids for e-cigarettes and other manufactured tobacco and tobacco related products. With
minor changes related to market characteristics and data availability similar approach for baseline
scenario for liquids of e-cigarettes and other manufactured tobacco products as for heated tobacco
was used. More specifically, the available e-cigarettes market data are far more comprehensive and
accurate than in the past. The same regards other manufactured tobacco and tobacco related products
as availability of data in this area has largely improved in the 2020-2024 period (16 Member States
are now covered in the Euromonitor database).
8. Impact analysis
The main focus of the analytical work was to compare the baseline scenario, developed on the basis of an
in-depth baseline assessment, with several policy change scenarios, using both quantitative and qualitative
methods and case study-based approach (where relevant). The impacts considered for the policy
options belong to these main categories: (1) impacts on excise duties and on the market (including
tax revenues and the impact on fraud and tax evasion); (2) administrative costs and cost savings
(including impact for SMEs and competitiveness check) taking into account digital aspects; (3) public
health effects (smoking prevalence and related social costs), (4) impact on employment. To address
the specific problems presented in the case of substitution (cigarettes with FCT) and impacts on cross-
border flows are distinguished.
8.1. Traditional tobacco products
The market simulations refer to the reduction directly attributable to the EU minima revision and do
not include the effects of other relevant factors, which would likely magnify the estimated sales
decline although cannot be precisely quantified. In particular, it can be expected that the increase of
- tax gap analyses (i.e. comparison of sales volumes and consumption statistics), and various estimation models.
The RAND 2020 study suggests that none of these methods would be sufficient if used in isolation and that a combination
of multiple methods should be employed to obtain reliable estimates.
198
External study.
199
Among call for data respondents, Member States that reported own sources of ITTP estimates include Ireland, Finland,
Sweden and the Netherlands (External study).
99
rates (hence prices) in a given Member State might trigger an increase also in neighbouring countries
even where this is not strictly required by EU minima. As the survey of Member States authorities
showed200
, Member States authorities often consider the price levels of cigarettes in bordering
countries when setting national rates, as large price differentials are associated with substantial cross
border shopping, hence excise revenue losses. Similarly, when bordering countries’ price levels
increase, Member States authorities may see an opportunity to increase their own rates without
incurring a cross-border shopping issue. In this sense, the effects of higher EU minima would possibly
have repercussions beyond directly affected Member States and lead to more widespread tax increases
in most Member States. Such effects would mix with other exogenous effects, completely unrelated
to EU minima, such as the impact of tax increases spontaneously adopted by Member States, the
impact of tobacco control policies and the broader societal changes of attitude towards tobacco.
The two main conditions are required to be examined separately to estimate the increase of Member
States excise rates following an increase of EU minima, i.e.:
a) Calculation of the required increase (in %) induced by the revised fixed minimum (if the
current excise duty level is higher than the revised minimum the expected effect is 0%). This
condition generally refers to all marketed products, so compliance have been checked against
the excise duty at lowest market price level (except when this could not be calculated, in which
case the EDY has been used).
b) Calculation of the required increase (in %) induced by the revised relative minimum (if the
current excise duty is higher than the revised minimum the effect is 0%). For the relative
condition, ‘recursive effects’ have been considered, because the increase of excise duties
would lead to an increase in price, which implies, in turn, a further increase of the excise duty
levels and so on.
c) In the case of cigarettes, a third step was required, i.e. to estimate the required increase (in %)
induced by the revised escape clause (if the current EDY is higher than the revised escape
clause level the effect is 0%).
The estimation of the combined effects varied across products. For cigarettes the highest value
between (a) and (b) have been retained (since fixed and relative minimum are conditions to be fulfilled
simultaneously). However, if (c) was lower than (b) the escape clause would be triggered, so the
combined effects would become the highest value between (a) and (c). For other products the lowest
value between (a) and (b) have been retained (since fixed and relative minimum are alternative
conditions).
Overall, impact estimates for cigarettes are more reliable than for other products as underlying market
data are more robust and comprehensive. Secondly, the reliability of estimates is inversely correlated
to the extent of the tax increase. Some of the scenarios examined have no precedent at Member State
level so market reactions are more difficult to predict.
These possible effects of an increase of EU minima were assessed on excise duties and market.
Where national excise levels are set to increase, due to the new EU minima, price levels can be also
expected to increase. The standard approach used in impact simulations involved a pass-through
elasticity of tax onto prices equal to 0.7. In practice, an increase of 10% in EDY201
is associated with
200
EA 2021 study.
201
In accordance with the original model specifications, the rate of increase was always calculated as the difference of
natural logarithms.
100
an increase of 7% of WAP (and Pmin). The effects of VAT (i.e. the fact that VAT applies also to excise
duties) was deemed included in the overall price impact.
Regarding the impact on the demand, the elasticity coefficient of -0.54 have been applied. In
practice, a WAP increase of 10% is estimated leading to a decline in the demand by 5.4%.
The impact on tax revenues have been then calculated by multiplying the revised EDY by the
revised sales volume (net of market losses due to reduced demand).
Regarding impacts on tax fraud it should be noted there was no attempt to estimate in a quantitative
manner as the independent literature does not support the existence of a direct, causal link between
tax policies and ITTP. Among others, the EU-funded PPACTE project (Pricing Policies and Control
of Tobacco in Europe)202
showed the absence of a statistically relevant correlation between illicit
trade and the price of cigarettes. In the same vein, other authors suggested that ‘the supply of illicit
tobacco, rather than its price, is a key factor contributing to tax evasion’.203
Overall, high prices
appear more as an enabler of ITTP rather than its determinant204
.
The methodology for substitution between cigarettes and FCT included the following:
a) Estimated variation in the tobacco price index associated with the increase of EU minima.
b) Estimated variation in the aggregated expenditure in tobacco products linked to the above
variation in the tobacco price index.
c) Estimated reduction in the conditional demand of each individual products (based on the
elasticity coefficients).
d) Estimated variation in the conditional demand due to a variation in the price of substitutes
(based on the ‘cross’ elasticity coefficient).
e) Aggregation of impacts – (b), (c) and (d) – and estimation of the magnitude of substitution
under the different EU minima increase options.
The analysis of public health impacts included two parts:
a) the first part involved estimating the impact of the proposed EU minima increase scenarios
on consumption, hence smoking prevalence among the population. This has been assumed
corresponding to the estimated decline in sales, assuming no change in the average smoking
intensity and no mitigation due to the availability of cheaper and ‘unrecorded’ products
(including illegal products and/or cross-border legal products).
b) The second part regarded ultimate public health impacts, and the social costs related to
smoking. The analysis estimated the ‘savings’ in terms of years of life lost and healthcare
costs associated to a reduction in smoking prevalence. Savings are largely hypothetical as they
would materialise in the long run.
The ultimate public health impact has been estimated following a cost of illness approach.205
In this
perspective, the economic consequences of smoking can be divided into ‘direct costs’ – the expenses
202
See: https://www.tri.ie/ppacte.html
203
Joossens L, Lugo A, La Vecchia C et al. Tob Control 2014; 23:e17-e23 (cited from EA 2019).
204
The price of illegal products is typically set in relation to the price of legal ones, and at about 50%-60% of it. So,
assuming production costs as fixed, the higher legal prices go the more profitable ITTP is. For this reason, there is an
economic incentive for illegal suppliers to focus on markets where the level of price is comparatively higher (External
study).
205
Description available in: World Health Organization. Economics of tobacco toolkit: assessment of the economic costs
of smoking. Geneva, Switzerland: World Health Organization; 2011. https://apps.who.int/iris/handle/10665/44596
(External study)
101
incurred because of the illnesses caused by smoking, and ‘indirect costs’ – the value of lost production
because of reduced working time and early mortality from smoking-related diseases.
Also, the following key calculation coefficients was used:
▪ the unit value of life years lost, equal to EUR 52 000 across the EU (in accordance with Tobacco
Products Directive underlying studies);
▪ the percentage of Member States’ healthcare expenditure that can be attributed to tobacco-
related conditions, i.e. 2.9% - based again on the Tobacco Products Directive background
studies;
▪ productivity losses have been calculated by adjusting to inflation and to change in smoking
prevalence that occurred.
8.2. New products
The overall approach to the impact analysis of the measure proposed to harmonise the tax regime for
new products in the EU is similar to the approach used for traditional tobacco products, albeit with
two notable differences. Firstly, unlike traditional tobacco, new products are not harmonised, so – in
addition to the market effects of applying excise duty – relevant impact includes also additional
administrative and adjustment costs for national authorities and economic operators to comply with
the rules and procedures applicable to harmonised excise goods. Secondly, while the debate on the
health risks of new products continues to advance and new evidence is produced, the excise
harmonisation proposal assessed no direct connections with the health risks of these new products.
Hence, impact analysis does not include public health impacts.
The approach used to estimate the market impacts of the proposed policy options on non-harmonised
products is analogous to the approach used for harmonised products. However, a few notable
differences are worth highlighting. Firstly, the baseline situation is much more heterogeneous across
Member States, so harmonisation implies a more substantial change, especially where target products
are currently not taxed. Secondly, market data are less robust and comprehensive than for harmonised
products. Thirdly, the price and demand dynamics are likely different from the dynamics of cigarettes
and other well-established products, in particular:
▪ The impact of taxation on the price of new products is far from straightforward. Currently, the
incidence of taxation on price is relatively low (or zero) so manufacturers have more room for
absorbing part of the tax increase rather than passing it on to consumers. Furthermore, as new
products and conventional products are often produced by the same companies, some
researchers have observed ‘portfolio strategies’ at play, e.g. with HTP price seemingly more
likely driven by cigarettes’ price than own HTP taxation.
▪ Unlike cigarettes, the demand for new product is considered elastic but as the market is not yet
mature, demand elasticity measures vary and are subject to fluctuations.
8.2.1. Heated tobacco products
In the impact analysis all key baseline variables (tax rates, price, sales volume) have been converted
into ‘per stick’ unit of measure, using a standard 1 stick = 0.3g conversion rate that roughly
corresponds to the most popular HTP products in the market. The impact analysis of proposed EU
minima has also been conducted making reference to HTP sticks, as separate market data for other
types of HTP were unavailable (and at any rate sales volume are deemed very limited). For the impact
analysis it is considered that the ‘per stick’ fixed minimum is 70% of the ‘catch all’ (per weight)
minimum. Considering that one HTP stick is approximately 0.3g, the above ratio implies that the
equivalent unit of consumption for other HTP format is assumed around 0.4g.
102
These possible effects of EU minima were assessed on excise duties and market. The impact analysis
consisted of the following steps:
▪ Impact of EU minima of Member States excise rates. The impact of the fixed and relative
minima have been examined separately. The lowest value between the effects of the two
conditions have been eventually retained (since fixed and relative minimum are alternative
conditions).
▪ Impact on price levels. It has been assumed that part of the tax would not be passed on to
consumer. Regarding the estimation of the tax pass-through, the approach is based on the
assumption that HTP’s WAP shall remain in a fixed proportion with cigarettes WAP, and
specifically at 83% of cigarettes’ level, which is the HTP / cigarettes price ratio in 2023. This
assumption is supported empirically by the fact that the WAP of HTP in Member States appears
more robustly correlated with the WAP of cigarettes than with the HTP tax rate (the correlation
coefficient with cigarettes’ WAP is 0.89, against 0.36 in the case of HTP tax rate). This suggests
that, where feasible, manufacturers would rather maintain HTP price somehow pegged to the
price of cigarettes. This appears realistic also considering that the excise duty incidence on retail
price would remain comprised between 35% and 40%, i.e. higher than the current 25% but in
line or lower than what is already the situation in various Member States (Germany, Lithuania,
Latvia, Sweden) where HTP is marketed. This is in line with the empirical observation of tax /
price dynamics in Member States in recent years.
▪ Impact on the demand. Regarding the price elasticity of the demand for HTP, coefficient of
-1.36 was used.
▪ The impact on tax revenues have been then calculated by multiplying the new EDY levels by
the revised sales volume (net of market losses due to reduced demand).
8.2.2. Liquids for e-cigarettes
The impact analysis on excise duties and market followed the following the same steps as for HTP:
▪ Impact of EU minima of Member States excise rates. To estimate market impacts at Member
State level, the effects of the fixed minimum and relative minimum were assessed separately
and retained the lowest of the two (as these would be set as alternative conditions). Where a
national ad hoc tax already existed, the incremental effects of the EU minima (if any) was
estimated.
▪ Impact on price levels and demand. As for the price elasticity of demand, the coefficient of -
1.36 was used.206
Regarding the tax pass-though, the approach takes into account the price
strategies that operators might adopt to offset in part the effects of tax increase. Liquids of e-
cigarettes price is poorly correlated with the price of cigarettes, so an alternative approach has
been developed based on the empirical observation of tax and price data in the 2020-2023
period. In summary, while tax rates increased on average by 81%, the WAP increased by only
20%.207
This translates into a pass-through factor elasticity of 0.25, which have been used to
simulate the impact of the introduction of EU minima.
206
Huang J, Gwarnicki C, Xu X, Caraballo RS, Wada R, Chaloupka FJ. A comprehensive examination of own- and cross-
price elasticities of tobacco and nicotine replacement products in the U.S. Prev Med. 2018 Dec; 117:107-114. doi:
10.1016/j.ypmed.2018.04.024. Epub 2018 Apr 21. PMID: 29684418; PMCID: PMC6195827.
207
The analysis focussed on 11 Member States where the taxation of e-cigarettes has increased between 2020 and 2023.
In monetary values, the average rate moved from EUR 0.11 to EUR 0.20 per ml, while the average WAP, in the same
countries, moved from EUR 0.48 to EUR 0.57 per ml. To avoid distortions due to market composition, the analysis
focussed on the price of liquids for open systems.
103
▪ The impact on tax revenues have been then calculated by multiplying the new excise duty
levels by the revised sales volume (net of market losses due to reduced demand).
8.2.3. Other manufactured tobacco and related products
Other manufactured tobacco and related products (except nicotine pouches). The estimation
model is the same used for traditional tobacco products, but with the elasticity coefficient applied to
new products. However, compared to HTP and e-cigarettes, the underlying data remain less robust,
so the validity of estimates have to be taken with greater caution.
Nicotine pouches. The coverage and reliability of available market data has improved, allowing a
more reliable baseline assessment. At the same time, the impact of harmonisation remains complex
to estimate because nicotine pouches have only recently been introduced, so price, demand, and
product characteristics have not yet stabilised and, secondly, despite the steep growth, nicotine
pouches remain a niche product in most Member States. The standard simulation model estimates
that for some Member States indicate a possible market collapse would be possible. While this
scenario cannot be entirely ruled out, it appears more probable that operators will adopt pricing
strategy to minimise such risk, especially considering that nicotine pouches are mostly marketed by
transnational tobacco companies, which are commonly more resilient than SMEs to market shocks.
The impact simulation has therefore been developed based on the assumption that in each Member
State the WAP will not increase more than the monetary value of the tax increase caused by EU
minima. This assumption is based on the empirical observation of price trends before and after the
introduction of national tax in the three Member States that did so in the 2020-2023 period.208
A
demand elasticity coefficient of -1.36 has been considered. Analysis relates to standard 20 units
container weighting 14g – i.e. 0.7g per unit. Given the limited number of observations available, the
results of this simulation have to be considered as indicative.
Administrative costs and savings for new products
The proposed introduction of new harmonised tax categories would generate additional
administrative and adjustment costs. These additional costs include information obligations, such as
the need for economic operators to obtain authorisation, fill-in tax declarations, etc., as well as
substantive obligations, such as establishing and operating a tax warehouse, setting up an appropriate
IT system for managing movements under the EMCS, and keeping fiscal records.
The estimation methodology is based on the Standard Cost Model (see Box A4-2) and encompasses
recent inflation trends.
Box A4-2. Overview of the Standard Cost Model approach
The approach of reference for the estimation of administrative and adjustment costs is the Standard
Cost Model, which consists, in summary, of the following steps:
(i) identification of the new obligations established by the proposed policy revision and of the
specific actions (procedures, operations) required to comply with them;
208
Specifically, Hungary introduced a national tax on nicotine pouches in 2021, Italy and Denmark in 2022. The analysis
of price effect is based on the empirical observation of WAP over a three-year period starting in the year before the tax
adoption of the tax and ending in the year after the tax adoption. The following step involved estimating the ratio between
the price increase and the tax increase (both in monetary terms). It turned out that in Denmark the price level increase
was higher than the tax; in Hungary it was much lower, while in Italy the price increase corresponded to the monetary
value of the tax. So, it was eventually assumed that – on average – the price increase in other Member States would
roughly correspond to the monetary value of the tax increase.
104
(ii) removal of ‘business-as-usual’ (BAU) costs, i.e. the actions and the related costs that concerned
entities would incur anyway, even in the absence of the policy reform (only incremental costs are
relevant for the analysis);
(iii) quantification of the unit costs associated with the specific actions identified, including
appropriate depreciation of investment costs, and the possible variability of unit costs depending
on the nature and size of the affected entities (e.g. SME or large firms);
(iv) identification of the frequency of required actions, i.e. whether the required action is ‘one-off’ or
recurrent and – if recurrent – whether it is periodical (e.g. annual fixed costs) or transactional
(linked to operations);
(v) identification and quantification of the concerned population, i.e. which and how many entities
would be affected.
The actions required have been classified in relation to the periodicity involved (one-off v. recurrent
actions) and the nature of the costs generated (investment, staff time, fees, etc.). Some of the required
actions may differ depending on the economic operator’s profile. It was elaborated different estimates
for manufacturers (which are, for instance, assumed to register as tax warehouse-keepers and operate
under duty suspension) and importers/wholesalers, who are more likely to seek authorisation as
registered or certified consignees (with no duty suspension-related obligations involved).
The estimation of each required action’s costs is based on the simple formula ‘Price x Quantity’,
where the unit price (expressed in monetary terms) can refer to various quantities, such as number of
economic operators (like registration costs), number of operations (like EMCS transaction costs), etc.
The unit price may vary depending on several factors, not all of which can be considered in the model.
EU average price in the calculations (e.g. the EU average cost of labour including overheads) it was
used.
The methodology includes estimations of obligations which would not stem from Directive but from
the extension of the obligations of the Horizontal Directive to new products/economic operators,
namely the obligations related to producing, holding and moving of excise goods in the EU.209
The
analysis does not include obligations involving negligible effects that are not strictly connected to the
EU legislation (e.g. additional national rules and provisions, or side-effects on non-directly involved
operators), or impossible to quantify (e.g. the risk of errors).
Also, cost parameters have been increased by a standard 19.2%, which is the overall increase in the
HICP index over 2021-2024. Calculation parameters like labour costs and unit costs (e.g. of EMCS
operations) refer to the EU average and not to specific costs in Member States as the information was
insufficient to break down costs by country in a robust manner.
There are no official data on the number and type of enterprises active in the sectors concerned. The
number of affected economic operators was estimated in two ways: (1) assuming the number of
enterprises varied proportionally to the size of the market; and (2) removing enterprises based in
209
Wherever feasible, the regulatory costs parameters that were estimated in previous external studies, (1) Ramboll,
‘Evaluation of current arrangements for the holding and moving of excise goods under excise duty suspension’, and (2)
‘Study contributing to an Impact Assessment on Council Directive 2008/118/EC concerning the general arrangements for
excise duty’. In this sense, they present a substantial degree of uncertainty. Some estimates are based on the e-cigarettes
economic operators survey conducted under the EA 2019 (External study).
105
Member States that have recently introduced national taxes (i.e. assuming in such cases, EU-level
harmonisation would not translate into additional costs).210
It has been assumed that the incremental costs would be negligible as in a number of cases the
products and/or the operators at stake are already subject to similar obligations due to national fiscal
legislation, Evidently, the actual costs incurred might vary greatly depending on how Member would
transpose and enforce the new rules, as the Horizontal Directive leaves substantial margins of freedom
to Member regarding implementation.
The reported impact might be affected by a whole set of additional Member State-level obligations
that would plausibly be put in place to implement the reform at the country level. Also, it was that
the new requirements would apply to the current business models and practices, but in reality, we
could expect that such practices would be modified to offset as much as possible the effects of the
new rules.
8.3. Raw tobacco
Impact on illicit manufacturing and trade because of putting raw tobacco under the scope of the
Directive cannot be precisely quantified because (1) the magnitude of the problem can only be
roughly estimated and (2) the proposed measure is a radical innovation for which there is no
benchmark, and the impact of similar Member States regimes can only partly be leveraged to this
end.
Regarding impact on administrative and adjustment costs for economic operators the following worth
highlighting:
▪ It has been assumed that the proposed measures would be equally implemented in all Member
States, although various aspects will actually remain up to Member to decide (e.g. actual excise
duty rates, level of guarantees required, registration criteria and conditions, treatment of internal
movements, etc.);
▪ It has been assumed that economic operators would choose to implement the new rules by
choosing the options that would minimise the costs incurred (e.g. establishing a tax warehouse
or not, moving products under the duty-paid or duty-suspension procedures), but operator
choices would also be influenced by other factors, which cannot be considered in the model,
and relate to individual economic operators capacity, operations, local business environment,
etc.
▪ Simulations developed are based on the current situation, as it is not feasible to predict how
players, practices and flows would change as a consequence of the reform (e.g. shift toward
shorter/domestic supply chains, storage at farm level, recourse to offshore processing,
establishment of storing facilities outside of the EU, and, possibly, reliance on non-EU raw
tobacco etc.).
Quantification of the administrative and adjustment costs is based on the same methodology as for
new products. The methodology – based on the standard cost model – consists of estimating (1) the
‘price’ (unit costs) of each new action that would be required of economic operators, and (2) the
‘quantity’ of actions required, in relation to the number of operators, the number of transactions, the
periodicity of the requirement, etc. The business-as-usual costs, which are the costs that EOs would
incur anyway (even in the ‘no change’ scenario), have to be subtracted from the total.
210
External study.
106
The estimates provided are subject to the following caveats and limitations and should be viewed as
indicative:
• There are no Eurostat or other official data on the number and type (first or second processors,
importers etc.) of economic operators in the raw tobacco sector. Where available, estimates
have been gathered from authorities and stakeholders, otherwise the EA 2021 study figures
have been revised assuming the number of operators varied with the size of the market.
• The unit costs of requirements were primarily drawn from the background studies of the
Horizontal Directive, and/or stakeholders.
• Inflation rates and calculation parameters like labour costs and unit costs (e.g. of EMCS
operations) refer to the EU average and not to specific costs in Member States as the information
was insufficient to break down costs by country in a robust manner.
The costs that Member States authorities would incur from the adoption of a harmonised excise
category for raw tobacco are of two main kinds:
(1) the costs for including new economic operators in the excise system, which relate to
registration and authorisation activities (one-off and periodical renovation); and
(2) the costs related to operations, which include capital costs of adapting the IT infrastructure
(EMCS interface, etc.) to the enlarged scope of the system, and the costs of individual
transactions (verification and confirmation of movements under EMCS).
The costs analysis focussed on incremental costs, i.e. it did not include costs already incurred in
Member States where a fiscal regime for raw tobacco is already in place. In particular, fiscal
registration and/or authorisation related costs are deemed nil where similar provisions are already in
place. For the costs on operations, it has been assumed that all Member States would incur additional
costs, as EMCS is not currently used for cross-border movement of raw tobacco in any Member State.
The different policy scenarios examined can influence the extent of the costs incurred by Member
States’ authorities. In particular, the zero-rate option might prompt operators to use the duty-paid
procedure instead of duty suspension where feasible.
8.4. Comparison of the options
The final step in the impact analysis was a comparison of policy options. The issues addressed in this
analysis call for policy reviews that are relatively independent of each other (e.g. new products and
raw tobacco). Therefore, the options were compared for each thematic area separately rather than
cumulatively.
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ANNEX 5: COMPETITIVENESS CHECK
1. Overview of impacts on competitiveness
One of the key objectives of the initiative is to reduce demand and consumption of tobacco and related
products by raising their prices through taxation. As such, and differently from other initiatives, it is
by definition affecting market sales of businesses involved. Having said that, it is also important to
identify where the initiative brings competitive benefits, and verify whether the proposed measures
interfere with competition between different types of operators.
Dimensions of
Competitiveness
Impact of the initiative
(++ / + / 0 / - / -- / n.a.)
References to sub-sections of the
main report or annexes
Cost and price
competitiveness
-- Main report sections 6, 7 and 8;
ANNEXES 3 and 17.
International
competitiveness
0 Main report sections 6, 7 and 8;
ANNEXES 3, 12, 13, 14, 15 and 17.
Capacity to innovate 0 Main report sections 6, 7 and 8.
SME competitiveness - Main report sections 6, 7 and 8;
ANNEXES 3, 13, 15 and 17.
2. Synthetic assessment
Cost and price competitiveness
The impact of the preferred options on the cost and price competitiveness is overall negative. This
overall estimation takes into consideration the different and diverging impacts, as explain here below.
The impact of the revision on excise duty levels would be higher for certain products
(cigars/cigarillos) and lower for others (cigarettes), but this should be interpreted as redressing current
disparities in the tax levels applied to different product categories. In particular, the proposed revision
would help approximating the tax rate of cigarettes and fine-cut tobacco, mitigating tax-induced
substitution.
The revision of EU minima would lead to price increase, hence reduction of demand and subsequently
of market sales, even if some losses could be offset through exporting (the EU being a net exporter
of cigarettes and fine-cut tobacco). The preferred option, which foresees high increase of minima for
tobacco products, would have more pervasive effects. Specifically, the preferred option is expected
to generate a 14% reduction in market sales of cigarettes, -9% in the case of fine-cut tobacco, -13%
for cigarillos, -5% for cigars, -12% for other smoking tobacco.
The proposed introduction of separate excise categories for cigarillos and waterpipe tobacco, would
allow to apply tailored tax regime, thus reducing unintended negative impact on other products (cigars
and pipe tobacco).
The impact will differ across Member States, with substantial impact in some countries, while others
are not affected at all, depending on existing excise rates. The proposed PPP-based adjustment will
allow to mitigate most significant effects.
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The four large transnational tobacco companies that dominate the tobacco market may be able to
adjust retail prices to minimise reduced profitability.211
First and second processors who depend
directly on sales volumes and are typically bound to local markets, may be more affected.
Regarding new products, the negative effects of price increase would be in part offset by the benefit
of harmonisation, and the removal of obstacles to cross-border trade in the internal market (currently
affected by national fragmentation).
On the other hand, the introduction of harmonised categories for new products and raw tobacco would
increase administrative and adjustment costs for operators, thus reducing their competitiveness,
although many businesses operating in these segments are already compliant with EU requirements
or similar requirements at national level.
International competitiveness
Excise taxes apply when the goods are released for consumption in the EU thus at the level of
importers or manufacturers, whereas exports are not subjected to excise duty. Foreign and domestic
operators are therefore equally impacted by the increase of EU minima.
Regarding new products, the impact of administrative burden is not relevant as (1) heated tobacco
manufacturers are big companies that already incur in such costs; (2) e-cigarettes export is currently
negligible compared to import.
Under the preferred option, the cost increase for first processed tobacco would remain below 0.1%
for both raw tobacco in the EU and imported tobacco, with negligible effects on competitiveness.
Capacity to innovate
None of the elements proposed for revision appear to have any impact regarding the capacity to
innovate of business. The introduction of ‘catch-all’ categories allows fiscal regimes to remain neutral
vis-à-vis future product developments.
SME competitiveness212
In general, the increase in taxation and related administrative costs would affect all operators.
However, SMEs would be comparatively more affected as they are less capable to absorb the cost
increase. On the other hand, the tobacco sector is largely dominated by big tobacco companies, so
negative effects for SMEs are expected only in the e-cigarettes sector, and to a much lesser extent, in
the raw tobacco sector, and in limited subsectors (e.g. cigars, pipe tobacco, smokeless tobacco).
Focusing on SMEs in the e-cigarettes sector, the following impacts can be expected:
▪ The reduction in the demand and sales that would follow the increase of taxation will lead to
some market consolidation, as evidenced after the introduction of national ad hoc tax regimes.
Assuming a consolidation proportional to sales reduction it can be expected a reduction in the
number of SMEs of up to 1 500 SMEs. In turn, this would accelerate the expansion of large
companies, which are better equipped to face worsened competitive conditions. it is
noteworthy that concentration is already underway in the e-cigarette segment, with
211
R. Branston, Industry profits continue to drive the tobacco epidemic: A new endgame for tobacco control?, Tobacco
Prevention & Cessation, 2021; Z.D. Sheikh, J.R. Branston, A.B Gilmore, Tobacco industry pricing strategies in response
to excise tax policies: a systematic review, Tobacco Control, 2021.
212
See ANNEX 6: (SME check) for details.
109
transnational tobacco companies and large companies taking up a greater share of the market
over time.
▪ The impact of regulatory costs (described in ANNEX 3:) would be mainly borne by SMEs, as
the large companies active in this segment are already equipped to deal with the holding and
movement rules for excise goods. However, the average additional costs incurred by operators
is estimated at around EUR 1 500 - 2 000 annually, with a negligible effect on overall SME
competitiveness.
▪ The impact of regulatory costs increase is estimated to be slightly higher for manufacturer than
for importers. However, since manufacturers’ operation volumes are deemed larger than
importers’ ones, the effects on price levels would be similar and no trade-off between EU-
manufactured and imported products is expected.
From the other side, the initiative will harmonise regimes for new products that, in turn, would remove
the market barriers caused by the fragmentation of national rules and regimes, creating new
opportunities for operators, and especially SMEs, to expand their activities to other markets.
Furthermore, the harmonisation would contribute to remove the disparities in taxation levels, which
are behind unfair competition practices such as B2C online sales from countries where no excise is
levied, and cross-border shopping. This issue affects primarily the e-cigarettes sector, which is mostly
made of SMEs. Therefore, the proposed revision would help establish a level playing field, whose
benefits will be mostly reaped by small players.
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ANNEX 6: SME CHECK
OVERVIEW OF IMPACTS ON SMEs
Relevance for SMEs
The initiative is only partly relevant for SMEs. With regards to the different elements of the
proposed revision:
• The revision of EU minima for tobacco products is not relevant for SMEs, as they play a
negligible role limited to the manufacture of cigars, pipe tobacco and other specialty
products.
• The enlargement of the scope to HTP and tobacco related products is not relevant for SMEs,
as these segments are largely dominated by transnational tobacco companies and other large
companies. However, the harmonisation of the tax regime for e-cigarettes is considered
relevant for SMEs involved in the manufacture and trade of liquids. However, due to the
ongoing concentration in this segment, its relevance for SMEs is expected to decline in the
future.
• The enlargement of the scope to raw tobacco is considered relevant for SMEs involved in
the tobacco growing sector.
(1) Identification of affected business and assessment of relevance
Are SMEs directly impacted? Yes
In which sectors?
The manufacturing stage, which would be directly affected by the initiative, is largely dominated
by large enterprises, with SMEs playing a limited role only in selected market segments, in
particular:
▪ Manufacture of Tobacco Products. The manufacture of traditional tobacco products is largely
dominated by large enterprises. In 2023 there were 306 enterprises involved in the manufacture
of tobacco products, of which 34 were large enterprises.213
However, these enterprises
accounted for nearly 87% of the workforce and for 90% of total turnover. The importance of
large enterprises has increased in recent times, as their share of total employment and turnover
has increased since 2021. In practice, the manufacture of tobacco products is largely controlled
by four transnational tobacco companies, plus some national players, which in particular
dominate the cigarettes markets. Only the production of cigars/cigarillos, pipe and waterpipe
tobacco is mostly controlled by a limited number of medium sized players.
▪ Manufacture of Non-Harmonised Products. The production of HTP is dominated by
transnational tobacco companies, with SMEs virtually playing no role. Regarding e-cigarettes,
it is estimated that this sector includes 300 manufacturers of e-cigarettes liquids214
, SMEs
accounting for the near totality of e-cigarettes manufacturers/importers. However, in recent
years the market value controlled by transnational tobacco companies and other large
213
EUROSTAT’s Structural Business Statistics (SBS)
214
Based on information gathered directly from authorities and stakeholders and other secondary sources. External study
111
corporation (especially Asian companies) has increased, in conjunction with the expansion of
the ‘closed systems’. The share of transnational tobacco companies in the e-cigarette segment
has grown from 2% in 2014 to possibly 70% in 2023. The nicotine pouches sector appears
largely dominated by transnational tobacco companies and their subsidiaries although there are
also a few independent producers, especially in Sweden and Denmark, which are often also
snus producers. In value terms, large company accounts for the large majority of the market,
with small players below 1% of market share.
The role of SMEs is more important in the other stages of the tobacco supply chain, on which the
initiative would have a direct effect, in particular:
▪ Tobacco Processing.215 First processing is carried out by around 30 enterprises, with the bulk
of activities being accounted for by subsidiaries of key players in the tobacco industry,
vertically integrated manufacturers of tobacco products, and other large operators. There are
possibly 12-15 small processors, estimated to cumulatively accounting for 10% of total tobacco
processed in the EU. Second processing is even more concentrated, with one main operator
based in France, a few subsidiaries of first processing large companies, and possibly less than
ten small processors.
▪ Importing and Wholesaling. In 2022 there were almost 2 000 enterprises involved in
wholesaling of tobacco products.216
With an average workforce of 25 employees and turnover
of EUR 45 million, these enterprises would qualify as SMEs. Regarding non-harmonised
products, there are around 3 000 importers dealing with e-cigarettes, with a clear prevalence of
SMEs, while import of HTP and nicotine pouches is mostly carried out by transnational tobacco
companies.217
Estimated number of directly affected SMEs
The number of SMEs potentially directly affected by the initiative is estimated at around 5 300 EU-
wide.
Estimated number of employees in directly affected SMEs
There is no data on the associated employment. However, since over half of these SMEs are
importers, the number of employees is expected to be minimal.
Are SMEs indirectly affected? Yes
In which sectors? What is the estimated number of indirectly affected SMEs and employees?
The initiative would have an indirect effect on the following sectors, because of reduced tobacco
consumption:
▪ Tobacco Growing. 15 000 farmers grow tobacco, down from an estimated 60 000 active in
2010. These are typically small operators, on average cultivating 2-3 hectares. Tobacco growers
are usually members of umbrella organisations (Producers’ Organisations and Associations of
Producers Organisations). As a result of a progressive concentration, tobacco farms are
controlled by just two to four umbrella organisations in most tobacco growing countries.
215
See ANNEX 15: for details on the raw tobacco supply chain
216
EUROSTAT’s Structural Business Statistics (SBS)
217
External study.
112
▪ Retailing of tobacco and related products. This sector shows significant differences across
Member States, with countries where tobacco products is/used to be a state monopoly, and
others where tobacco products are mostly sold in supermarkets and grocery stores. There are
no consolidated statistics on tobacco retailers in the EU: while EUROSTAT statistics identify
67 181 retailers of tobacco products, industry sources and national reports concerning a sample
of nine Member States provide an estimate of 133 000 tobacco shops and another 90 000 points
of sales (gas stations, bars & restaurants, supermarkets’ outlets). Tobacco shops are
overwhelmingly micro and small businesses.218
To a large extent new products are sold at retail
in the same generalist or specialised stores that sell tobacco. In addition to this, e-cigarettes can
be purchased in small, specialised ‘vape-shops’ and online (where national legislation
allows).219
A few HTP specialised shops also exist in few large EU cities.
Source: External study
(2) Consultation of SMEs Stakeholders
How has the input from the SME community been taken into consideration?
SMEs were consulted in the context of the different consultation activities ran in preparation for
the impact assessment, and their input has been duly taken into consideration.
First, the public consultation has been implemented through an on-line questionnaire survey,
accessible through the Commission website Have Your Say, from 30 March to 22 June 2021.
518 economic operators, including business associations and organisations, companies, trade
unions, contributed to the public consultation and have been grouped in a category called ‘industry’
for the purpose of the analysis. Among these, 321 (62%) were micro enterprises, 83 (16%) were
small enterprises, and 41 (8%) were medium enterprises, with SMEs cumulatively accounting for
about 86% of industry bodies participating in the public consultation. In particular, 101 industry
stakeholders from the e-cigarette manufacturing/importing business, among which 89 SMEs.
From the analysis of the public consultation results, it appears that respondents from companies
qualifying as SMEs (394) supported the harmonisation of e-cigarette liquids containing nicotine at
57% (64% of medium-sized companies, 65% of small-sized companies, 54% of micro-sized
companies), and not containing nicotine at 46% (40% of medium-sized companies, 52% of small-
sized companies, 44% of micro-sized companies). Regarding the potential excise duty rate to be
applied to e-cigarette liquids, 45% of the companies qualifying as SMEs expressed a preference for
the EUR 0.10 per ml option (36% of medium-sized companies, 56% of small-sized companies,
43% of micro-sized companies), while 40% of them preferred no taxation at all (48% of medium-
sized companies, 29% of small-sized companies, 42% of micro-sized companies).
218
Confédération Européenne des Détaillants en Tabac - CEDT survey involving over 9,000 tobacco shops in eight
Member States: 59% shops employed one or two persons, another 31% employed three or four people, and just 10%
employed five or more. First EU-wide CEDT Survey for Tobacco Retailers, 2024
219
The exact number of vape-shops across the EU is unknown, but according to industry’s stakeholders there are no less
than 65 000 specialised e-cigarettes retailers based in eight main EU markets, i.e. Belgium, Germany, Spain, France, Italy,
the Netherlands, and Romania.
113
SMEs were also consulted in the context of targeted interviews, which involved 41 entities across
the EU, through the associations representing their interests in various product segments at national
and EU levels. While these bodies typically represent an entire market segment or stage in the
tobacco products supply chain, due attention was paid to aspects of relevance for SMEs. This was
particularly the case for interviews with entities active in tobacco growing, tobacco processing,
manufacturing and wholesaling of new products (notably e-cigarettes), and retailing, which as
indicated above in Step 1 are those with the greatest involvement of SMEs. These interviews were
particularly useful to gather information for the estimation of administrative burdens potentially
linked to the harmonisation of new products and raw tobacco.
Finally, the call for data allowed for the collection of information on SMEs involved in the retailing
of tobacco products.
Are SMEs’ views different from those of large businesses? Not fundamentally according to the
consultation activities carried out.
(3) Assessment of impact on SMEs
What are the estimated direct costs for SMEs of the preferred policy option?
The assessment of direct impacts on SMEs focuses on the proposed harmonisation of e-cigarette
taxation and on the enlargement of the scope of the Directive to raw tobacco. SMEs operating in
the manufacture, import and wholesale of traditional tobacco products are deemed already
compliant.
Distinctions between large companies and SMEs have been fully considered, in the data and
assumptions underlying the cost benefit assessment of the proposed measures, which were tailored
to the specific constraints faced by SMEs.220
Other elements have been assessed qualitatively.
The proposal for EU excise duty minima on e-cigarette liquids would generate compliance costs
for all economic operators involved including SMEs:
▪ administrative costs which are primarily related to general excise arrangement obligations
such as to obtain authorisation, adopt record-keeping tools and procedures, fill-in tax
declarations;
▪ adjustment costs to establish and operate a tax warehouse (where required), to install and
operate IT software for excise control.
The exact amount of these costs depends on how each EU country implements EU rules. Indeed,
while common provisions are agreed at EU level, Member States retain room for manoeuvre when
setting up specific requirements and obligations on economic operators. Second, as e-cigarettes are
already subject to fiscal regulation in several Member States, some of the compliance costs linked
to the EU intervention would simply replace costs resulting from national legislation and, therefore,
would not be fully incremental.
220
For instance, the costs of setting up a tax warehouse (where required for new products) is deemed much higher for
large company than for SMEs, in relation to the different volume of activities.
114
The additional costs incurred would amount on average to EUR 1 500 – 2 000 annually for each
SME operating in the e-cigarettes segment (costs are higher for manufacturers than for
wholesalers/importers).
Additional costs incurred to the e-cigarette industry sector (aggregated) are distributed as follow:
▪ registration in the excise system: one-off cost, around EUR 0.5 million;
▪ set up a tax warehouse: one-off set-up cost of EUR 9.1 million221
, and recurrent costs of EUR
1.0 million per year;
▪ IT set-up and operation related to the EMCS: recurrent costs of EUR 5.4 million.
The proposal to enlarge the scope of the Directive to raw tobacco would generate compliance costs
for economic operators involved in tobacco processing including a few SMEs. The additional costs
for SMEs would include a one-off component of approximately EUR 0.1 million (essentially
registration costs), and a recurrent cost component of EUR 0.8 million (mostly EMCS-related
costs). For instance, annual costs for a first processing SME would amount to roughly EUR 6 000
/ year, and to EUR 2,000 / year for an SME importing raw tobacco.
What are the estimated direct benefits/cost savings for SMEs of the preferred policy option?
The proposed excise harmonisation of new products would remove the market barriers caused by
the fragmentation of Member States rules and regimes, creating new opportunities for operators,
and especially SMEs, to expand their activities to other European markets. EU-wide approach will
reduce trade uncertainties and increase legal certainty by reducing the divergent interpretations
around product definition, administrative difficulties and associated costs. Furthermore, the
initiative would contribute to remove the disparities in taxation levels, which are behind unfair
competition practices like the direct B2C sales online from excise-free countries, and cross-border
shopping. This issue affects primarily the e-cigarettes sector, which is mostly made of SMEs.
Therefore, the legislative initiative would help establish a level playing field, whose benefits would
be mostly reaped by small players. Although they are tangible, these benefits cannot be
quantitatively assessed.
1. What are the indirect impacts of this initiative on SMEs?
The EU minimum rates foreseen under the preferred policy option are expected to have an impact
on sales. Reduced consumption would indirectly affect businesses including SMEs operating at all
stages of the supply chain. As far as SMEs are concerned:
▪ The impact of a reduction in demand for tobacco would have an impact on tobacco growers,
but its size is not straightforward and not necessarily proportional. First, the agricultural
market is highly dependent on policy decisions on subsidies, tariffs and quotas on imports;
this is particularly the case for tobacco, as the vast majority of it is imported.222
Second, the
EU production of tobacco has been continuously declining due to a combination of different
221
Setting up a tax warehouse is a one-off investment cost that can be annualised based on the depreciation period.
222
Raw tobacco available for manufacturing in the EU amounted about 440 thousand tonnes in 2020 whereas only roughly
140 thousand tonnes were grown in the EU in 2019.
115
reasons over the past decade.223
Third, the final impact on employment may be dampened
by switching to other crops, which is frequent in agriculture.
▪ The impact of a reduction in demand on retailers would vary across EU countries due to the
diversity of market structures, as explained at step (1). Retail outlets typically do not sell
only tobacco products. Ultimately, the impact will depend on the share of revenue from
tobacco products out of the total revenue. It is not possible to quantify it due to the lack of
reliable data.
Source: External study
(4) Minimising negative impacts on SMEs
Are SMEs disproportionately affected compared to large companies? Yes, to some extent.
SMEs are less capable overall to deal with new administrative requirements and absorb cost
increase than large companies. In addition, since management of the excise regime is characterised
by economies of scale in administrative and financial costs, SMEs would be comparatively more
affected.
Have mitigating measures been included in the preferred option/proposal? No, it is not
appropriate.
Tobacco is a peculiar product for which the standard criteria of industry competitiveness and
market impact must be considered with caution, since the ultimate policy goal is to reduce demand
and consumption. Accordingly, no mitigation measures are foreseen for SMEs. Nonetheless, the
proposed measures have been conceived to minimise the risk of giving a competitive edge to certain
products against others, in particular by preventing tax-induced substitution, and therefore to
companies operating in certain segments.
Contribution to the 35% burden reduction target for SMEs
Are there any administrative cost savings relevant for the 35% burden reduction target for
SMEs? No, the initiative is only partly relevant for SMEs, and for the reasons stated above, no
SME-specific cost saving measures are envisaged.
223
This reduction is in line with the drop in cultivated surface, which nearly halved in ten years, from an estimated 112
000 ha to less than 60 000 ha in 2019. Information collected indicates that this trend has continued in recent years.
116
ANNEX 7: SMOKING PREVALENCE AND PRICE LEVELS
1. Smoking prevalence
In 2023, smoking prevalence amounted to 24% of EU population (older than 15 years old), which
corresponds to approximately 92.1 million people (see
Figure A7-1), i.e., one percentage point less than 2020 and four points down compared to 2012 levels.
However, there remain substantial differences between countries and population groups. In some
Member States (e.g. Greece, Bulgaria and Croatia) smokers still represent more than 35% of the
population, while in others (e.g. Finland, the Netherlands, and Sweden) prevalence has fallen below
15%.
Figure A7-1 summarises the smoking prevalence trends occurred in 2020-2023 in Member States.
While Eurobarometer estimates are subject to some margin of errors (due to the numerosity of
samples), data would indicate a substantial decline (more than 3 percentage points) in some countries
(Czechia, Greece, Slovenia, Luxembourg) but also substantial increase in others (e.g. Romania,
Austria, Estonia).
Figure A7-1. Smoking prevalence in Member States
Source: External study based on Eurobarometer, wave 99.3.
Note: Data refer to current use of any of the following products: cigarettes, cigars, cigarillos or a pipe.
0%
5%
10%
15%
20%
25%
30%
35%
40%
SE
NL
DK
FI
IE
LU
BE
PT
MT
CZ
DE
ES
IT
SI
EE
HU
FR
PL
SK
CY
LT
AT
LV
RO
HR
EL
BG
EU27
%
of
current
smokers
EU avg
117
Figure A7-2. Smoking prevalence trends in Member States (2020 - 2023)
Source: External study based on Eurobarometer (various editions)
2. Smoking prevalence. Gender and socio-economic groups
Gender. Males are heavier smokers than females. In 2023, the prevalence of smoking among males
at the EU level was 30%, with compared with 20% among females. Since 2012, when the first
Eurobarometer survey on attitudes towards smoking was carried out, prevalence declined in both
gender groups, but the decrease was relatively stronger among males. Indeed, among males,
prevalence passed from 32% in 2012 to 24% in 2023, with a decline of 8 percentage points, i.e. about
one quarter. Among females, prevalence declined by one fifth (i.e. from 24% to 20%).224
As shown
in
224
External study.
118
Figure A7-3 below, gender attitudes towards smoking vary considerably across Member States: in 20
countries the difference between males and females is wider than at the EU level, reaching or
exceeding 15 percentage points in Bulgaria, Estonia, Lithuania, Latvia and Slovakia. In the remaining
Member States, the gender gap is within 1 to 4 percentage points (Denmark, Spain, Finland, France,
the Netherlands, and Sweden) or simply non-existent (Ireland, where 16% of both males and females
declared smoking).
119
Figure A7-3. Smoking prevalence by gender in the Member States (2023)
Source: External study based on Eurobarometer wave 99.3
Age group. Smoking prevalence is distributed across age groups follow a reverse U curve (see Figure
A7-4. Prevalence is below average in the youngest age group (15-24) and in the oldest one (55+.).
Since 2015, the prevalence among young people has declined by 3 percentage point. However, in five
countries it remains above 30% (Poland, Hungary, Cyprus, Croatia and Latvia). The lowest
prevalence among people aged 15-24 is found in Sweden (3%) where, however, there is a high
prevalence of consumption of snus (8% among the 16-29).225
Figure A7-4. Smoking prevalence by age group (2023)
A) EU-level smoking
prevalence by age group
B) Smoking prevalence in the 15-24 age group, across Member
States
Source: External study based on Eurobarometer wave 99.3
225
External study.
120
Note: in Panel A, figures refer to simple average of Member State value
Education and socio-economic conditions. Smoking prevalence is inversely correlated with socio-
economic conditions, represented by the professional status. In 2023, prevalence was highest among
the unemployed (40%) and manual workers (37%), and lowest among managers (20%) and
especially, retired people and students (both at 16%), with self-employed, white collars and house
falling in between (at, respectively, 28%, 25% and 23%). Compared with the situation in 2012 found
by the first Eurobarometer survey, smoking prevalence declined for all professional categories, with
the only exception of house persons which displayed a marginal increase from 21% to 23%. Again,
there are differences across Member States, but the pattern found at the EU level is generally
confirmed. In 2023, in no less than 22 countries the unemployed and/or the manual workers displayed
the highest prevalence of smoking. Only in five Member States the ranking was led by other
categories, namely self-employed (in Italy, Luxembourg and Portugal) and house persons (in Belgium
and Hungary).
Level of education. Smoking prevalence is partly negatively correlated with the level of education.
In 2023, the highest prevalence of smoking (28%) was found among people holding a secondary
degree, followed by individuals with only primary education (24%) and those with tertiary education
(20%). No precise comparison is possible with results of earlier surveys, but data on the age of leaving
formal education suggests a decline in smoking prevalence by 3 to 5 percentage points since 2012.
As usual, there are differences across countries, but as shown in Figure A7-5 below, in nearly two
thirds Member States the highest prevalence of smoking was found among people with a secondary
degree. In the remaining Member States the ranking is usually led by holders of primary education,
with only a couple of cases (Italy and Bulgaria), where prevalence is highest among those with tertiary
education.226
Figure A7-5. Smoking prevalence by education level (2023)
226
External study.
121
Source: External study based on Eurobarometer wave 99.3
Note: The three levels of education result from the aggregation of data for the nine categories of educational achievement
(from pre-primary education to doctoral education) used in the Eurobarometer survey. This is intended to smooth
differences attributable to the varying structure of education systems across Member States.
3. Affordability and the role of EU minima on tobacco products
As scientific literature shows, the causal link between taxation and smoking cessation patterns is far
from linear. Many policy measures can reduce demand, namely: product regulation, smoke-free
environment policies, tobacco advertising bans, health warnings and labelling, smoking cessation
support, mass media campaigns, etc. Still, there is overwhelming consensus among the public health
experts’ community and concerned stakeholders that taxation is the single most effective measure to
curb tobacco consumption. The analysis of the scant literature on the subject and the public health
experts’ own guess-estimates indicates that – depending on the country – it is reasonable to believe
that between one-third and a half of the smoking prevalence decline might be roughly attributed to
the impact of taxation policies.227
It is generally observed that in reality tobacco control policies and
tobacco taxation tend to operate in synergy with one another, and the credibility and effectiveness of
the former is greatly enhanced by consistency with the latter, in that taxation policy delivers an overall
‘price signal’ to society that smoking is indeed a harmful activity for consumers that should be
discouraged by all possible means. So, the relationship between the two in the achievement of certain
targets is not substitutive but rather complementary in fostering a greater reduction in smoking
prevalence than each element would have achieved alone.
The standard indicator used in scientific literature to measure the affordability of cigarettes is
represented by the relative income price (RIP), i.e. the percentage of per capita gross domestic product
(GDP) (as a proxy for disposable income) required to buy 100 packs of cigarettes.228
An increase in the
RIP value roughly indicates that cigarettes have become less affordable and vice versa.229
Figure A7-6
below provides the current RIP levels in Member States concerning both the weighted average price
(WAP) of cigarettes registered in 2023 and the lowest price category available on the market (Pmin). As
shown, affordability levels vary greatly across Member States: the highest RIP levels (hence lowest
227
External study.
228
See: Blecher EH, van Walbeek CP, “An international analysis of cigarette affordability”, Tobacco Control 2004.
229
Cross-country comparisons of cigarette affordability based on simple RIP values would nevertheless require some
words of caution since there can be significant inequalities in income distribution and/or in the consumption patterns
among different socioeconomic groups between countries that can eventually distort the results (External study).
122
affordability levels) can be found in countries with comparatively lower income, such as Romania,
Bulgaria and Hungary. Conversely, cigarettes are most affordable in Luxembourg and Sweden.230
Figure A7-6 Affordability of cigarettes (RIP index) across EU countries (2023)
Source: External study
Notes: The RIP index is calculated by dividing the price of 100 packs of cigarettes (WAP or lowest price – Pmin) by the
GDP per capita (as a proxy of average income). The highest is the index, the lowest is the affordability.
The affordability of cigarettes has only marginally declined over time: decreased until 2014, then
substantially stalled until 2019, and registered a decrease again in 2020. In 2023, the EU median RIP
index was only slightly higher than in 2011 (i.e. 2.1% instead of 1.8%) and no relevant change occurred
between 2020 and 2023. In the case of FCT, some reduction in affordability has instead been registered,
as the affordability index moved from 1.5% in 2020 to 1.7% in 2023.
230
The GDP per capita is an imperfect proxy of consumer’s income. Other metrics can be developed reflecting more
accurately the disposable income and, therefore, the actual affordability. The current RIP formulation has the advantage
of being immediately available for virtually all countries in the world, thus allowing WHO to conduct comparisons at the
international level. In the EU, a more precise index can be elaborated starting from the Eurostat’s disposable income
indicator, which is, however, expressed in purchasing power terms and, therefore, have to be translated in nominal terms
to make it coherent with the numerator of the RIP formula, i.e. price levels (or prices have to be translated in PPP terms).
As alternative metrics for the calculation of a EU-specific RIP needs are not readily available (they need to developed,
validated and made stable by Eurostat). It was used provisionally the RIP standard formulation, based on GDP per capita,
as it nonetheless provides a sufficiently accurate picture of the affordability situation in Member States (External study).
123
Figure A7-7 RIP index trend in the EU (2011-2023)
Source: External study based on DG TAXUD (Price data); Eurostat (DGP per capita data)
Notes: The RIP index is calculated by dividing the price of 100 packs of cigarettes (WAP) by the GDP per capita (as a
proxy of average income). The higher the index, the lowest is affordability. The tree values presented in the diagram
refer to the minimum, median and maximum RIP value among Member States.
The lack of change in RIP levels registered in the past few years can be attributed partly to the fact that
the EU minima have lost their traction on actual rates applied in Member States. Additionally, the
current approach to EU minima is not conducive to the reduction of affordability as they are expressed
in nominal terms and do not consider the disparities of income or purchasing power that exist between
Member States. For instance, in nominal terms cigarettes in Bulgaria and Romania are among the
cheapest in the EU, but the RIP index in these countries is the highest. Conversely, price and tax
levels in Denmark and Sweden are among the highest in the EU, but in terms of RIP, cigarettes are
more affordable there than in most EU countries.
At the same time, it is worth noting that the relation between affordability and prevalence is
complex. As
124
Figure A7-8 shows, prevalence is counterintuitively higher where the RIP index is also higher (thus
affordability is lower). This is due to manufacturer’s pricing policies and the inelastic nature of the
demand for cigarettes.
125
Figure A7-8. Correlation between RIP Index and smoking prevalence in Member States (2023)
Source: External study based on Eurostat, Eurobarometer, Euromonitor and TEDB data.
Note: The RIP index is calculated by dividing the price of 100 packs of cigarettes (WAP) by the GDP per capita (as a
proxy of average income): the higher the index, the lower the affordability.
4. Excise duty levels
Member States apply different levels of excise duties to tobacco products. In most cases, cigarettes
are subject to the highest excise levels per unit of consumption, but exceptions exist (notably for
cigarillos).
In 2023, the average EU excise duty levied on cigarettes was about EUR 187 (per 1 000 sticks). As
shown in Figure A7-9 below, there are significant differences between Member States. On the one
hand, six Member States (Denmark, Belgium, Finland, France, the Netherlands, and Ireland) charge
excise duty above the EU average, with values ranging between EUR 262 and EUR 469, i.e. between
1.4 and 2.5 times the EU average. On the other hand, in a number of Member States duty levels
remain below EUR 150, i.e. about 25% below the EU average.
Figure A7-9. Excise duty levels for cigarettes in Member States
Source: External study
Note. Figures refer to EDY at WAP.
126
The average EU duty levied on FCT was EUR 153 per kg. As shown in, the Figure A7-10 extent of
divergence between national levels is even higher than for cigarettes, with five countries applying
rates exceeding EUR 200/kg (Finland, the Netherlands, Denmark, France and Ireland), while a
number of Member States charge less than EUR 100/kg (Hungary, Luxembourg, Poland, Germany,
Bulgaria, Latvia and Spain).
Figure A7-10. Excise duty levels for FCT in Member States
Source: External study
Note. Figures refer to EDY at WAP.
The EU average excise for cigars is EUR 727 per 1 000 items while for cigarillos it is EUR 137 per
1 000 units, and for OST, EUR 132 per kg of the product.
127
ANNEX 8: CROSS-BORDER FLOWS OF TOBACCO AND NEW PRODUCTS
1. Context
Significant price differences between Member States (due to differences in excise duty rates) continue
to be a major driver of excessive ‘cross-border shopping’, i.e. the activity wherein private individuals
buy tobacco products abroad because of lower taxes and bring them home for their consumption. It
leads to situations where the conditions currently provided in Article 32 of the Horizontal Directive
are abused. This article establishes that, when excise goods are acquired and moved to another
Member State by private individuals for their own use, these goods are subject to the excise duties of
the country of purchase and not of the country of consumption. To prevent abuses, Member States
may establish rules to quantify the extent of the individual’s own use principle, including setting
‘guide levels’ of allowed goods, which cannot be lower than 800 cigarettes, 400 cigarillos, 200 cigars
and 1 kg of smoking tobacco.
Abusing the current rules includes: (1) purchases for family members, friends etc.; (2) ant-smuggling,
also referred to as ‘bootlegging’ (i.e. frequent shopping trips, e.g. multiple trips per day or week to
purchase small, legitimate quantities of tobacco for re-selling at a profit); and (3) organised smuggling
activity, especially when it involves buying cigarettes in low-price markets to resell them in high-
price markets that are not geographically close.
Excessive cross-border flows of tobacco products have negative effects that are mainly:
▪ They can undermine Member States policies to deter tobacco consumption through taxation,
since a consumer may procure cheaper products in neighbouring countries.
▪ They have a distributional impact on Member States’ tax revenues, with low-tax Member States
registering an increase of revenue at the expenses of high-tax Member States.
They can distort competition and market functioning through ‘cross-border substitution’. In the past,
some cases were registered (and sanctioned), involving manufacturers’ practice of oversupplying one
market, with the surreptitious aim of reaching a neighbouring market.
2. Assessment of cross-border flows
2.1. Methodology
Accurate estimates of the extent of cross-border flows are difficult to produce, however certain
assessments of this phenomenon are possible. To measure the extent of cross-border flows, the
External study applied the following methods:
▪ Counterfactual sales benchmarking
▪ Survey-based estimates
▪ ‘Trade shock’ method
However, due to methodical limitations (presented in the Table A 8-1) the estimates provided should
be interpreted with caution.
Table A 8-1. Methodological approach
Method Description Limitations
Counterfactual sales
benchmarking
Relies on two sources of information: (1)
Eurobarometer survey results, which provide
insights into consumption patterns and the
▪ Releases for
consumption are an
128
average per capita consumption of different
products by country residents, and (2)
releases for consumption, which serve as a
proxy for sales to final consumers within the
domestic territory.
imperfect proxy for sales
to final consumers.
▪ The average
number of cigarettes
smoked per capita
estimated with survey data
is subjected to errors
related to the sample size
and design of the error.
These errors are
proportional to the
volumes/frequency of
products used. Thus, the
relative error for cigarettes
is incomparably lower
than for other products.
▪ The impact of
travellers and cross-border
purchases cannot be
distinguished.
Survey-based
estimates
Based on the Special Eurobarometer 385,
titled ‘Attitudes of Europeans towards
Tobacco’ conducted by the European
Commission's Directorate-General for Health
and Consumers.231
The survey included
questions on the frequency of cigarette
consumption and, for daily regular smokers,
a question about the average number of
cigarettes smoked per day. Additionally, it
asks about the share of cigarettes purchased
across borders, with response options: less
than 5%, 5% to 19%, 20% to 50%, and more
than 50%. This set of questions allows for the
calculation of lower and upper bounds for the
volume of cross-border purchases for each of
the 2 137 respondents who answered this
question. Consequently, a central estimate
between the lower and upper bounds can also
be derived.
▪ The estimates are
outdated, and in Member
States where relative
prices compared to
neighbouring countries
have changed
significantly, the estimates
(expressed as a percentage
of consumption) cannot be
used to approximate
current levels.
▪ Does not capture or
estimate fraudulent
purchases.
▪ Natural limitations
due to sample size.
231
Attitudes of Europeans towards Tobacco - May 2012 - - Eurobarometer survey. The fieldwork took place between
February and March 2012, with the report published in May 2012. This survey aimed to assess tobacco consumption
patterns, public attitudes towards tobacco use, and awareness of tobacco-related policies across EU Member States. It
involved a representative sample of EU citizens aged 15 and over from all 27 Member States at that time, totalling
approximately 26 751 respondents.
129
The calculation algorithm follows several
steps. In the first stage, it estimates the yearly
cigarette consumption for each respondent
based on the variable concerning daily
cigarette consumption. In the second stage,
the lower, upper, and central estimates of the
volume are calculated. In the final step, each
household is weighted using the appropriate
frequency weight to obtain estimates at the
country level and for the EU overall.
‘Trade shock’
method
With the spread of COVID-19, EU
governments introduced restrictions on
cross-border travel, starting in most cases in
March 2020.232
These restrictions,
implemented throughout 2020, were
gradually eased later but remained
substantially in place in 2021, significantly
limiting travel across borders as well as
purchases by tourists and cross-border
shoppers. According to Eurostat, the value of
purchases made on domestic territory by non-
residents dropped by 58% (in nominal terms),
reflecting the fact that restrictions were only
in effect from March onwards and that some
travel was still permitted. It can be reasonably
expected that cross-border shopping was
similarly constrained, with a reduction
proportionate to the decline in other types of
purchases.
The measurement is based on shifts in two
key indicators: (1) the value or volume of
domestic sales, and (2) the purchases (value
or volume) made by residents, regardless of
the country where the purchase occurs. The
difference between the measurement of
product volumes or values at the
consumption level and the sales level allows
to observe the disparity between domestic
sales to non-residents and residents'
purchases abroad.
▪ Releases for
consumption used in the
formula are an imperfect
proxy for sales to final
consumers.
▪ Highly reliant on
the accuracy of underlying
data, particularly
Eurostat’s published
changes in the value of
purchases on domestic
territory by non-residents.
▪ Poor data
availability.233
▪ The impact of
travellers and cross-border
purchases cannot be
distinguished
232
Due to the inability or significant restrictions on cross-border shopping, individuals who previously purchased tobacco
cross-border in 2020 had to rely on domestic purchases and may have also reduced their overall consumption because of
the restrictions to buy cheaper products across border. Moreover, the COVID-19 pandemic and associated lifestyle
changes likely had broader implications that influenced all consumption habits, including those related to manufactured
tobacco products.
233
Complete implementation would require granular summary data or access to micro-level data from all Member States,
which are often not published, require a lengthy application process, or are not available at all.
130
In addition to the estimates derived with these methods, available figures from credible sources
covering recent periods, notably for Denmark, France, Ireland, the Netherlands and Finland were
leveraged. Furthermore, various rescaling and extrapolation procedures were implemented234
, using
both the study’s own estimates and results from other relevant work. The combination of these models
allows measurement of the sensitivity of cross-border flows to price differentials between bordering
regions and provides for a quantitative estimate of flows that can be attributed to such flows.
The analysis involved cigarettes, FCT, HTP and liquids e-cigarettes. For e-cigarettes and HTP, the
estimates of cross-border flows were derived for the expected main destinations of such flows (see
Figure A8-3). The estimates for Member States where cross-border flows were expected to be low
(due to small price differentials) were subject to large imprecisions and were excluded from the
analysis.
For other products (cigars, cigarillos and OST) data were insufficient due to relatively small market
size and the influence of average cross-border prices to develop any quantitative estimate but it can
be assumed that the contribution of products other than those considered to cross-border flows is
negligible.235
2.2. Cigarettes
The estimated volume of cross-border purchases of cigarettes in other EU Member States amounted
to 28 billion cigarettes, corresponding to 7% of the total volume of cigarettes released for
consumption. Due to the lower excise burden in the Member States of acquisition cross-border
purchases generate forgone excise revenue around EUR 2.9 billion. This corresponds to about 4.1%
of the total excise revenue on cigarettes collected in the EU.
In volume terms, the main destinations for cross-border trade were Germany and France, while the
main sources of cigarettes purchased abroad were Poland, Spain and Luxembourg (see
234
In particular in the case of liquids for e-cigarettes and HTP due to data unavailability
235
External study.
131
Figure A8-1).236
236
Although the numbers are subject to measurement error, the estimates for countries with relatively high confidence in
the data represent over 80% of both inflows and outflows providing a useful validation of the chosen methods and
assumptions (External study).
132
Figure A8-1. Estimated net cross-border flows of cigarettes by Member State (million sticks
and % of domestic market RFC, 2023)
Source: Commission analysis based on External study
Note: for Member States not displayed quantification of flows was unfeasible. * Denotes lower confidence around
estimates.
The highest inflows of cigarettes in relation to domestic release for consumption, were estimated for
Finland (28.6%), Netherlands (24.8%), Denmark (23.5%), France (23.4%), and Ireland (22.7%), all
of which have some of the highest excise-induced cigarette prices in the EU. The estimates for Ireland
are high despite no land border with the EU. This is due to the fact that Ireland has the highest cigarette
prices in the EU. The highest share of cigarettes released for consumption was observed in
Luxembourg, with a net flow ratio of nearly -89%.
The estimated volume of cross-border purchases of FCT in other EU Member States amounted in the
range of 8.3 to 14 thousand tonnes (equivalent to 11.1-18.5 billion sticks).237
8.3 thousand tonnes,
represents the sum of estimated cross-border flows between neighbouring country pairs with
significant price differentials for which individual estimates could have been derived using
counterfactual sales benchmarking method. In other countries, where price differentials are smaller
and cross-border flows not individually estimated, flow volumes are likely lower. 14 thousand tonnes,
based on market size, should be considered as an upper bound.238
237
A conversion rate of 0.75g=1 stick was applied.
238
The dispersion of the lower and upper bound is relatively broad, as the individual estimates, treated as a lower bound,
were derived for approximately 60% of the FCT market, necessitating extrapolation for the remaining 40% to obtain an
upper-bound estimate. The largest FCT markets not covered by individual estimates are Spain, Italy, and Hungary, which
133
In relative terms, the volume of flows ranged between 12.6 % and 20. % of FCT released for
consumption. The estimated forgone excise revenue was between EUR 1.26 billion and EUR 2
billion.
Similar to cross-border trade in cigarettes, Germany and France were identified as the main
destinations, while Poland and Luxembourg were the main sources of FCT purchased cross-border.
In relative terms, compared to domestic releases for consumption, the movement of FCT was higher,
with the volume of purchases exceeding 60% of recorded sales in Denmark and France.
Figure A8-2. Estimated net cross-border flows for FCT by Member State (tonnes and % of
domestic market RFC, 2023)
Source: Commission analysis based External study
Note: for Member States not displayed quantification of flows was unfeasible * Denotes lower confidence around
estimates.
2.3. HTP and liquids for e-cigarettes
For HTP and liquids for e-cigarettes, more substantial cross-border activities occur only in a limited
number of Member States (for HTP in Germany, France and Austria, for e-cigarettes in Belgium,
Germany, Ireland, France, Austria and Finland).239
together accounted for approximately 21% of the EU FCT market by volume in 2023. However, with the exception of
Slovenia neighbouring with Italy, all EU Member States bordering Spain, Italy, and Hungary had higher FCT prices
giving no incentives for large scale cross-border flows.
239
Estimations can be made: if there is data concerning WAP and releases for consumption and if there is a similar price
relationship among neighbouring Member States like it is for cigarettes. Due to these limitations, estimations could be
derived only for listed Member States in Figure A8-3.
134
In the case of liquids for e-cigarettes, the estimated volume of cross-border purchases was close to
300 thousand litres in 2023, close to 9 % of recorded sales. The aggregated forgone excise revenue
was estimated at around EUR 14 million. Due to the domestic market size and relatively high prices,
the largest inflows of cross-border liquids for e-cigarettes were recorded for France. The largest ratio
of cross-border inflows to the recorded domestic market of 41.7% was estimated for Ireland.
The estimated volume of cross-border purchases of HTP was around 800 million sticks in 2023,
equivalent to less than 2% of recorded sales. The aggregated forgone excise revenue was estimated
at EUR 64 million. Due to the domestic market size and relatively high prices, the largest inflows of
cross-border HTP were recorded for Germany. The largest ratio of cross-border inflows to the
recorded domestic market of 20.7% was estimated for France.
Figure A8-3. Net cross-border purchase of liquids e-cigarettes and HTP (2023)
A) E-cigarettes (thousand litres) B) HTP (million sticks)
Source: External study
Note: for Member States not displayed quantification of flows was unfeasible
135
ANNEX 9: ILLICIT TRADE AND MANUFACTURING OF TOBACCO
PRODUCTS
1. Overview
The illicit trade of tobacco products (ITTP) has different magnitude and characteristics across
Member States. Some countries can be more exposed to illicit trade for geographical reasons
(bordering with illicit trade hubs), others for enforcement capacity deficits, or widespread social
acceptability of illicit products consumption. The value of the potential market – determined by the
number of consumers and price levels - is another relevant factor.
Most of the illicit tobacco trade consists of cigarettes, but tax authorities, industry and public health
stakeholders agree that the illicit trade of other tobacco products (e.g. waterpipe tobacco (WPT),
heated tobacco products) is on the rise. Also, tobacco related products (especially in the case of liquids
for e-cigarettes) and unmanufactured tobacco are subject to illicit trade.
Illicit cigarettes are generally segmented into three categories:240
(1) contraband products, i.e. branded
products manufactured by a legitimate operator in a third country that are smuggled into the EU; (2)
counterfeit products, i.e. fraudulent imitations of branded products illegally manufactured and sold
by non-authorised operators; and (3) ‘illicit whites’, i.e. non-branded cigarettes which are generally
manufactured by a legitimate operator in a third country, which are diverted to illicit trade and
smuggled into the EU.241
Illegal tobacco products are mostly smuggled into the EU through the
Eastern borders, the Balkan route, or from North Africa.
Smuggling through external borders is enabled inter alia by tax (hence price) differences with non-
EU countries (both neighbouring and far away) and can be influenced by the extent of permeability
of borders and by the penalties imposed. However, in recent years, a surge in illicit manufacturing
within the EU has been registered. Illicit manufacturing has developed within the EU through
exploiting the weaknesses in the monitoring and control of the tobacco supply chain and the
widespread availability of idle machinery following the downsizing and concentration of the legal
sector. Policy measures against illicit manufacturing require strengthening controls over the tobacco
and precursors supply chain. As it is noted in the report on the implementation of the Strategy to step
up the fight against the illicit tobacco trade242
published in May 2017243
, the measures taken in the
first 4-year period had limited impact on the challenge posed by illicit tobacco trade in the EU. In
particular, the report took note of an upsurge in illicit tobacco manufacturing inside the EU. This
trend is consistent with the more recent findings of Europol’s Analysis Project ‘Smoke’ based on
240
This classification does not include intra-EU cross border flows of products duty-paid in another country although in
some cases they possibly abuse excise duty rules.
241
The contraband products remain the relative majority (43%), followed by counterfeit products (35% and increasing),
and illicit white (21% and declining, mainly due to the armed conflict in Ukraine and regional tensions) (External study).
242
COM(2013) 324 final. ITTP Strategy laid down the Commission’s overall approach to illicit trade of tobacco products,
and related action plan, which set out 50 specific measures to be implemented by the Commission and/or the Member
States. After the implementation review carried out in 2017 (COM(2017) 235 final) a second, revised Action Plan was
adopted, to cover the period 2018-2022 (COM(2018) 846 final). Before the adoption of the Strategy in 2013, an Action
Plan was in place to fight the smuggling of cigarettes and alcohol along the EU’s eastern border (SEC(2011) 791 final of
24 June 2011).
243
Progress report on the implementation of the Commission Communication ‘Stepping up the fight against cigarette
smuggling and other forms of illicit trade in tobacco products - a comprehensive EU strategy (Com (2013) 324 final of
6.6.2013)’, COM(2017) 235 final. The salient conclusions of the Report were taken up in the Council Conclusions on
stepping up the fight against illegally traded tobacco products in the EU, issued in December 2017.
136
evidence from law enforcement raids and intelligence reports. The Action Plan (2018-2022) adopted
in 2018 by the Commission in support of the fight against ITTP builds on a mix of legislative
measures, law enforcement, and cooperation at the EU and international level.244
As regards measures
specifically touching upon excise duty rules and arrangements for tobacco, the Action Plan, included
a review of the minimum rates applicable under the Directive and the development of operational
tools to better monitor and control cross-border movements of raw tobacco within and into the EU.
The latter is also included as a way forward in the Outcome on the implementation of the 2nd Action
Plan to fight the illicit tobacco trade for the years 2018 to 2022.245
2. Estimated magnitude and characteristics of ITTP across the EU246
Cigarettes. Overall, the illicit trade of cigarettes declined between 2016-2017 and 2019. Then, it
bounced while reaching in 2023 a level higher than in 2018. The incidence on total EU cigarettes
consumption247
fell from 9.0% to 8.4% between 2017 and 2020 and bounced back to 8.8% in 2023.248
The volume of seizures of illicit cigarettes follows a similar trend, i.e. declining between 2016 and
2019 then reversing in 2022 the same level of 2016 (see
Figure A9-1). The growth of ITTP in more recent years is confirmed also by independent national
reports, e.g.:
▪ in Ireland, illicit cigarettes increased from 13% of the total in 2021 to 19% in 2023 (FCT: from
13% to 20%)249
;
▪ in the Netherlands, illicit cigarettes increased from 1.4% of the total in 2021 to 4.1% in 2023.250
The forgone tax revenue associated to illicit trade of cigarettes could amount to EUR 9 billion.251
Between 2018 and 2023 the estimated forgone revenue has increased by EUR 2.3 billion, i.e. nearly
35%.252
In terms of incidence, it increased from 8% of total tobacco revenues253
in 2018 to 11% in
2023 (see Figure A9-2). As
Figure A9-1 B shows the countries with the highest volume of illicit trade of cigarettes are France
and – to a smaller extent – Germany and Italy. In terms of incidence on total consumption, the highest
rates are found in Ireland, France, Finland, Greece, Lithuania and Latvia254
.
Figure A9-1. Estimates of illicit trade of cigarettes and seizures
244
2nd Action Plan to fight the illicit tobacco trade 2018-2022.
245
Outcome on the implementation of the 2nd Action Plan to fight the illicit tobacco trade for the years 2018 to 2022,
SWD (2023) 409 final
246
See ANNEX 4: for the methodological approach and limitations.
247
The total consumption is the sum of recorded consumption and ITTP.
248
Assuming ITTP volume corresponding to the average of Euromonitor and KPMG estimates.
249
Source: https://www.revenue.ie/en/corporate/documents/research/tobacco-surveys-2023.pdf
250
Source: https://open.overheid.nl/documenten/d700225c-f7a0-4c28-9a4c-6278cdf9f877/file
251
Based on the average value of Euromonitor and KPMG estimates (2023).
252
In the same period, the EU consumer’s price index increased by 22%. In this sense, the ITTP has increased also in
‘real’ terms.
253
From harmonised products.
254
Euromonitor estimates may not coincide with Member Staes own estimates. In the case of Ireland and Denmark, own
country’s estimates are substantially lower.
137
A) EU-aggregate Estimates of illicit
trade of cigarettes and seizures (2016-
2023)
B) Estimates by Member States (volume and
incidence in % on total)
Source: External study based on Panel A: Euromonitor International, KPMG study, statistics on seizures gathered by
OLAF. Panel B: Euromonitor International
Legend: (L)=scale displayed on the left axis; (R)=scale displayed on the right axis; EMI=Euromonitor International.
Notes: Estimates regard illicit cigarettes (i.e. contraband and counterfeit products). Non-domestic legal products
purchased in another country (i.e. ‘cross-border shopping’) are not included. In Panel B, the incidence is estimated on the
total consumption (licit + illicit). In Panel B, Cyprus, Malta and Luxembourg are not displayed due to lack of data.
Figure A9-2. Forgone tax revenue associated to illicit cigarettes
Source: External study based on Euromonitor International, KPMG study, and TEDB.
Legend: (L)=scale displayed on the left axis; (R)=scale displayed on the right axis.
Other tobacco products. Concerning the illicit trade of other tobacco products than cigarettes, data
and evidence are still fragmented, which makes quantification hardly feasible. The following
indicative estimates can be put forward, assuming that the seizures/illicit trade volume ratio of
cigarettes (5% on average in a period between 2017 and 2022) applies as well.
EU
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139
Table A 9-1. Illicit trade of tobacco products other than cigarettes
Product Amount (tonnes) Forgone revenue (EUR million )
FCT 15 000 2 500
WPT 6 000 900
Cigars/cigarillos 32 3.5
HTP 20 3.6
Oral tobacco 16 1
Source: Commission analysis based on External study.
Overall, in 2022, the illicit trade of tobacco products other than cigarettes in the EU amounted to
around 21 000 tonnes representing a forgone revenue at around EUR 3.5 billion. Of the above total,
smoking tobacco (mainly FCT likely accounts for the majority (75%, i.e. 15 000 tonnes,
corresponding to nearly EUR 2.5 billion of forgone revenue). It is likely that part of this illegal
smoking tobacco ends up being used for the manufacturing of cigarettes and not sold as FCT. The
following most-seized tobacco product is WPT, with approximately 6 000 tonnes (EUR 0.9 billion
of forgone revenue). For other products volumes are much more limited (see Table A 9-1).
For liquids of e-cigarettes, Member States authorities were seldom in a position to provide an estimate
on the share of illicit products. A very rough estimate of what this might amount to 10% of the total
market, which would amount to 350 thousand litres. This would correspond to EUR 150 million
forgone tax revenue.
3. Illicit manufacturing within EU
If the volume of illicit tobacco products consumed in the EU is difficult to measure, determining
where and how illicit products are manufactured and shipped is even more challenging. The main
information source on illicit manufacturing used in this respect consists of law enforcement reports
and some studies that examined them to draw an accurate, though qualitative, picture. More
specifically two sources have been reviewed: (1) an internal report made under the EUROPOL’s AP
Smoke initiative, which examined 130 investigations carried out in the 2016-19 period; and (2)
KPMG Project Stella 2019 report dedicated to illicit manufacturing.255
The salient findings from these
analyses can be summarised as follows:
▪ Based on interviews held by the contractor the number of reported illicit manufacturing
facilities dismantled in the EU is declining, but this does not entail they have become fewer.
On the contrary, criminal organisations have increasingly moved operations in Member States
where detection capacity is weaker, and penalties are lighter. Moving closer to consumption
markets (e.g. France and the United Kingdom) remains a relevant driver.
▪ Most reports underline that clandestine factories were equipped with full production lines, from
tobacco cutting machinery to packaging lines. In many cases, production lines were relatively
modern and highly performing, with a capacity comparable to legal big factories. Machinery
255
External study.
140
was operated by skilled workers, often formerly employed in legal manufacturing plants in the
EU or abroad. The scale of operation has further expanded in recent years. Most of sites
dismantled have capacity of up to 7-8 million cigarettes per week.
▪ As the profitability of ITTP has increased, the business has increasingly attracted organised
crime group that are active in drug trafficking. As reported by law enforcement experts, this
has led to an increase in violent crime related to ITTP – a trait that was previously absent in this
activity.
▪ Reports seldom state where the tobacco used in illicit factories was sourced. In general,
intelligence data indicate connections with Eastern Europe - both EU and third countries like
Ukraine and Belarus. Some reports mentioned the involvement of networks in the Baltic region,
Turkey and the Balkans, as well as the overseas origin of tobacco (e.g. Brazil). Italy is
reportedly another relevant point of entry of illicit tobacco into the EU.
A quantitative estimation of the volume of illicit manufacturing activities allows an indicative
assumption that approximately one-third of total illicit cigarettes consumed in the EU are also
manufactured in the EU – i.e. around 13 billion sticks. In the case of FCT and WPT, it can be assumed
that half of illicit products are manufactured in the EU – i.e. more than 10 000 tonnes.
Concerning the supply chain of diverted raw tobacco, the lack of stringent EU-wide monitoring and
control rules can facilitate the emergence of parallel supply chains operating in a grey area, outside
of the conventional channels. Evidently, the availability of raw tobacco is a precondition for illicit
manufacturing activities. Raw tobacco, including intermediate products like first-processed tobacco,
reconstituted/homogenised tobacco and tobacco refuse, is not legally defined and no harmonised
excise good.
It is difficult to determine how raw tobacco is diverted to illicit manufacturing. Theoretical patterns
of diversion from the legitimate supply chain (see Figure A9-3) were described in EA 2021 study.
▪ Diversion of EU-grown tobacco before being processed by a legitimate processor (i.e.
green or leaf tobacco). Leaf tobacco requires some treatment to become a smokable product, so
diversion at this stage of the supply chain would require some processing prior to
manufacturing. Law enforcement reports indicate that 96 illicit tobacco ‘cutting facilities’ were
raided in 2020, i.e. more than cigarettes manufacturing facilities (61).
▪ Diversion of EU-grown processed tobacco. The most common cases at this level seems the
acquisition of tobacco by intermediaries (e.g. ‘diversion agents’) based in countries where no
or limited obligations exist for trading and tracking the movement of raw tobacco. The
mechanism consists in a sort of ‘tobacco laundering’: a foreign customer purchases and moves
tobacco outside of the country, then sells it to an unregistered entity (sometimes after a few
transactions), which illegally moves the tobacco back into the country to supply clandestine
factories there or transports it to another manufacturing site in Western Europe. The legal
frameworks introduced in some Member States, including Croatia, Poland, Czechia, Hungary
and Lithuania, can prevent this, as a specific authorisation is required to buy/sell/hold etc. raw
tobacco.
▪ Diversion of foreign raw tobacco. The mechanism described above for EU-processed tobacco
can also apply to foreign tobacco. It seems unlikely that illicit manufacturing sites can be
primarily supplied with EU-grown tobacco, as this would require significant unrecorded
tobacco cultivation. It is plausible that part of the problem is linked to tobacco of foreign origin.
At this level, a distinction has to be made between raw tobacco legally entering the EU and
smuggled tobacco. In the first case, diversion is a bit more complex as the tobacco is also subject
141
to the customs regime and control. Most of the tobacco used for manufacturing cigarettes in the
EU is imported by transnational tobacco companies, stored in large warehouses either in customs
suspension regime or in free circulation regime, and then moved to the companies’ tax warehouses
for manufacturing. The same process applies also to the raw tobacco that transnational tobacco
companies purchase from global tobacco merchants (processed both in the EU or externally).
Foreign raw tobacco is generally cheaper than European tobacco, which could create a further
incentive for it. However, the economics of illicit manufacturing activities suggest that the
differences in the costs of raw materials are of little relevance compared to the gains in tax
avoidance.
Direct smuggling of raw tobacco, e.g. through false import declarations (tobacco enters the EU
disguised as another product, such as vegetables) is also a possibility. This mechanism is fairly
common for finished products (especially WPT) and could also be used for raw tobacco.
Conversely, in external border regions (e.g. in the Balkans and along the Eastern border with
Ukraine, Moldova etc.) smaller scale smuggling of raw tobacco hidden in trucks or passenger
vehicles are more frequently reported.256
Figure A9-3. Theoretical patterns for diversion of tobacco to illicit manufacturing
Source: EA 2021 study
To tackle this supply chain monitoring gap, some Member States have adopted ad hoc policies and
measures for raw tobacco and related operators. These measures include, for instance, fiscal definition
of raw tobacco, authorisation schemes for operators, administrative controls on holding and
movement of raw tobacco, deposits and financial guarantees to cover diversion risks, prohibition to
sell to unauthorised operators, and application of tax rates on raw tobacco (see ANNEX 15: section
2).
256
External study.
142
ANNEX 10: INCOHERENT FISCAL TREATMENT OF CIGARILLOS AND
WATERPIPE TOBACCO
1. Cigarillos
Differentiation between cigarettes and cigarillos. Some types of low-price cigarillos (i.e. the so-
called ‘borderline’ cigarillos257
) have the potential to become a relevant substitute product for
cigarettes, taking advantage of the lighter regulatory regime imposed on them under the Tobacco
Products Directive – regarding flavour ban, minimum pack size, pictorial warnings, etc. 258
– as well
as of lower excise duty rates. In addition to the affordability and substitution issues, legal aspects of
cigarillos need to be mentioned. In particular, April 2019 the CJEU issued a ruling on this matter in
response to a question posed by the Lithuanian authorities (Case C-638/17). The appellant requested
(i) whether the definition of ‘cigars and cigarillos’ in the Directive covers or not cases where part of
the wrapper of natural or reconstituted tobacco is additionally covered by another outer (paper) layer,
and (ii) if it is relevant that the use of paper as an additional layer in the outer wrapper of the tobacco
product (where the filter is) makes it visually similar to a cigarette.259
Differentiation between cigars and cigarillos. A substantial issue regards the suitability of placing
cigars and cigarillos in the same tax category. The emergence of the ‘eco-cigarillos’ issue a few years
ago and the appearance on the market of flavoured cigarillos and of products otherwise designed to
take advantage of the lighter Tobacco Products Directive rules, raise questions on the suitability of
the current approach. Unintended effects would be magnified in Member States where these products
are taxed per weight, and where the tax structure relies exclusively or prevalently on the ad valorem
component. This issue was addressed by Member States through the revision of the product
definition, and increasing national rates. Differentiated tax levels for cigarillos and cigars are applied
in Portugal and Italy. The demarcation line can be drawn based on the product weight in line with the
3-gramme threshold laid down in the Horizontal Directive and the Council Directive 2007/74/EC.260
2. Waterpipe tobacco
Two main issues have been identified in connection with WPT (which currently falls under other
smoking tobacco for excise purposes). Firstly, there is generally poor knowledge of the WPT market,
and of the consumption magnitudes and trends. Secondly, a large share of the WPT consumed in the
257
A few years ago, ‘borderline’ cigarillos (also called ‘eco-cigarillos’) have spread in some Member States like Germany,
Hungary, Spain, Denmark and in the Baltic countries. These products were in many respects similar to cigarettes but
enjoyed a more favourable tax regime because they were classified as cigarillos. The issue was addressed by revising the
definition of the tax category and by the phasing out of the derogation extended to these types of products in Germany
and Hungary. Additionally, various Member Sates increased the domestic taxation of low-price cigarillos products.
258
The Tobacco Products Directive:
- prohibits cigarettes, heated tobacco products and roll-your-own tobacco with characterising flavours;
- requires health warnings on tobacco and related products: combined health warnings (picture, text and
information on how to stop) must cover 65% of the front and back of cigarette and roll-your-own tobacco
packages;
- sets minimum dimensions for warnings and prohibits small packages for certain tobacco products.
259
The CJEU ruling eventually rejected the Lithuanian authorities’ interpretation stating that: ‘Article 4(1)(a) of Directive
2011/64 must be interpreted as meaning that tobacco products, such as those at issue in the main proceedings, part of
whose outer wrapper of natural tobacco is covered, at the filter, by an additional paper layer, liable to make those products
visually similar to cigarettes, fall within the category of cigars or cigarillos, within the meaning of that provision’.
260
Article 8 (cigarillos are cigars of a maximum weight of 3 grams each) of Council Directive 2007/74/EC and Article
32 (‘cigarillos’ (cigars weighing not more than 3 g each)) of the Horizontal Directive.
143
EU is estimated to come from illicit sources. The share of EU illicit trade of WPT amounts to around
5 900 tonnes, i.e. approximately 59% of the nearly 10 000 tonnes consumed annually. These issues
are partly connected to the lack of a separate excise category for this product. In particular:
▪ Currently, WPT fall within the broad excise duty category of ‘other smoking tobacco’ (OST),
along with pipe tobacco and, in some Member States, heated tobacco products. There is no
separate recording of the taxes collected on WPT, hence Member States are not in the position
to monitor WPT trade and consumption. Conversely, there is an ad hoc category for WPT in
the customs nomenclature261
, so there is also a misalignment between the two classifications.
▪ The inclusion of WPT in the OST category can also unintendedly foster illicit trade. Current
OST excise rates – which are expressed per kg – can lead to very high levels of taxation for
WPT. Due to its composition – WPT is only partly made of tobacco (generally around 20%),
while the rest consists of molasses - this product’s specific gravity is much higher than other
tobacco products, which translate into a much higher taxation per consumption unit. In some
Member States, such high taxation levels, combined with limited monitoring, represent an
incentive for various types of tax avoidance practices and fraud.262
261
HS 2403 11. Note. The Harmonized System (HS) is a standardized numerical method of classifying traded products.
It is used by customs authorities around the world to identify products when assessing duties and taxes and for gathering
statistics. https://www.tariffnumber.com/info/abbreviations/1637
262
The estimated share of WPT illicit trade in the EU is around 50%, possibly exceeding 80% in a few countries (e.g.
Germany, country with the highest consumption of WPT in the EU). (External study).
144
ANNEX 11: PURCHASING POWER PARITIES APPROACH
1. Overview
Fixing a single minimum for the excise duty on tobacco products is challenging because of the
substantial diversity in economic conditions between Member States. Not only the income level, but
also the general price level, differs substantially. As a result, any minimum that is the same for all
Member States will have different impacts on affordability depending on income differentials
between Member States. This concern was highlighted in the European Commission’s evaluation of
the Directive and the Council insisted that any future revision should take into account the specific
economic situations of Member States.
2. Comparison between Relative Income Price (RIP) and Purchasing Power Parities (PPP)
based mechanisms
Several alternative formulations of how to express nominal monetary amounts in real terms were
analysed. The simplest solution would be tying the minimum to the average income per capita in the
Member State. This could be done by adjusting EU minima by reference to average income levels,
through the ‘relative income price’ (RIP) indicator. The RIP indicator is defined as the ratio between
the cigarette price and the average national income per capita. In simple terms, this expresses how
many cigarettes could be bought by an average citizen of the country in question. The RIP, however,
does not adjust for differences in the cost of living. If the price level in country ‘A’ is twice that of
country ‘B’, but the average income is also twice, one can conclude that in real terms, the citizens of
country ‘A’ are no better off than the citizens of country ‘B’. However, applying the RIP in such a
context would imply a tax level that is twice as high in country ‘A’ than in country B. To correct for
this effect, this impact assessment suggests utilising a more sophisticated indicator that takes into
account the differences in price levels, i.e. the Purchasing Power Parity (or PPP indicator). In the
example presented above, the PPP indicator would be the same in country ‘A’ as in country ‘B’.
Figure A11-1 below shows the baseline situation for cigarettes, comparing national excise duty levels
in nominal terms and Purchasing Power Parities (PPP), i.e. adjusting levels by the country’s Price
Level Index (see Box A11-1 for details). Except Ireland, France, and Finland, which remains the
highest-tax countries also in PPP terms, Figure A11-1 shows that in various Member States nominal
excise duty levels are substantially higher than in real terms (e.g., Luxembourg, Sweden, Austria, and
Denmark) or vice versa (e.g., Romania, Poland, Bulgaria, Hungary, and Croatia).
Box A11-1. PPP-based adjustment and affordability
As described by Eurostat, purchasing power parities (PPPs) are indicators of price level differences
across countries. They indicate how many currency units a particular quantity of goods and services
costs in different countries. In this sense, PPP is the method of choice to statistically compare
Member States economies with one another (e.g. GDP), the material well-being of their residents,
as well as Europeans’ income levels (as in the case of Eurostat’s indicator on the ‘adjusted gross
disposable income of households per capita’). PPP is primarily a static indicator, able to compare
economic variables at a specific point in time, but not suitable for describing trends within an
individual country.
The choice to favour PPP was made for the following reasons:
▪ PPP is a reasonably stable and well-accepted indicator, which is regularly elaborated by Eurostat,
with the specific purpose of allowing economic comparisons between Member States, whereas
RIP is not an established EU statistical measure. Conversely, the RIP is published by the WHO
145
but with reference to most popular price category and in US dollars. It would therefore be
calculated on an ad hoc basis, and an appropriate EU statistical methodology would need to be
developed and validated for this purpose.
▪ PPP, as a measure of ‘price affordability’, is also more appropriate in the context of EU tax
harmonisation, where the aim of harmonisation for internal market functioning relates to price
convergence and not to underlying income convergence. In this sense, PPP appears more
consistent with both the overarching objectives of the Directive and is not skewed towards the
public health protection objective, as is the RIP.
▪ The arguments in support of RIP-based adjustments emphasize the greater precision of this
indicator to reflect affordability, which is the public health objective of taxation. However, the
potential impact of EU minima should not be overestimated, as EU minima remain thresholds and
not the actual level of excise duty imposed by Member States. Only Member States that fall below
this threshold would be compelled to increase their rates, while the rest would be free to apply
different rates. The PPP approach would offer a more neutral policy perspective on the matter, as
its underlying logic is to correct technical ‘distortions’ in the EU minima ‘tool’ (the distortions
that arise due to a monetary amount having different ‘weight’ in different countries) and not to
encourage specific policymaking approaches in Member States (such as setting excise duty levels
in connection with the measured affordability).
Figure A11-1. Cigarettes’ excise duty yield in Member States, in nominal and PPP-adjusted
terms (2023)
Source: External study based on TEDB excise duty data and Eurostat 2023 Price Level Indexes.
Legend: PPP=purchasing power parity; EDY at WAP level.
Note: The EDY levels displayed take into account the effect of the minimum excise duty (MED), where relevant.
3. Limits of the PPP approach
Even adjusting in this way for higher price levels in higher-income Member States, introducing full
proportionality between the EU minima and the PPP (pure PPP-based system) would result in very
large and socially destabilising changes in the minima in several countries. The Price Level Index
(PLI) differences between Member States are significant (the PLI of Luxembourg is almost three
times higher than the PLI of Bulgaria). Hence, a 100% conversion of minima into PPP may lead to
(1) large and potentially disruptive tax increases for a few high-income countries (e.g. Luxembourg,
Denmark, Austria, and Sweden) and, conversely, (2) keeping or even increasing the price gap
146
between Member States. In this sense, both overarching objectives of the Directive (harmonization
of tax levels and the public health protection) would be poorly supported. A more detailed assessment
of expects market impacts under a pure PPP system is provided in the External study.
For this reason, it is proposed that one third of the difference in the PPP is taken into account for
fixing the EU minima while the remainder would be fixed (in nominal terms).
The choice of a partial PPP approach implies that EU minima are not uniform across Europe. This
approach is therefore less supportive (although still conducive) of the Directive’s price convergence
objective, which is of mitigating cross-border flows, than high minima increases in nominal terms.
The calculation of the EU minima for each individual Member State is made slightly more complex
due to the introduction of the partial PPP approach. The formal expression for the calculation of the
minimum applicable in Member States would be as follows:
MSmin = 2/3 * EUmin + 1/3 * EUmin * PLIMS / 100
where:
• MSmin= New minimum applicable in a specific Member State
• EUmin= Current EU minimum in nominal terms
• PLIMS= Price Level Index of the Member State263
Examples:
For Member State A (PLI = 119)
New minimum= 2/3 * 215 + 1/3 * 215* 119/100 = EUR 228
For Member State B (PLI = 49.1)
New minimum= 2/3 * 215 + 1/3 * 215* 49.1/100 = EUR 178
This proportion has been derived from the increase scenario for the EU minima on cigarettes that
correspond to the average expectations of Member States, as emerged from the tax authorities’
survey. The average new fixed minimum for cigarettes would amount to EUR 128 per 1 000 sticks,
i.e. EUR 38 more than the current EUR 90. This translated into a revised level that is composed by
roughly 2/3 of the old minimum and 1/3 of the increase. By expressing the first component in nominal
terms, the risk that EU minima go below the current level (e.g. in countries with a very low PLI) is
removed. At the same time, expressing the increase in PPP terms would mitigate the burden for
countries where, in real terms, excise duties are already above the EU average.
4. Conclusion
The partial PPP approach achieves a more balanced distribution of impacts across Member States,
while at the same time mitigating the risk of radical effects, which may derive from the application
of a pure PPP system.
263
PLI expresses the price level of a given country relative to another (or relative to a group of countries like the European
Union), by dividing the Purchasing power parities (PPPs) by the current nominal exchange rate. If the price level index
of a country is higher than 100, the country concerned is relatively expensive compared to the one to which it is compared
(for example the EU), while if the price level index is lower than 100, then the country is relatively inexpensive compared
to the other country.
147
Figure A11-2. Proposed minima for cigarettes based on a partial PPP approach and current
excise duty levels by Member States
Source: Commission analysis based on External study data.
PPP levels evolve and are re-estimated annually.264
However, annual revision of EU minima would
not be suitable as would be more difficult for certain Member States to prepare multi-annual tax
increase plans. It is rather suggested to establish a fixed reference year of PLI and schedule periodical
revisions on longer periods (e.g. three or five years), along with the periodical revision and update of
the Directive and of the EU minima.
The possibility of introducing alternative approaches for EU minima was tested among Member
States tax and customs authorities through the targeted survey. As
264
Statistics | Eurostat (europa.eu)
148
Figure A11-3 shows, the initial feedback was cautious,265
but a substantial share of survey participants
did not provide a concrete answer (i.e. only half of participants replied with respect to the incremental
PPP approach). In particular, various Member States expressed the concern that PPP-based
approaches could negatively affect convergence in tax levels. The tested approaches were therefore
dropped and the partial-PPP approach was developed to mitigate the adverse effects anticipated by
Member States authorities.
265
It should be added that the objective of the proposed reform is to expand the impact of EU minima to Member States
that so far have never been touched because of their high income levels. A certain resistance towards the reform is
therefore not surprising.
149
Figure A11-3. Member States authorities’ feedback on PPP-adjusted approaches for EU
minima
Source: External study based on the results of tax and customs authorities survey.
ANNEX 12: HEATED TOBACCO PRODUCTS
1. Market and demand trends
Since its first introduction in EU markets266
, sales of heated tobacco products (HTP) sales have
constantly been growing at a steep pace (Figure A12-1 and
266
This sentence refers to the products currently on the market. Previously, other types of HTP had been launched but
did not succeed. Hence they are no longer commercialised.
151
Figure A 12-2). Heated tobacco was introduced progressively, firstly in some pilot cities of a few
countries (Italy and Romania), then to more countries and larger areas. Therefore, part of the
growth is explained by the expanded geographical availability of these products, and not only
consumer uptake. There are major differences across countries. In 11 Member States (Bulgaria,
Czechia, Greece, Hungary, Italy, Lithuania, Poland, Portugal, Slovenia, Slovakia and Sweden) a
significant market penetration is recorded, with HTP market shares of at least 10%. In contrast, in
six countries the product has not (yet) really taken off. Italy is by far the largest HTP market, with
2023 sales exceeding EUR 4 billion and 14 billion consumable sticks.
Figure A12-1. HTP market in the EU
A) Trend in Sales at the
EU Level (2018 – 2023)
B) Sales in Member States (2023)
Source: External study based on: panel A: Euromonitor International; Panel B: Euromonitor International and TEDB.
152
Figure A 12-2. HTP sales volumes in the EU (2018 – 2023)
A) Volume of HTP Consumable Sticks
(Millions)
B) Volume of HTP devices (Millions)
Source: External study based on Euromonitor International.
Note: figures do not include Member States where HTP was not commercialised in the corresponding year, as well
as Member States for which no data are available.
As
Figure A 12-3 shows, HTP prices are usually lower than the WAP for cigarettes and significantly
higher than the price for FCT. In 2023, in the 21 Member States the average HTP price was almost
EUR 250, compared with a cigarettes price of EUR 272 and FCT price of EUR 180. In eight
Member States the differential between HTP and cigarettes was in the 5 to 10 percentage points
range, while in the remaining countries, the differential exceeded 10 percentage points. The highest
price differentials were in France (where HTP sell at a 31% discount compared with the cigarettes
WAP), Spain (where the discount was about 21%) and Bulgaria (where HTP were 25% more
expensive than cigarettes). Only in four countries (Bulgaria, Germany, Estonia and Italy), HTP
sticks were more expensive than cigarettes.
Figure A 12-3. Average price for HTP, cigarettes and FCT (WAP, 2023)
153
Source: External study
Note: HTP figures do not include Member States where the product was not commercialised in 2023 as well as
Member States for which no data are available (Belgium, Cyprus, Malta, Luxembourg, Ireland and Finland).
Demand trends
Overall, the total HTP users’ population in the EU can be estimated at around 7.6 million and
prevalence is generally comprised between 1% and 2%.267
The prevalence varies across Member
States. There are some differences in the prevalence of HTP use across Member States. In 2023,
prevalence was highest, at 4% or 5%, in six countries (Cyprus, Czechia, Italy, Lithuania, Portugal
and Slovakia), while it was lowest, at 1% or lower, in 11 Member States (Belgium, Germany,
Denmark, Spain, Finland, France, Ireland, Luxembourg, the Netherlands, Poland, and Sweden)
(see Figure A 12-4).
Figure A 12-4. HTP prevalence in the EU (daily use, 2023 vs 2020)
267
Eurobarometer 99.3 wave.
154
Source: External study based on Eurobarometer 99.3 (2023) and 96.3 (2020).
Based on Eurobarometer estimates, the prevalence of HTP use by socio-economic groups could
be summarised as follows:
▪ Young adults are more intensive users. In 2023, the prevalence of HTP use among people
was 3%, compared just 1% for older generations (see Figure A 12-5).
▪ HTP use is broadly similar among males and females. There are some differences across
Member States, but these differentials are offset at the EU level, where both gender groups
had a 2% prevalence in 2023.
▪ HTP use increases with the level of education. In 2023, 4% of people with tertiary education
used HTP, compared with a prevalence of 3% among those with secondary education and
just 1% among people with primary education.
▪ HTP is mildly associated with higher socio-economic status. In 2023, the prevalence of HTP
use among people identifying themselves as upper-middle class was 3%, while it was 2%
among people belonging to the middle class. In all other socio-economic groups (working
class, lower middle class and upper class) prevalence was at 1%.268
Figure A 12-5. Prevalence of HTP use among young people (2023)
268
External study.
155
Source: External study based on Eurobarometer 99.3 (2023)
Finally, frequency of use has increased overtime, while intensity of daily use remains stable. In
2023, 70% of users consumed HTP daily, compared with 60% in 2019. On average, users of HTP
consumed 12 sticks per day in 2019 and 2023.
2. Legal framework of HTP in Member States
Definition of HTP in Member States’ legislation
Member States where an ad hoc tax category for HTP is in place have adopted substantially similar
product definitions by making explicit reference to the absence of combustion or ‘burning’ in their
definitions, and to the production of a vapour aerosol as an output. In this sense, the product is
defined not by intrinsic characteristics (except the obvious reference to tobacco) but by a specific
modality of consumption.
Tax structures and rates across the EU
The fiscal policies for HTP have evolved since HTP appeared in the market. One of the challenges
faced by Member States tax authorities in designing the tax regime for HTP was the absence of
clear benchmarks for establishing the appropriate tax rate. Italy was the only Member State to
design an ad hoc tax regime connected with the tax regime of cigarettes, under the assumption of
direct substitution effects. Other countries adopted the tax rate of smoking tobacco (other smoking
tobacco (OST) or fine cut tobacco (FCT)) as reference, either to classify HTP as such or to
introduce ad hoc regimes applying de facto the same rates as OST and FCT.
As shown in Figure A12-6, all EU countries currently tax HTP, except Malta where HTP is banned.
HTP is treated as a harmonised product in seven Member States. In most cases, it is considered as
OST, except Sweden that differentiate between HTP sticks (taxed as cigarettes) from other HTP
formats (taxed per weight). In Germany, HTP is considered a harmonised product, but the rate is
calculated in relation to the rates of both cigarettes and OST. In all other countries, HTP is subject
to a non-harmonised national tax, which consists of a flat rate per kg in nine countries, a flat rate
per 1 000 units in two countries, while three Member States have differentiated rates for HTP
sticks and other formats of HTP. In all Member States considered, the structure of the tax is
‘specific’, but three Member States apply also an ad valorem component.
Figure A12-6. Tax treatment of HTP in Member States (as of end 2024)
156
Non-harmonised category for HTP HTP treated as harmonised product
AT: € 164/kg
BE*: Ad valorem: 31.5% of RSP and specific: € 136/kg,
Minimum Excise: €228.1/kg
CY: € 150/kg
CZ: € 127/kg
DK: € 201/kg if deemed equivalent to OST, or € 208/kg
if deemed equivalent to FCT
EE: € 112,4/kg if not smokable as a cigarette, otherwise €
169 per 1 000 items
FI: € 300/kg
FR: €30.2 per 1,000 items for HTP sticks, or €113.9/kg
for other formats plus an ad valorem of 51.4% and a MED
of €268 / 1,000 items or € 1011.3 per kg (since 2025, the
specific rate has increases to €41.1 per 1000 and €155.2
per kg, plus a MED of €303.8 per 1 000 or € 1,146.4 per
kg)
HR: € 186/kg
HU: € 90 per 1 000 sticks
IT: €39.5% of the excise duty applied to cigarettes (for
reference €63 per 1 000 items in 2024)
LT: € 79.5 per 1 000 items
LU: Ad valorem: 28% of RSP and specific: € 16.8/kg
LV: € 251/kg
MT*: banned
BG: € 169.2/kg
DE: the rate is a combination of the tax rate for pipe
tobacco and an additional amount equal to 80% of the
difference between the tax on cigarettes and that of pipe
tobacco. For reference, the rate of most popular product in
2024 was equal to €144.75 per 1 000 items.
EL: € 156.7/Kg
ES: Ad valorem 28.4% of RSP, Minimum Excise € 22/kg
IE*: 335.3 €/kg
NL: € 347/kg
SE: same rate as cigarettes for HTP sticks (i.e. €166.7 per
1 000 items in 2024), same rate of OST for other formats
(€ 230/kg)
157
PL: Ad valorem: 32.05% of WAP and specific: €
85.77/kg
PT: Ad valorem: 15% of RSP and specific: € 93.5/kg,
Minimum Excise: €180/kg
RO: € 220.1/kg (as of end 2024, then € 230.5 since 2025)
SI: €180/kg
SK: €188/kg
Source: External study
Note: (*) not on the market at the end of 2024.
Over the 2020 – 2023 period, most Member States revised upward the tax levels for HTP (see
Figure A 12-7). On average, the actual rate applied throughout the EU moved from EUR 44 sticks
to EUR 61 per 1 000. Such increase was higher than the inflation rate occurred in the same period,
so in real term the taxation of HTP has increased.
In 2023, the EU average tax incidence on HTP price was 25.3% and well below the average excise
duty incidence on the price of cigarettes, which is 61.7%.
Figure A 12-7. HTP tax level trends in Member States (2020 – 2023)
Source: External study
The current regimes in place in Member States has almost exclusively adopted a ‘per weigh’ tax
base for HTP, but the survey results suggest there is interest in a ‘per unit’ approach (
158
Figure A12-8). A flexible, two-tiered regime could therefore meet the expectation of the greater
number of Member States and maximise benefits.
159
Figure A12-8. Member States authorities’ feedbacks on applicable regimes for HTP
A) Suitability of proposed excise duty structure B) Preferences on taxation levels
Source: External study based on tax and customs authorities survey.
Note: answers refer to the number of Member States that expressed a ‘high’ or ‘moderate’ appreciation of the scenarios
proposed. The scenarios were not presented as mutually exclusive, so the totals do not add-up to the number of
participants (25 Member States).
3. Tax revenue
As shown in Figure A12-9 estimated total revenue close to EUR 3 billion.269
Italy displays the
highest revenue, with about EUR 916 million. It is followed by Germany and Poland (each with
revenues in the EUR 300 – 500 million range), while in the majority of Member States reviewed
values are well below EUR 100 million.
Figure A12-9. Revenues from HTP taxation (EUR million, 2023)
Source: External study
Note: Member States where HTP are not commercialised or for which market sales data are not available are not
displayed.
269
Most recent information dates back to 2022 and refers to only a subset of 17 Member States. In particular, no
information is available for Germany, which is the second largest HTP market after Italy. Overall, the figures reported
by Member States indicated a total of EUR 1.46 billion.
160
ANNEX 13: LIQUIDS FOR ELECTRONIC CIGARETTES
1. Market trends and demand
Market trends
As shown in Figure A13-1, after a few years of stagnation, the e-cigarettes270
market has expanded
considerably in recent years, from an EU aggregate value of EUR 2.9 billion in 2020 to nearly
EUR 5 billion in 2023.
The recent grow was mostly attributable to ‘closed systems’ and – in particular to a new generation
of single use products growing from a mere EUR 89 million in 2020 to EUR 1.6 billion three years
later. The growth of single use products (and closed system in general) goes in parallel with a
possible reduction of ‘do-it-yourself’ practices271
among consumers. This is mainly because most
Member States have extended taxation to nicotine-free liquids, thus removing a relevant economic
incentive to ‘do-it-yourself’. Refills for rechargeable closed systems also expanded their market
by 76% (from EUR 236 million to EUR 416 million), while liquids for open systems have
increased more moderately (19% in 2020-2023, i.e. from EUR 1.46 to EUR 1.74 billion), but
remains the largest segment.
In the past the e-cigarettes market was largely segregated between the closed system segment,
largely dominated by big companies and the open system segment, mostly formed by independent
companies and SMEs. In 2023 independent companies and SMEs accounted for nearly 90% of the
liquids for open systems market, but they have also increased their involvement in the single-use
e-cigarettes segment, with an aggregate market value that have grown EUR 920 million (from
around EUR 90 million in 2020). Big companies and large Asian companies have expanded their
business in the single-use segment even more rapidly, and in 2023 controlled 43% of the market
(up from 9% in 2020).
At the EU level closed refills have become the main component of the e-cigarettes market,
accounting for 41% of total sales in 2023, compared with 35% for liquids for open systems and
25% for devices. Closed refills are the main component in 12 countries, with a market share of
50% or more in 10 Member States (accounting for 50% or of sales in Austria, Germany, Greece,
Ireland, Lithuania, Latvia, Poland, Portugal and Romania). Liquids for open systems have the
largest market share in 10 countries, but they account for 50% or more of total sales only in 6
Member States (Denmark, France, Croatia, Hungary, the Netherlands and Sweden). The
differences in the composition of the e-cigarettes market in value and volume terms is mainly due
to unit price: closed refills and single-use products are much more expensive, and this obviously
inflates their relative importance in value terms.
270
E-cigarettes market includes two main components, namely (i) the devices used for vaping, and (ii) the liquids to
be vaporised (also referred to as the ‘consumables’). The liquids to be vaporised may have different flavours (tobacco,
menthol, fruit, candy, coffee, etc.) and may or may not contain nicotine. The e-cigarettes can be roughly subdivided
into the so called ‘open systems’, which required the user to manually pour a certain amount of liquid into the device’s
tank , and the ‘closed systems’, which might be further divided into rechargeable systems (consisting of pre-filled
pods or cartridges that can be easily inserted into the device, i.e. the ‘closed system refills’, and disposable or single-
use e-cigarettes.
271
There can be various degrees of’‘do-it-yourself’ from simply adding neutral ‘nicotine booster’ to ‘shortfills’, i.e.
underfilled bottles of flavoured liquids, to more radical homemade mixing of all basic ingredients of liquids.
161
E-cigarettes are often sold by retailers of tobacco products. However, there are also specialised
retailers, focusing exclusively on the sale of devices and consumables (liquids for e-cigarettes,
cartridges, etc.). In 2024 there were about 11 500 specialised e-cigarettes shops in 9 Member States
(Belgium, Germany, Greece, Spain, France, Italy, the Netherlands, Poland and Romania). France
is the country with the largest number of specialised shops (about 4 000), followed by Italy (2
500), Germany (1 200) and Greece, the Netherlands and Poland (each with some 900 to 1 000
shops).
Figure A13-1. Trend in sales of e-cigarettes at the EU level (EUR million)
Source: External study based on Euromonitor International.
Note: Information is not available for three Member States (Cyprus, Luxembourg and Malta).
In 2023 the sales of liquids for open systems in the EU were almost 2.9 million litres, accounting
for no less than 83% of the total volume of consumables sold (approximately 3.5 million litres)272
.
Liquids also dominate most national markets and liquids for closed systems (refills and disposable)
account for the largest share of volumes sold only three Member States, i.e. Estonia, Lithuania and
Latvia.
Figure A 13-2. Sales volume in Member States (in 1000 litres of liquids, 2023)
272
It is assumed an average of 2ml for closed system refills and single-use e-cigarettes, but accurate estimates are
unavailable (External study).
162
Source: External study based on Euromonitor International.
Note: Information is not available for three Member States (Cyprus, Luxembourg and Malta).
The retail price of e-cigarettes products varies significantly across different types of products.
Regarding consumables, closed refills are the most expensive product. In 2023, the EU weighted
average price (WAP) for closed refills was EUR 3.60 per millilitre, compared with just EUR
0.64/ml for e-cigarette liquids.
The retail price of consumables displays significant variations across countries. As shown in
Figure A13-3, in 2023, the WAP for closed refills ranged from a minimum of EUR 1.91/ml in
Hungary to a maximum of EUR 9.01/ml in Spain, with only five Member States displaying prices
close to the EU average (i.e. within a +/- 10% band). The WAP for liquids of e-cigarettes ranged
from a minimum of EUR 0.37/ml in Slovakia to a maximum of EUR 1.20/ml in Hungary, and the
distribution of prices is somewhat more compact, with seven Member States displaying prices
close to the EU average (i.e. +/- 10%) and a coefficient of variation of 36%.
Figure A13-3. Weighed average price (WAP) of e-cigarettes consumables (EUR/ml, 2023)
Source: External study based on Euromonitor International.
Note: Information is not available for three Member States (Cyprus, Luxembourg and Malta). Also, information on
closed refills WAP is not available for Hungary and Finland.
Demand trends
According to the most recent Eurobarometer survey, in 2023 current users of e-cigarettes
accounted for about 3% of the EU adult population, compared with 2% found in 2020. Overall,
the total number of users in the EU can be estimated at almost 11.5 million. As shown in
163
Figure A13-4 there are some differences in the prevalence of e-cigarettes use across Member
States. In 2023, prevalence was highest at 9% in Estonia, followed by Latvia (8%) and France
(7%). On the other hand, prevalence is below 1% in Portugal and around 1% in four countries
(Finland, Hungary, Romania and Sweden). Overall, between 2020 and 2023, the use of e-cigarettes
increased in 17 Member States, with the highest increases recorded in Estonia (7 percentage points)
and Latvia (6 percentages points). Prevalence remained stable in nine countries (typically at
low/very low levels) and declined in Ireland (from 7% to 5%).
164
Figure A13-4. Prevalence of use of e-cigarettes in the EU (current use, percentages, 2023 vs.
2020)
Source: External study based on Eurobarometer 99.3 (2023) and 96.3 (2020).
Smokers of e-cigarettes are mostly regular users. In 2023, 83% used e-cigarettes on a daily or
weekly basis, with only 17% making a less frequent use. Irrespective of the frequency in use, on
average EU smokers used e-cigarettes 11.5 times per day. In 2023, 74% of EU regular smokers of
e-cigarettes only used products containing nicotine, 13% only products without nicotine and
another 13% used both nicotine and non-nicotine products.
Based on Eurobarometer estimates, the prevalence of e-cigarettes use by socio-economic groups
could be summarised as follows:
▪ E-cigarettes are more popular among young people. In 2023, the prevalence of e-cigarettes
among people in the 15-24 years age group was 6%, compared with between 2 and 5% for
older generations (see Figure A13-5).
▪ E-cigarettes use is similar among males and females. In 2023 there were no differences in e-
cigarettes’ use between males and females, as both genders had a 3% prevalence.
▪ E-cigarettes use is highest among people with secondary education. In 2023, 7% of people
with secondary education used e-cigarettes, compared with a prevalence of 4% among those
with primary education and 3% among people with tertiary education.
▪ E-cigarettes use is uncorrelated with socio-economic status. In 2023, the prevalence of e-
cigarettes in the various socio-economic groups was generally aligned with the 3% found in
the general populationThere are, however, some differences across Member States, e.g.
prevalence is highest in the upper class in Estonia, Croatia and Latvia.
165
Figure A13-5. Use of e-cigarettes by age group (percentages, 2023)
Source: External study based on Eurobarometer 99.3.
Data on market composition shows (see Figure A13-6) in 2023 nicotine-containing products
accounted for 87% of the total consumables market vs. just 13% for nicotine-free products. Among
nicotine-containing products, consumers tend to prefer low strength liquids (with 1 to 9 mg/ml),
although medium strength products (10 to 19 mg/ml) hold more than 50% of the market in 5
Member States (Austria, Denmark, Italy, the Netherlands and Romania).
Figure A13-6. Composition of e-cigarette liquids market value by nicotine concentration
band (market share in %, 2023)
Source: External study based on Euromonitor International
Note: Information not available for three Member States (Cyprus, Luxembourg and Malta). In some countries, not all
the four types of liquids are sold and/or consumed.
166
2. Legal framework for e-cigarettes in Member States
Definition of liquids for e-cigarettes in Member States’ legislation
Member States with an ad hoc taxation of e-cigarettes in place (see
Figure A13-7) have adopted various approaches to define the related tax category. Considering a
typical liquid for e-cigarettes containing 6 mg/ml of nicotine, and including Member States that
start levying taxes in 2025, the average tax level is EUR 0.20/ml, ranging from nil (Croatia) to
EUR 0.70/ml (Slovenia).
According to the definitions implemented, Member States can be divided into three categories: (1)
making reference to liquid used in e-cigarettes (e.g. Cyprus, Croatia, Latvia, Poland); (2) making
reference to the classification under Combined Nomenclature (e.g. Greece, Romania); and (3)
making reference to the vapour, vaporising, inhaling of liquid (e.g. Italy, Slovenia, Portugal).
Meanwhile, in Estonia, liquids for electronic cigarettes fall under the broad category of products
intended for use similarly or for similar purposes with tobacco products.
Figure A13-7. Tax regimes for liquids for e-cigarettes across Member States
BE: € 0.15/ml
BG: € 0.18/ml
CY: € 0.12/ml
CZ: € 0.10/ml
DE: € 0.20/ml
DK: € 0.20/ml up to 12mg/ml of nicotine, €
0.34/ml for liquid with more than 12mg/ml of
nicotine. Nicotine-free liquids are not taxed.
EE: € 0.21/ml
EL: € 0.10/ml
ES: €0.15/ml up to 15mg/ml of nicotine
(including nicotine-free liquids), €0.20 for liquid
with more than 15mg/ml of nicotine
FI: € 0.30/ml
HR: € 0.00/ml
HU: € 0.09 /ml
IE: € 0.50 /ml (to be introduced in 2025)
IT: € 0.13/ml and € 0.08 for nicotine-free liquids
(€ 0.14 and € 0.10 respectively, since 2025)
LT: € 0.25 /ml
LU: € 0.12 /ml
LV: € 0.24 /ml
MT: € 0.13 /ml
PL: € 0.13 /ml
PT: € 0.35/ ml (€ 0.17 for nicotine-free liquids)
RO: € 0.16 / ml (€ 0.18 in 2025)
SE: € 0.20 / ml up to 15mg/ml of nicotine, €
0.40/ml for liquid with more than 15mg/ml of
nicotine. Nicotine-free liquids are not taxed.
SI: € 0.70/ml (€ 0.31 for nicotine-free liquids)
SK: € 0.20/ml (introduced in February 2025)
Source: External study
Note: Note: (*) taxation introduced/to be introduced in 2025.
3. Liquids for e-cigarettes regime’s implementation and obligations
▪ The relative majority of Member States apply similar rules and arrangements as for
traditional tobacco products. These similarities particularly regard the obligation for
Differentiated rates
No tax Flat rate
167
manufacturers / importers of liquids to provide a financial guarantee. Similarly, in most cases
it is requested to keep products in tax warehouses until they are released for consumption.
▪ The majority of countries allow movement under duty suspension. This permission can be
coupled – but not necessarily – with the obligation to use electronic documents for the
movement of products.
▪ Most of the countries with a tax regime on e-cigarettes have prohibited distant selling online
to avoid tax circumvention. E-commerce is challenging to control, and most stakeholders
estimate that a significant share of ‘unrecorded’ consumption is actually linked to cross-
border transactions made online.
Figure A13-8. Administrative arrangements and obligations linked to ad hoc e-cigarettes
taxes
Source: External study (based on EA 2019273
, based on feedback from 11 Member States with an ad hoc e-cigarettes
tax in place).
4. Tax revenue
In 2022, tax revenues from e-cigarette taxation amounted to almost 170 million. In 2023, such
revenues, based on the market size and the rates applied in the Member States, amount to 290
million. EUR, i.e. significantly more than in 2022. In addition to the inevitable discrepancies in
estimates, the difference may be due to various reasons, primarily the significant increase in market
value (+34% between 2022 and 2023).
273
Economisti Associati, ‘Study on Council Directive 2011/64/EU on the structure and rates of excise duty applied to
manufactured tobacco’, 2019
168
Figure A13-9. Estimated revenues from e-cigarettes taxation (EUR million, 2023)
Source: External study based on tax rates applicable in Member States and market data from Euromonitor
International.
Note: The figure shows only Member States that had a tax regime with positive rates in place in 2023, and for which
market data were available (Cyprus, Malta and Luxembourg are not covered by Euromonitor).
169
ANNEX 14: OTHER TOBACCO-RELATED PRODUCTS
1. Market trends and demand
Nicotine pouches274 are a relatively new product, and sales increased considerably in recent years.
As shown in Figure A 14-1, in 2023, the EU market for nicotine was valued at about EUR 1.1
billion, i.e. almost three times more than the value recorded in 2020 and more than twenty times
the value recorded in 2018. A similar trend emerges from data in volumes, with 2023 sales
surpassing 4 400 tonnes, compared with 800 tonnes in 2020 and a mere 200 tonnes in 2018. Sales
of nicotine pouches are concentrated in few countries, mostly in Scandinavia and Central Eastern
Europe. Sweden is by far the main market, and in 2023 it accounted for about 37% of total sales
in value, followed by Denmark, accounting for about 26%. In 2023, nicotine pouches were sold in
another 13 Member States, but significant sales were recorded only in Austria and Czechia
accounting for, respectively, 13% and 11% of the total market.
From a public health perspective, nicotine pouches are sometimes regarded as particularly harmful,
and their sale is prohibited in several Member States (Belgium, Cyprus, Germany, Lithuania, the
Netherlands and Portugal).
Demand trends. Nicotine pouches are a niche product and according to the 2023 Eurobarometer
survey, at the EU level only 1% of the population used them on a less than monthly basis. Daily
users are found only in Sweden (6%), Denmark (2%) and in four other Member States (Estonia,
Finland, Italy and Luxembourg). Both in Sweden and in Denmark, the relative majority of daily
users of nicotine pouches are found primarily in younger generations (15 – 24 age bracket).
Compared to traditional tobacco products, the consumption of nicotine pouches is more popular
among upper / mid-upper classes than in the working class.
Figure A 14-1. EU nicotine pouches market (2018 - 2023)
A) Trend in Sales - Value (EUR million) B) Trend in Sales - Volume (1,000 kg)
274
Nicotine pouches are small bags containing nicotine powder designed for oral use, usually placed under the lip, to
facilitate nicotine absorption. Nicotine pouches can be regarded as a modern evolution of traditional oral tobacco
products and where they are not prohibited are sold in a variety of flavours and nicotine strengths.
170
Source: Euromonitor International
Note: Market data for 2023 refers to 15 Member States (Austria, Belgium, Czechia, Denmark, Estonia, Finland,
France, Croatia, Hungary, Ireland, Italy, Poland, Romania, Sweden, and Slovakia). In the remaining 12 countries,
nicotine pouches sales are prohibited or otherwise not available in the market or simply no information is available,
presumably because of the very limited sales.
Other manufactured tobacco product category covers chewing tobacco, nasal tobacco, and
other products.275
These products are often prohibited or very marginally consumed in EU
countries. The consumption of these products is small and declining. Chewing tobacco sales have
decreased by 13% since 2020, and in 2023 were below 19 tonnes EU-wide. Moist snuff sales
(except snus) amounted to 128 tonnes in 2023 and are rather stable for the past 3 years. In Member
States where smokeless tobacco is commercialised, sales exceed the EUR 10 million benchmark
only in Czechia, Denmark and Slovakia, whereas sales are negligible (below EUR 1 million), in
Bulgaria, Spain and Hungary.
According to the latest Eurobarometer survey found an extremely limited utilisation of smokeless
products EU-wide. In fact, in 2023 95% of the people interviewed never used these products, while
the rest either only tested them once or twice or stopped using them.276
2. Legal framework in Member States
Nicotine pouches are taxed in 14 Member States (including Spain and Slovakia that introduced
tax in 2025). No duties are levied in six countries (Austria, France, Croatia, Ireland, Poland and
Slovenia. In two Member States, taxes are linked to the nicotine content expressed in milligrams.
In the other countries, nicotine are charged a fixed amount per weight, expressed in kg (plus an ad
valorem component used by Finland). Taxation levels show significant variation across countries.
Duties levied on the weight range from a maximum of EUR 120/kg in Latvia (closely followed by
Estonia with EUR 112/kg, the same rate applied to fine cut tobacco) to a minimum of around EUR
19/kg in Sweden.
Other manufactured tobacco products are taxed in nine Member States. In seven Member States
there is a ban in place, which may regard only chewing tobacco, only nasal tobacco or both. In all
other cases these products are not taxed (regardless of whether actually in the market or not). All
countries charge a fixed amount per kg, except Italy where the tax is purely ad valorem, and
Portugal where a mixed regime is applied. Sweden applies differentiated rates across products,
where snus is taxed about EUR 47/kg, while chewing tobacco is taxed less than € 54 kg. In
addition, Sweden has a ‘catch-all’ regime of EUR 226/kg on any other tobacco products, aimed at
discouraging the commercialisation of bulk tobacco or the like. Among taxing Member States, the
highest rate is in Denmark – EUR 154 / kg.
275
Sale of snus has been prohibited in the EU, except for Sweden, since 1992 (Article 17 of the Tobacco Products
Directive).
276
External study.
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ANNEX 15: RAW TOBACCO
1. Reconstruction of the tobacco supply chain
Table A15-1 below provides an overview of the supply chain’s building blocks and flows between
different steps, from the tobacco leaf to the retail sale of final products. The tobacco supply-chain
is complex and ever-changing277
and the reconstruction is inevitably simplified and subject to a
series of caveats.278
Table A15-1. The tobacco supply-chain
Phase Description
Tobacco
growing
▪ Overall, there are approximately 14 500 – 15 000 tobacco growers registered in
Member States in 2024. Their number has constantly declined in the past decade
from an estimated 60 000 in 2010. In Bulgaria, Germany, Greece, Spain and
Italy, the number of growers cumulatively declined by some 35%. The largest
numbers are found in Bulgaria (about 6 200), Greece (approximately 4 600),
and Poland (3 500). Tobacco growers are generally organised in Producers’
Organisations (PO) and Associations of Producers Organisations (APO), often
charged with market self-regulatory purposes. These also have been
increasingly concentrating and in most growing countries, 2-4 POs account for
100% of tobacco crops.
▪ According to Eurostat data, roughly 86 000 tonnes of tobacco were harvested
in the EU in 2023, with a marked decline compared with the about 180 000
tonnes recorded in 2016. The decline in EU production of tobacco accelerated
after the discontinuation of decoupled EU aid in 2014, which led to a more than
50% drop in output. In 2023, tobacco was cultivated in 11 Member States. IT is
the main producer, accounting for about one third of total output. Other
significant producers include Poland, Greece and Spain. Compared to 2020, the
decline in production was particularly steep in Spain (-50%), Greece (-42%)
and Croatia (-41%); but less marked in Poland (-15%).
▪ In 2023, tobacco was cultivated in 11 Member States. Italy is the main producer,
accounting for about one third of total output. Other significant producers
include Poland, Greece and Spain.279
▪ Tobacco is a commodity whose market prices fluctuate. To allow some form of
regulated market, in most EU-growing countries cultivation plans and
contractual agreements are negotiated in advance and under the supervision of
public authorities. PO/APOs set out multi-annual plans in line with the
277
A common trait, which can be observed in all Member States, is a progressive consolidation and concentration of
the supply chain in the hands of few operators. This process led to unprecedented cross-border flows of raw material.
278
Such as lack of robust and detailed production data at all stages of the supply chain; the difficult use of Comext
data to reconstruct the path of raw tobacco; diachronic reconciliation issues, with tobacco grown in year Y ending up
in being used in a product released for consumption in 2-3 years or more; different units of measurement used by
different sources for the range of products involved, i.e. volume (tonnes/ Kg) or units (pieces etc.); limitations with
the time-significance of ‘release for consumption’ data, due to the authorities’ registration methods and possible
‘forestalling’ practice. (External study).
279
Compared to 2020, the decline in production was particularly steep in Spain (-50%), Greece (-42%) and Croatia (-
41%); less marked in Poland (-15%).
172
requirements of tobacco buyers, which can be: (a) first processors; (b) final
manufacturers; or (c) tobacco merchants. The majority of buyers are large
companies, but there are still some SMEs among manufacturers and first
processors. In most Member States, there is a legal obligation to sell tobacco
only to registered operators.
Figure A15-1 Trends in EU tobacco harvested production (2016 – 2023,
thousand tonnes)
First
processing
▪ First processing includes a variety of activities that transform ‘leaf’ tobacco into
‘processed’ tobacco which manufacturers can use to produce cigarettes, FCT,
cigars etc. The first processing includes inter alia: (a) threshing (separation of
tobacco laminas from stems and veins); (b) cutting; (c) stabilisation; and (d)
sorting into lots (i.e. grading of the products by quality).
▪ First processing is carried out in dedicated facilities, generally located in the
growing areas (although increasingly less so). The number of first processors
has consolidated over time (less than 30 operators were likely active in 2024).
The bulk of activities carried out by a handful of operators, including some
entities owned by transnational tobacco companies. With an estimated output
of less than 1,000 tons / year, other minor processors can be found other
countries (Hungary, Bulgaria, Greece, Italy, Poland, Czechia) and in the
outermost regions of Spain and Portugal. There are no longer active first-
processing plants in France, Hungary, and Germany, so the tobacco grown in
these countries is processed elsewhere (for instance Hungarian tobacco is
mostly sent for processing to Italy).
Import of raw
tobacco
▪ As shown in Figure A15-2, in 2023, EU imports of ‘unmanufactured tobacco’
(i.e. CN 2401 heading) were at little more than 450 000 tonnes, while exports
were almost 110 000 tonnes. First processed tobacco was the main item.
▪ The importers of processed tobacco are primarily final manufacturers. Once
processed, the tobacco is then moved to the EU for storage until it is needed for
production. In this system, there are no intermediaries involved (except ‘on
service’ suppliers) and they own the tobacco from the plant to the final product.
However, the tobacco acquired through this channel is insufficient to fulfil
manufacturing needs, so manufacturers also buy tobacco on the free market
173
from tobacco merchant companies. These companies have their supply chains
in producing countries (Brazil, India, China, Far East, Africa etc.).
Figure A15-2 Import / export of raw tobacco (1 000 tonnes, 2023)
▪ As shown in Figure A15-3, Belgium is the main entry point for EU imports of
raw tobacco, accounting for nearly 29% of total EU imports in 2023. A large
share of imported tobacco is stored in warehouses in Antwerp, which are the
world’s largest tobacco storage facilities. Other relevant storage facilities are
reported in Rotterdam (the Netherlands), Hamburg (Germany), and other EU
major ports. Imports are also significant in countries where
processing/manufacturing facilities are located, notably Poland, the
Netherlands, Germany, Greece and Italy.
Figure A15-3 Import of raw tobacco into the EU by Member State and type of
tobacco (1 000 tonnes, selected Member States, 2023)
Raw tobacco
trade and
logistics
within the EU
▪ A rough estimate of the amount of raw tobacco available for manufacturing in
the EU can be obtained by combining the above import / export data with EU
‘own’ production. The result suggests a total of about indicates a total of 333
174
000 tonnes of ‘available’ raw tobacco in 2023.280
In 2023, almost 300,000
tonnes of raw tobacco were moved between Member States, i.e. nearly 90% of
the abovementioned total ‘available’ processed tobacco.
▪ Belgium emerges as the main logistics platform for intra-EU movements. Big
manufacturers keep substantial amounts of their tobacco in Antwerp’s storage
facilities, to then move it to their manufacturing facilities based on the
production needs.
▪ Inward movements of leaf tobacco in countries like Italy, Croatia, Poland, and
Germany has seemingly a transformation purpose. The first processing plants
located in these countries receive ‘leaf’ tobacco from other tobacco growing
Member States like Hungary, Spain and Greece.
▪ After processing, the tobacco is either moved to the above-mentioned storage
facilities (especially tobacco owned by big manufacturers and processed ‘on
service’ by first processors), or to manufacturing facilities. The latter
movements are mostly directed to big manufacturing plants in Germany, Poland
and Romania.
Figure A15-4 Cross-border flows of ‘leaf’ tobacco – CN 2401 10 (1 000 tonnes,
selected Member States, 2023)
Figure A15-5 Cross-border flows of ‘processed’ tobacco – CN 2404 20 (1 000
tonnes, selected Member States, 2023)
280
Of the leaf tobacco available, an estimated 80% become first processed tobacco (around 90 000 tonnes), while the
remaining 20% is tobacco refuse, which is used for the production of reconstituted tobacco. Considering a net import
of first processed tobacco of 245 000 tonnes, the total available for manufacturing in the EU amounts to roughly 333
000 tonnes.
175
Second
processing
▪ Second processing” designates a range of activities that transform tobacco by-
products, originating from processing/manufacturing activities into
reconstituted tobacco or other intermediate products (such as ‘expanded
tobacco’), which can be used for the manufacturing of final products.
Reconstituted tobacco is then used in cigarettes’ blend (up to 15% of the
volume) and as the basis for HTP products (up to 100% of the blend). In the
latter case, the tobacco leaf (and not only by-products) is also used.
▪ There is one major producer of reconstituted tobacco in the EU, based in France,
that processes several thousand tonnes of tobacco / year, to a large extent on a
service contract for. Other smaller plants linked to large first processors are
located in the Netherlands and Germany. Other transnational tobacco
companies operate a vertical-integrated approach to the production of HTP,
controlling the entire supply chain from raw tobacco to reconstitution to final
manufacturing in dedicated facilities (in Italy), from which most EU and
international markets are served.
▪ In 2023, the refuse tobacco generated by first processing activities likely
amounted to 23 000 tonnes. A further (estimated) 33 000 tonnes281
of refuse
tobacco is generated during final product manufacturing (primarily cut rags,
dust and fines) and re-injected in the cycle. Additionally, the EU is also a net
importer of refuse tobacco, so the total ‘available’ refuse tobacco within the EU
can be estimated at approximately 128 000 tonnes.
▪ Not all refuse tobacco is transformed into reconstituted tobacco. Refuse tobacco
is also used for preparing smokeless tobacco like ‘snus’ in Sweden or chew bags
in Denmark and other EU countries (tentatively 8 000 tonnes /year).
Considering that the EU is a net exporter of reconstituted tobacco (6 000 tonnes
281
Based on Comext data, in 2023 cross-border movements of refuse tobacco amounted to approximately 56000
tonnes. As there are few plants in the EU transforming refuse tobacco into reconstituted tobacco, this figure can be
taken as a proxy for the total refuse tobacco generated by processing/manufacturing activities within the EU.
176
in 2023), the total second processed tobacco ‘available’ for manufacturing
amount to around 114 000 tonnes.
Figure A15-6 Cross-border flows of refuse tobacco – CN 2401 30 (1 000 tonnes,
selected Member States, 2023)
Figure A15-7 Cross-border flows of reconstituted tobacco (1 000 tonnes,
selected Member States, 2023)
Manufacturin
g and sales
▪ The last steps of the tobacco supply chain include the manufacturing of final
products and their commercialisation, i.e. the release for consumption (RFC)
within the EU and sales to third countries. At this level, first and second
processed tobacco is blended, cut, rolled, pressed and transformed into final
products, i.e. cigarettes, cigars/cigarillos, fine-cut tobacco, pipe tobacco and
water-pipe tobacco.
▪ The manufacturing of tobacco products is quite widespread across the EU, and
in 2023 only five Member States (Austria, Cyprus, Estonia, Finland and Malta)
did not have any production facility. The largest number of manufacturers of
tobacco products was found in Germany, with 57 enterprises, followed by
Sweden and Spain, with 37 and 32 enterprises, with Poland and Greece ranking
in fourth and fifth places, with respectively 28 and 24 enterprises. Since 2019
the number of producers has hovered around 300. In 2023 the EU tobacco
industry consisted of 34 large enterprises, i.e. employing 250 persons or more,
and 272 small and medium enterprises (SMEs). The turnover was marginally
above EUR 29 billion, with a significant increase over the previous two years,
177
but still lower than in 2019 and 2020. As for employment, in 2023 the tobacco
industry had almost 41 000 employees, which marked a recovery from the
declining trend recorded over the 2019 – 2022 period.
▪ The manufacture of tobacco products is largely controlled by four transnational
tobacco companies - (PMI, BAT, JTI and IB282
), plus some important national
players. Transnational tobacco companies dominate the cigarettes and HTP
markets. Other cigarette-makers have tiny market shares and mostly operate in
one or few countries (Greece, Luxembourg, Hungary, Bulgaria, Italy,
Germany). Only the production of cigars/cigarillos, pipe tobacco, and some
specialty products (e.g. snus) is mostly controlled by a limited number of
medium sized players, with transnational tobacco companies playing a modest
role.
▪ 508 billion cigarettes sticks were produced in the EU in 2023, while the
production of FCT amounted to 115 000 tonnes. The FCT segment is less
concentrated, with a more limited role played by transnational tobacco
companies and with some 10-15 mid-size or small players involved). Cigars and
cigarillos are mostly produced by some 20 – 25 medium-sized manufacturers.
In 2023 the production was about 10.8 billion pieces. HTP has become the
second-largest segment with a production that reached 360 000 tonnes in 2023
(of which a substantial share for export). Like cigarettes, HTP is mostly
controlled by transnational tobacco companies.
▪ EU’s imports of manufactured tobacco products are minimal, i.e. less than 15
000 tonnes in 2023, mostly consisting of cigarettes and FCT. Export flows are
much higher and more diversified. In 2023, EU sales to third countries
surpassed 170 000 tonnes, with cigarettes accounting for 40%, HTP for 25%,
and FCT for 20%.
▪ The number of retailing outlets dealing with tobacco products in the EU is in
the order of some 250 000 – 300 000.
Source: External study
2. Legal framework for raw tobacco in Member States
The review’s focus is primarily on the fiscal legislation that was adopted in certain Member States
to tackle the issues connected to the diversion of raw tobacco outside of the legitimate channels.
However, in tobacco-growing countries, the first part of the supply chain, i.e. growing and first
processing, is typically in the remit of agricultural policy. So, where relevant, the review contains
also relevant information on control measures and obligations applicable under the EU common
agricultural policy and on the interaction between fiscal and agricultural legal frameworks. The
review focuses on the definition of raw tobacco adopted in different Member States; the legal and
administrative obligations for supply-chain players; and applicable excise duty.
Member States can be divided into three categories according to the definition implemented,: (1)
defining raw tobacco by contrast with manufactured tobacco (e.g. Croatia, Sweden); (2) making
reference to the classification under Combined Nomenclature (e.g. Lithuania); and (3) making
reference to the harvested tobacco (e.g. Bulgaria, Poland, Spain). Meanwhile, in Czechia the
282
Philip Morris International (PMI), British American Tobacco (BAT), Japan Tobacco International (JTI) and
Imperial Brands (IB).
178
definition of natural tobacco covers a heterogeneous range of products, i.e. leaf tobacco, first-
processed tobacco, refuse tobacco and reconstituted tobacco.
Legal and administrative obligations implemented by Member States include:
▪ Registration obligations: mandatory registration of entities involved in growing, handling,
selling and manufacturing (e.g. Bulgaria, Greece, Croatia, Czechia, Hungary, Poland, Italy,
Spain). In the case of Bulgaria, any person who produces, imports or recycles machines for
manufacturing tobacco products is subject to obligatory registration.
▪ Reporting obligations: obligation for raw tobacco players to provide a list of transactions
to competent authorities on monthly or quarterly basis (Greece, Poland); report
electronically of all tobacco shipments (received/dispatched) (Greece, Czechia, Italy,
Spain)283
. In the case of Greece, additional due diligence obligations are in place for licensed
processors, manufacturers, wholesalers and warehouse keepers in the framework of renewed
anti-fraud national policies (e.g. an electronic submission of transactions and
customers/suppliers involved to the competent anti-smuggling agency).
Movement control: electronic tracking (SENT system) implemented by Poland includes prior
registration of the transport on an electronic platform and GPS tracing of the vehicle. In the case
of Croatia, the carrier must notify transits of raw tobacco through the territory of Croatia. For most
authorities with a fiscal regime on raw tobacco in place, the main weakness of the current
arrangements related to the fact that their coverage is limited to the national territory and that there
is no coordinated, efficient mechanism to track movements across borders. While the measures
taken have contributed to solving this problem, it is widely acknowledged that it would be
necessary to extend and harmonise the obligation to comply with such measures to all EU
countries.
283
Croatia: any inward/outward movement has to be notified via email to customs authority no less than 24h prior to
the entry of tobacco in the territory of Croatia (notification also contains the details of the consignee, the consignor,
the carrier, the product and the intended use).
Czechia: all subjects handling tobacco must inform the tax administrator of all raw tobacco receiving / dispatching
events. The notification must be sent electronically between 24 and 72 hours before the movement.
Spain: all movements of raw tobacco through the Spanish territory (including cross-border movements) are subject to
prior notification to the tax administration at least 24h ahead of transport.
179
ANNEX 16: CURRENT EXCISE DUTY RULES FOR MANUFACTURED
TOBACCO
1. Excise duty structure
EU legislation only sets harmonised minimum rates. Member States are free to apply excise duty
rates above these minima, according to their own national needs.
Harmonised excise duty rates for tobacco are either ‘ad valorem’284
, ‘specific’285
, or a combination
of both. The overall excise duty has to represent a minimum percentage of the average retail selling
price286
and at least a minimum fixed amount in euro.
EU minima have two components: the fixed minimum and the relative minimum conditions.
▪ The minimum rates for cigarettes consist of two conditions that must be simultaneously
fulfilled: a fixed amount in Euro (per thousand sticks); and a percentage of the weighted
average price (WAP) of cigarettes in the country considered. The latter condition need not
be met if the overall excise duty (specific plus ad valorem) levied at the WAP level exceeds
a certain monetary amount.
▪ For tobacco products other than cigarettes, the Directive leaves Member States more
freedom in establishing the applicable structure, which can be fully specific (per kg or per
units, where relevant), fully ad valorem, or a mix thereof. Depending on the excise structure
chosen, the Directive indicates the applicable minimum rates or amounts. The tax base of
fine-cut tobacco and other smoking tobacco is per kg of product, while in the case of cigars
and cigarillos the excise duty is typically calculated per 1 000 items except for a few
countries where it is calculated per weight (or per ‘conventional kg’).
▪ Article 8.6 of the Directive allows Member States to apply an optional minimum excise duty
(MED), i.e. a sort of excise minimum ‘floor’. Nearly all Member States opted to apply the
MED to cigarettes. The option of setting a MED is available also for products other than
cigarettes, but is less frequently used there, because these products are often taxed with a
fully specific structure.
Table A16-1. Overview of the excise duty rates and structures applicable under the Directive
Product
category
Tax structures and rates
Cigarettes
▪ Mandatory mixed structure including both an ad valorem excise duty and a
specific excise duty. The specific component has to respect the following
thresholds:
o Upper threshold: 76.5% of the total tax burden (i.e. the sum of the specific
component and the ad valorem component and VAT levied at the WAP level).
o Lower threshold: 5% (until the end of 2013) and 7.5% (since January 2014)
284
Excise duties calculated as a percentage of the (maximum) tax-included retail selling price of a product.
285
Excise duties calculated as a fixed monetary amount per volume of product, expressed ‘per weight’ (per kg) or ‘per
unit’ (per 1 000 sticks).
286
The average price is calculated as the weighted average retail selling price = value (based on retail selling price
including all taxes) of cigarettes / total quantity released for consumption.
180
▪ Minimum rates for the overall excise duty (not including VAT), as described
below:
o Until the end of 2013: 57% of the WAP and not less than EUR 64 per 1 000
cigarettes (irrespective of the WAP), or EUR 101 per 1 000 cigarettes at the
WAP level.
o Since 1st
January 2014: 60% of the WAP and not less than EUR 90 per 1 000
cigarettes (irrespective of the WAP), or EUR 115 per 1 000 cigarettes at the
WAP level.
o Certain Member States – namely Bulgaria, Estonia, Greece, Lithuania, Latvia,
Hungary, Poland, Romania and Croatia – were granted a transitional period
until the end of 2017 to reach the above minimum levels.
▪ A minimum excise duty (MED) may apply (i.e. a fixed monetary amount per
quantity applicable if the amount of the excise duty falls below a minimum floor),
provided the ‘mixed structure’ requirement is respected.
FCT
▪ Member States may opt for a fully specific (per kg) or a fully ad valorem excise
duty (calculated on the maximum retail selling price of each product), or a mixture
of the two.
▪ The overall excise duty (not including VAT) must be no less than:
o 40% of WAP or EUR 40 per kg (until end of 2012),
o 43% of WAP or EUR 47 per kg (until end of 2014),
o 46% of WAP or EUR 54 per kg (until end of 2017),
o 48% of WAP or EUR 60 per kg (until end of 2019),
o 50% of WAP or EUR 60 per kg (since 1st
January 2020).
▪ If the structure chosen is fully ad valorem or mixed, Member States may establish
a minimum amount of excise duty.
Cigars and
cigarillos
▪ Member States may opt for a fully specific (per kg or number of items) or a fully
ad valorem excise duty (calculated on the maximum retail selling price287
of each
product), or a mixture of the two.
▪ The overall excise duty (not including VAT) must be no less than 5% of the retail
selling price or EUR 12 per 1000 items or per kg.
▪ If the structure chosen is fully ad valorem or mixed, Member States may establish
a minimum amount of excise duty.
Other
smoking
tobacco
▪ Member States may opt for a fully specific (per kg) or a fully ad valorem excise
duty (calculated on the maximum retail selling price of each product), or a mixture
of the two.
▪ The overall excise duty (not including VAT) must be no less than 20% of the retail
selling price or EUR 22 per kg.
▪ If the structure chosen is fully ad valorem or mixed, Member States may establish
a minimum amount of excise duty.
287
Manufacturers or, where appropriate, their representatives or authorised agents in the EU, and importers of tobacco
from third countries are free to determine the maximum retail selling price for each of their products.
181
Note: Certain special treatments applicable to specific Member States or specific regions or territories are not
displayed.
EU minima are currently expressed in nominal terms for the specific excise duty part. Due to
substantial diversity in economic conditions in Member States (not only in income, but also in
general price level), any nominal EU minima that is the same for all Member States will be too
cheap for higher-income countries and too expensive for lower-income countries.
Calculation of the tax for a pack of 20 cigarettes (example):
Retail Selling Price (excluding taxes): EUR 1.56
+ Excise duty - specific: EUR 1.27
+ Excise duty - ad valorem: EUR 5.5 (55% of RSP)
Total excise duty: EUR 6.77 (68% of WAP)
= Price (excluding VAT): EUR 8.33
+ VAT 20%: EUR 1.67
= Retail Selling Price (including all taxes): EUR 10.0
2. Relevance of the current excise duty structure
Modifying the current structure of the minimum rates was not considered in the External study for
several reasons.
First, both components are needed to achieve the main objectives ‘to ensure the functioning of the
internal market and at the same time a high level of health protection’. The relative minimum helps
avoid EU levels becoming obsolete too quickly and that they maintain some relevance also in
moderately wealthier EU economies. As highlighted in the literature, including recent WHO
guidelines, pure ad valorem taxes are less effective from a tobacco control perspective because
they encourage the development of the low-price segment (manufacturers could be encouraged to
refrain from increasing prices and rather seek margins through expanding volumes of sales of low-
price products).
Moreover, differentiated tax regimes have been adopted for different products, which reflect major
differences in the industry, the product, and the demand patterns and characteristics. Thus, it would
alter competition in the internal market and it would be very complex and burdensome for Member
States to alter the current structure.
Finally, neither economic operators nor national tax authorities expressed the need to switch from
the current approach. Related administrative procedures (accounting, tax declaration, calculation
and other related information systems) are in place and function properly.
182
ANNEX 17: IMPACTS OF THE PROPOSED OPTIONS
1. Revision of EU minima for traditional tobacco products
1.1. Impacts on fraud and tax evasion
It is not possible to estimate in a quantitative manner the impact of the proposed policy options on
ITTP as the independent literature does not support the existence of a direct, causal link between
tax policies and ITTP. Among others, the EU-funded PPACTE project (Pricing Policies and
Control of Tobacco in Europe)288
could not find statistically significant association between illicit
trade and the price of cigarettes. As some of its authors suggested: ‘the supply of illicit tobacco,
rather than its price, is a key factor contributing to tax evasion’.289
The results of the Evaluation
Study290
were also consistent with these findings.
High prices appear more as an enabler of ITTP rather than its determinant, or as a ‘pre-condition’.
As Member States authorities confirmed, the price of illegal products is typically set in relation to
the price of legal ones, and at about 50%-60% of it. In this sense, assuming production costs as
fixed, the higher legal prices go the more profitable is ITTP business. For this reason, there is an
economic incentive for illegal suppliers to focus on markets where the level of price is
comparatively higher. On the other hand, there are other evident drivers behind the supply of illicit
products, including (a) the permeability of borders and in general the capacity of local authorities
to detect and prosecute ITTP (b) the severity of sanctions against offenders; (c) the geographical
proximity to illicit production/distribution sites, which minimise the travel risks; (d) the ‘real’ price
of legal products, in terms of consumer’s affordability etc.
1.2. Impacts on inflation
The increase in the price of tobacco products would virtually impact inflation rates in the Member
States, somehow proportionally to the extent of the increase and of the weight of products on
consumer’s basket - as measured by Eurostat’s HICP.
The methodology applied to assess the impact is the following:
▪ Estimate the aggregate price increase of tobacco products in each EU country and for all the
change options considered. The aggregate price increase takes into account the different
products’ weight in the specific national markets.
▪ Extract from the Eurostat’s database the most recent (2025) HICP weight for tobacco
products and for each EU countries.
▪ Estimate the expected HICP increase in Member States (in percentage). This was obtained
by applying the HICP weight to the expected aggregate tobacco price increase under the
various change scenarios.
288
https://www.tri.ie/ppacte.html
289
Joossens L, Lugo A, La Vecchia C et al. Tob Control 2014; 23:e17-e23 (cited from EA 2019).
290
Study on Council Directive 2011/64/EU on the structure and rates of excise duty applied to manufactured tobacco,
2019
183
The EU aggregate HICP would increase by 0.18 percentage points (weighted EU average) in the
case of option 1, by 0.34 percentage points under option 2, and 0.55 percentage points under option
3.
Figure A17-1. Estimated increase of the HICP index caused by tobacco price increase
Source: External study
Note: The figures represent the HICP ‘rate of increase’. The estimates for Luxembourg appear inflated by cross-border
flows.
The additional inflation created by the tax increase has to be viewed in the light of the total inflation
in a Member State. The additional inflation created by the tax change can be also viewed in the
light of price increases of other items in the HICP basket.
1.3. Public health impacts
Reduction in smoking prevalence is the focus of the revision of the Directive as this represents the
bulk of expected impacts on public health. Indeed, certain health risks are non-linear and do not
vary in line with smoking intensity. In certain cases, health risks are triggered by the act of
consumption itself and persist statistically unabated by subsequent smoking cessation.
Any increase in taxation is always justified on public health grounds, provided that any year of life
saved is priced in monetary terms irrespective of whether individuals are in their working life or
not. The key assumption is that smoking is considered as an activity triggered by nicotine addiction
and therefore not a willing consumer behaviour of which the consumers themselves bear the
related responsibility and cost. The existence of addiction, in fact, allows it to be considered as an
externality and therefore a social cost that should be compensated for and would justify a taxation
far exceeding current levels.
The first dimension examined regards the reduction of smoking prevalence.291
In terms of
individuals concerned, the contribution of the revision of the EU minima could amount to between
291
In Europe’s Beating Cancer Plan, the EU has endorsed the WHO objective of creating a ‘Tobacco-Free Generation’,
where less than 5% of the population will use tobacco by 2040, compared to around 24% today. .
184
5 and 12 million fewer smokers, depending on the option considered. This represents a one-off
drop in smoking prevalence from the current 24% to 22.8 under scenario 1, 22% under option 2
and 20.8% under option 3.
Table A17-1. Estimated impact on consumption and smoking prevalence in the EU
Options Impact on consumption Impact on the no. of
smokers*
Impact on smoking
prevalence*
Billion
items
in % Million population in %
Baseline 502 92.1 24.0%
Option 1 -25 -5% -4.6 22.8%
Option 2 -42 -8% -7.8 22.0%
Option 3 -66 -13% -12.1 20.8%
Source: External study. Baseline values are sourced from TEDB / Euromonitor (unit consumption) and
Eurobarometer (smoking prevalence and smokers’ population). Baseline values refer to 2023.
Note: FCT and OST have been converted into items applying a 0.75g=1 stick equivalence.
(*) The estimates for these variables are presented with a higher degree of granularity for the sole purpose of showing
the possible different impact across scenarios.
In Europe’s Beating Cancer Plan, the EU has endorsed the WHO’s long-term objective of creating
a ‘Tobacco-Free Generation’, where less than 5% of the population will use tobacco by 2040. The
revision of EU minima is expected to contribute to this goal, but evidently other measures would
also be required, such as the periodical revision of EU minima, to maintain affordability at low
levels; Member States commitment to constantly increase rates regardless of EU minima
obligations to do so; and various non-fiscal measures and policies.
In the short run, the reduction in smoking prevalence is more than proportional to the reduction in
the ultimate social costs of tobacco consumption. This is because tobacco consumption leaves a
legacy of health risks that are usually reduced, but not completely eliminated by smoking
cessation. So smoking-related mortality and morbidity continue to apply to some extent also to
former smokers, although on a declining trend over time. In fact, on average, epidemiological data
show that over a generation’s time the decline in the share of smoking-related deaths on total
mortality does coincide with the parallel decline in smoking prevalence.292
The impact of the revision on public health social costs has been estimated following a cost of
illness approach.293
In this perspective, the economic consequences of smoking can be divided into
‘direct costs’ – the expenses incurred because of the illnesses caused by smoking, and ‘indirect
costs’ – the value of lost production because of reduced working time and early mortality from
smoking-related diseases.
Regarding direct costs, healthcare costs attributable to tobacco are close to EUR 48 billion
annually. The reduction of smoking prevalence associated with the envisaged revision of EU
minima would generate cost savings ranging from EUR 2 to EUR 6 billion, depending on the
options considered.
Regarding avoidable mortality, the Global Burden of Disease’s most recent estimates indicated
that tobacco-attributable deaths in the EU amounted to nearly 0.5 million in 2021. In terms of years
of life lost, the burden of tobacco is close to 11.3 million annually, which in economic terms may
translate in EUR 587 billion for the EU on the whole. In addition to years of life lost, tobacco is a
major cause of years of life with disability, which – according to the Global Burden of Disease’s
292
External study.
293
See ANNEX 4: section 8.1 on methodology for public health impacts.
185
estimates – currently amounts to around 1.9 million years in the EU. The policy options under
consideration may reduce these impacts between 6% and 18%, possibly contributing to social costs
savings ranging from EUR 29 to 77 billion, depending on the option.
Indirect costs include also impact on employment and productivity caused by tobacco-related
health conditions294
, which is estimated to amount to EUR 13.4 billion (2023). The proposed
revision of EU minima would deliver a benefit comprised between EUR 1 and 2 billion.
2. Holding, movement and control requirements under Horizontal Directive
Inclusion of in the scope of the Directive of e-cigarette liquids, heated tobacco products, other
manufactured tobacco and related products and raw tobacco would entail application of holding,
movement and control requirements set out in the Horizontal Directive.295
They involve specific
authorisation, holding and movement rules (see Table A17-2).
Table A17-2. Monitoring rules and provisions applicable under Horizontal Directive
Building blocks
of the monitoring
system
Corresponding tools and provisions
Authorisation of
involved
operators
Economic operators engaged in the holding and moving of excisable goods
would be subject to the authorisation requirements set out in the Horizontal
Directive, according to the different available profiles, namely:
▪ the tax warehouse keeper (producing, processing, holding, receiving or
dispatching excise goods under a duty suspension arrangement in a tax
warehouse);
▪ the registered consignor/consignee (dispatching/receiving excise goods
moving under suspension arrangements); and
▪ the certified consignor/consignee (dispatching/receiving excise goods
released for consumption via cross-border movements).
The conditions for granting and managing authorisations are set up by Member
States competent authorities and involve technical, financial and legal
requirements to be fulfilled.
Additionally, all authorised traders should be registered on the System for
Exchange of Excise Data (SEED296
).
Monitoring of
stocks
Excise goods produced, processed, held, stored, received or dispatched under
duty suspension arrangements must be kept in a tax warehouse. In addition to
the authorisation requirements, warehouse keepers must keep accounts of stock
and movements of excise goods and must consent to any monitoring and stock
294
Comprising of workplace absenteeism and the resulting loss of income from the days off work, and premature
retirement due to smoking-induced illnesses.
295
Council Directive (EU) 2020/262 of 19 December 2019 laying down the general arrangements for excise duty
(recast).
296
SEED is a register of economic operators, involved in the movement of excise goods and is maintained by each
Member State. Using this system traders can consult online, to see whether a given excise number is valid and what
categories of goods the operator in question is authorised to trade.
186
checks requested by authorities. Tax warehouses are also subject to specific
security requirements established by Member States.
Record-keeping and stock-check obligations also apply to registered and
certified consignees of excise goods. For movements of duty-paid excise goods
(as defined under Chapter V of the Horizontal Directive), there is no tax
warehouse obligation, which makes this option lighter and more suitable for
small and/or occasional traders.
Control and
validation of
movements
Movements of excise goods in the EU shall take place under the excise
movement and control system (EMCS). This includes both movements under
duty suspension and duty-paid cross-border movements for commercial
purposes.
The movement of excise goods from dispatch to destination are documented
under EMCS utilising an electronic Administrative Document (eAD) or an
electronic simplified administrative document (eSAD) in case of a business-to-
business (B2B) duty-paid movement. EMCS allows the validation of eADs
against SEED to determine if the traders involved in the transaction are indeed
entitled to dispatch/receive the declared products, as well as the tracking of
every stage of the movement, thus facilitating control and helping prevent
irregularities.
Financial
guarantees
covering excise
duty risks
The Horizontal Directive envisages two main types of financial guarantees that
can be requested to operators to cover the fiscal risk inherent in duty payment
suspension:
▪ General guarantees for the production, processing, holding and storage
of excise goods on duty suspension and applicable to authorised warehouse
keepers.
▪ Specific guarantees on movements under duty suspension and on cross-
border movements of duty-paid goods. In the first case, the financial security is
typically covered by the consignor, while the guarantee is generally required
from the consignee for duty-paid B2B movements.
The amount and management of financial guarantees are established by
Member States, which can also waive this obligation in specific circumstances.
The guarantee is set to cover inherent fiscal risk, but is not necessarily
proportional to the excise duty value involved (i.e. in the case of raw tobacco,
it could relate to the risk of diversion and tax fraud).
Monitoring procedures related to excise goods are supported by two pan European IT systems:297
▪ EMCS: Excise Movement and Control System
The Excise Movement and Control System (EMCS) is a computerised system for monitoring the
movement of excise goods. EMCS provides Member States with an electronic system to monitor
the movement of these goods in real-time, in order to ensure the correct and timely collection of
297
A pan-European IT system is a set of IT applications and components at the Commission, each Member State and
each economic operator, integrated with each other in order to share information between all stakeholders
187
duties. Prior to the dispatch of the goods, each movement of goods is registered in EMCS by the
economic operator (trader) by completing the (simplified) Administrative document (eAD or
eSAD). The competent authorities of the Member State of dispatch assigns to the (simplified)
Administrative Document a unique reference number (ARC). The system provides the tools to the
Member States to monitor the movements of excise goods from the beginning and until the
completion of each movement after ensuring that all necessary fiscal formalities have been
completed.
▪ SEED: System for Exchange of Excise Data
This IT system is a registry of all Economic Operators authorised to trade excise goods and is
maintained by each Member State. All authorised traders must be registered on SEED and be
issued with a SEED number. The SEED number is issued by the local Excise Control Officer and
must be quoted on all e-ADs, i.e. each Economic Operator is uniquely identified in SEED by its
‘SEED number’. Using this system traders can consult online, to see whether a given excise
number is valid and what categories of goods the operator in question is authorised to trade.
Both systems are crucial tool for information exchange and cooperation (including preventing tax
evasion) between Member States.
3. Enlarging the scope to new products
3.1. Impacts on the market and excise duty revenue of enlarging the scope of the
Directive to new products – Estimates derived from the standard methodology298
For simulation purposes, it was assumed a pass-through factor equal to 0.7 (i.e. 70% of the tax
increase, expressed in nominal terms, would be passed on to consumers, while the rest would be
absorbed by manufacturers).299
As presented in ANNEX 4: section 8.2, this approach has
limitations for new products, this is why it has been adapted and the results according to the
adapted methodology are presented in the main report (see section ANNEX 1:6.2.2.1). However,
for completeness and comparison, the impacts estimated under the standard approach are presented
for the different categories of new products below.
298
See ANNEX 4: section 8.2. on methodology applied for new products.
299
External study.
188
Table A 17-3. Estimated impact of proposed EU minima on HTP market price and demand
Options
Impact on price levels Market sales
WAP (avg), EUR/1 000 bn units %
Baseline 2023 250 49
Option 1 329 -20 -41%
Option 2 357 -26 -53%
Source: External study
Legend: avg =average value among Member States.
Notes: Estimates refer to the EU aggregated market Belgium, Cyprus, Finland, Ireland, Luxembourg and Malta are
not included as in the baseline year (2023) they did not have HTP products on the market. For tax-driven price increase,
a pass-through of 0.7 is assumed. The impact on demand is calculated assuming an elasticity coefficient of -1.36.
Figures are rounded.
Table A 17-4. Estimated impact of proposed EU minima on liquids e-cigarettes market price
and demand
Options
Impact on price levels Market sales
WAP (avg)/ EUR/ml million litres %
Baseline 2023 1.32 3.5
Option 2 1.89 - 2.2 -62%
Option 3 1.47 - 0.9 -26%
Source: External study
Legend: avg = average value among Member States.
Notes: Estimates refer to the EU aggregated market. Cyprus, Luxembourg and Malta are not included as market data
are unavailable. The impact on demand is calculated assuming an elasticity coefficient of -1.36. A pass-through of 0.7
is assumed. Figures are rounded.
Table A 17-5. Estimated impact of proposed EU minima on nicotine pouches
Impact on price levels Impacts on market sales
WAP (avg), EUR/ kg tonnes %
Baseline 2023 293 4 400
Option 1 297 0 -0%
Option 2 437 - 3 700 -78%
Option 3 489 - 3 800 -86%
Source: External study
Legend: avg = average value among Member States.
Notes: Estimates refer to the EU aggregated market. In Belgium, Germany and Lithuania nicotine pouches are
currently prohibited. For Bulgaria, Cyprus, Greece, Spain, Luxembourg, Latvia, the Netherlands, Portugal and
Slovenia no market data are available. The impact on demand is calculated assuming an elasticity coefficient of -1.36.
Figures are rounded.
Table A 17-6. Estimated impact on tax revenues from the harmonisation of new products
HTP Liquids for e-cigarettes OMT / TRP
EUR m Var. (in %) EUR m* Var. (in %) EUR m* Var. (in %)
Baseline 2023** 2 900 370 150
Option 1 2 800 -4% 370 0% 170 27%
Option 2 2 700 -9% 450 21% 130 -3%
Option 3 490 30% 110 -17%
Grand total
Change in total
revenue
Between EUR -150 million and EUR -50 million
189
Source: External study
Notes: For Member Staes where the products concerned were not in the market in the baseline year, the tax revenue
impact is assumed to be nil. For the ‘grand total’ estimation, it has been assumed that the HTP’s scenario 1 corresponds
to both scenarios 1 and 2 of e-cigarettes and other manufactured tobacco and related products. (*) Estimates for these
products are presented with a higher degree of granularity for the sole purpose of showing the possible different impact
of scenarios. (**) The baseline value used in the analysis has been reconstructed multiplying the volume of sales by
the applicable duty, and it might not coincide with the values officially reported by Member States. Figures are
rounded.
3.2. Administrative costs and savings
Economic operators
The approach developed to estimate the impacts associated with obligations under the Horizontal
Directive is based on the following considerations:
▪ EU-level estimates have been developed aggregating Member State-level estimates. In many
cases, Member States already have tax regimes in place involving obligations that are similar
to those envisaged in the policy revisions. The economic operators based in those countries
have been assumed as already compliant and no additional costs have been estimated. The
estimated regulatory costs refer exclusively to additional costs with the exclusion of
business-as-usual costs.300
▪ The bulk of additional costs would regard the e-cigarette segment and in particular SMEs,
as large transnational tobacco companies operating in this market can be assumed already
compliant with the EU requirements in relation to harmonised product activities.301
In the
HTP and nicotine pouches segments, operators are considered already compliant, as they
exclusively consist of large, transnational tobacco companies (and HTP is already taxed in
all Member States where it is marketed). Regarding other smokeless products like chewing
and nasal tobacco the information on industry is very limited so, considering that the market
size is also negligible, this segment has been also excluded from the analysis.
▪ It was assumed that all Member States would apply the relevant obligations to economic
operators, although Member States could actually derogate from the application of EMCS
in domestic movements (and in cross-border movements subject to bilateral arrangements
with another Member State).
▪ Estimation also includes the costs of financial guarantees that Member States can require on
duty-suspended movements. Financial guarantees are envisaged in the Horizontal Directive,
but their amounts are established by Member States. In this sense, the corresponding costs
are only indirectly attributable to the policy revision concerned.
Bearing limitations presented in ANNEX 4: ANNEX 4:8.2 on administrative costs and savings for
new products, the results of the cost analysis are reported in the Table A 17-7 below.
300
The assumptions should be taken as purely indicative estimates.
301
Minor adjustments to pre-existing systems would be required, but the bulk of costs (e.g. infrastructure, IT systems
etc.) can be considered as ‘business-as-usual’ and excluded from the analysis.
190
Table A 17-7. Overview of regulatory costs for liquids for e-cigarettes operators
Obligations Brief description Incremental costs
Registration
in the excise
system
Operators must be authorised by the competent
authority according to the relevant profile (warehouse
keepers, registered or certified consignor/consignee).
It is assumed that manufacturers would register for
duty-suspension operations, whereas importers may
opt for duty-paid operations. Registration for duty-
suspension operations is deemed more costly.
One-off costs:
EUR 0.5 million
Set up /
operate a tax
warehouse
This obligation has two main costs components: (1)
the investment to set up appropriate premises (one-
off); and (2) recurrent costs for operations, including
keeping registers of in/out movements.
Only Scenarios 2 and
3:
One-off costs:
EUR 9.1 million
(annualised 0.6
million)
Recurrent costs:
EUR 1.0 million
EMCS
system
This obligation has two main cost components: (1)
adopting an IT system to operate the EMCS (assumed
on annual subscription basis); and (2) recurrent costs
for movements (inclusive of book-keeping, weighing
of products, and all EMCS-related procedures). These
costs will regard all EOs including from countries
where national taxes are already in place.
Recurrent costs:
EUR 5.4 million
GRAND
TOTAL
Option 1:
One-off costs: EUR 0.5 million
Recurrent costs: EUR 5.4 million
Options 2 and 3:
One-off costs: EUR 9.6 million
Recurrent costs: EUR 6.3 million
Source: External study
Notes: one-off costs = costs applicable to the first year only; recurrent costs = costs incurred annually
Member States public authorities
The survey of tax and customs authorities confirmed that, where Member States have adopted ad
hoc regimes for new products, these are accompanied by rules and obligations that are, in many
respects, similar to the obligations currently imposed on harmonised products. In this sense these
Member States would incur only minor additional costs, while in most cases it would be sufficient
to adjust existing national procedures.
As
Figure A17-2 shows, the regulatory cost increases tend to be higher for liquids of e-cigarettes
compared to heated tobacco products (HTP). This relates to many factors, including the greater
191
number of economic operators to register and manage, the fact that HTP manufacturers are already
in the excise system (as conventional tobacco manufacturers), and the intrinsic difficulties of
controlling cross-border irregular flows of e-cigarette liquids. Overall, the share of survey
respondents reporting a significant or moderate increase in costs remains below 45% for electronic
cigarettes and 10% for HTP. For other manufactured tobacco products it is estimated that the
number of economic operators would fall between the number of liquids for electronic cigarettes
and HTP economic operators.
Figure A17-2. Increase in administrative and enforcement costs following the introduction
of ad hoc regimes in the Member States
Source: External study based on tax and customs authorities survey
In Member States authorities’ views (Figure A17-3), the benefits of harmonisation would clearly
outweigh the risks. Coherently, only a minority of Member States authorities foresee a moderate
or high increase of burden required to deal with a greater number of operators and products, and
an even smaller number of Member States anticipate a substantial increase of burden linked to new
‘borderline’ products or greater monitoring and enforcement efforts.
Figure A17-3. Member States authorities’ expected administrative and enforcement impact
from the excise harmonisation of new products
A) Estimated beneficial impacts B) Estimated risks
Source: External study based on tax and customs authorities’ survey
192
Where national tax regimes are already in place for new products, additional regulatory costs are
assumed to be negligible. Total additional costs related to registration of economic operators and
movement control would amount to less than EUR 10.0 million of one-off costs and approximately
EUR 0.5 million recurrent costs in each subsequent year thereafter.302
4. Impacts related to enlarging the scope of the Directive to raw tobacco
The aim of introducing movement and control requirements to raw tobacco is to prevent illegal
diversion from the supply chain. Based on salient features presented in Box A17-1 below,
introducing movement and control requirements to raw tobacco would mean that all raw tobacco
would fall in the scope of the Directive. However, agricultural products would be exempted from
movement and control requirements under the Horizontal Directive. In practical terms, raw
tobacco would become an excise good in this initial step, but the associated obligations are
postponed to the moment where the product is received by the first processor (buyer) who should
be obliged to register under the relevant excise duty profile.
Box A17-1. Salient features. Raw tobacco.
No evidence was collected on the diversion of green tobacco. Typically, fictitious, unregistered
companies acquire legitimate raw tobacco (i.e. legally imported or already processed) and divert it
to clandestine factories.
As presented in ANNEX 15: section 2 a number of Member States have already implemented in their
national legislation monitoring rules and obligations applicable to the tobacco sector under their
agricultural regulations.
Furthermore, in the early stages, raw tobacco is moved from fields to farms or collection centres
and/or curing facilities in bulk, and it would be extremely complicated to perform control measures,
such as weighing. Harvested tobacco is held by the farmer (or collection centres) provided that no
processing other than drying or curing is carried out. The weight of tobacco changes rapidly and
unpredictably after harvesting, which would make record-keeping cumbersome and subject to large
variations. In keeping with these facts, none of the national fiscal regimes for raw tobacco examined
impose obligations involving tax warehouses or, at any rate, the weighing of green tobacco in the
initial stage. Therefore, the proposed system does not involve the application of obligations involving
excise duty determination, weighing or other control measures (tax warehouse, record keeping) while
harvested tobacco is held by the farmer (or collection centres) provided that no processing other than
drying or curing is carried out.
4.1. Impact on illicit manufacturing and trade
The impact of the introduction of movement and control requirements under the Horizontal
Directive on the reduction of illicit manufacturing cannot be precisely quantified because (1) the
magnitude of illicit manufacturing can only be roughly estimated and (2) the proposed measure is
a radically new approach for which there is no benchmark and the impact of similar Member States
regimes can only partly be leveraged to this end.
302
The estimation does not include possible additional costs related to enforcing option 3, which involve differentiated
rates for liquids exceeding 15 mg of nicotine per ml. In principle additional checks might be required to avoid and
tackle abuses. On the other hand, it is worth noting that there is little economic rationale for operators to place on the
market products with a nicotine content which differ from the label, as consumers would not be aware, and they would
not only infringe the excise legislation but also the Tobacco Products Directive (External study).
193
Some useful indications can be drawn from the experience of Member States which introduced a
fiscal regulation of raw tobacco and from competent authorities’ expectations about the effects of
harmonisation at the EU level. In particular:
▪ Member States that introduced a tax regime on raw tobacco frequently registered satisfactory
results regarding diversion of both illicit manufacturing and direct selling to consumers,
although in many cases it is too early to draw conclusions and effects are difficult to measure
(see Figure A17-4). National tax regimes help eliminate the raw tobacco trade ‘grey area’
(unregistered, occasional traders) that were deemed conducive to diversion.
▪ The majority of Member States expect positive impacts from the prospected EU-level
harmonisation, especially in terms of the decline of illicit manufacturing (less so regarding
direct selling of unmanufactured tobacco to consumers).
Figure A17-4. Impact of raw tobacco tax regimes according to Member States tax and
customs authorities
A) Perceived impact of national measures B) Expected impact of EU-level tax
harmonisation
Source: External study based on tax and customs authorities survey.
Note: ‘Don’t know’ answers are not displayed.
Regarding the magnitude of the policy problem, as already mentioned, the illicit manufacturing in
the EU can amount to roughly 13 billion cigarettes, annually (i.e. around 30% of the total
consumption of illicit cigarettes in the EU).
The expected impacts would vary across countries, and it can be assumed that for Member States
that already have a tax regime for raw tobacco benefits would be more limited than for EU
countries with no mechanism in place.
Estimated effects of the proposed measures on the economics of illicit manufacturing. In the
context of the proposed policy review, it is worth separately examining the impact of the tax regime
on the availability of raw tobacco for diversion to illicit manufacturing. The simulations presented
here are purely speculative, since neither research nor empirical data allow for a more robust
assessment. The assumptions proposed are based on qualitative discussions by the external
contractor with informed stakeholders and the review of law enforcement reports and studies.
The price of illicit cigarettes is typically pegged to the price of legal products (i.e. 50% to 60%).303
In this sense, producing illicit cigarettes in the EU is likely more costly than producing them in
303
This estimate was confirmed by feedback gathered through the call for data (External study).
194
low-cost third countries, but the increase in black market prices (induced by the increase of legal
products’ prices) have seemingly created economic opportunities to establish profitable illicit
businesses closer to end consumption markets, typically in Western Europe, Nordic countries and
the United Kingdom. At the same time, this assumption entails that any increase in the
manufacturing costs of illicit products (in the form of increased risks and more difficult
procurement of diverted raw tobacco) would erode the illicit trade margin.304
It can be expected
that an increase of costs beyond certain levels would make illicit manufacturing in the EU no
longer profitable. To what extent the proposed measures would raise illicit manufacturing costs
and trigger such beneficial effects is difficult to say. Analysing further, the assessment shows a
drop in profitability under both a zero rate and a positive rate of excise duty scenarios. However,
the application of excise duties (namely the current excise levels applied to OST) to seized
products would further accelerate the drop in illicit profit levels. For instance, an improved
monitoring system that could potentially detect up to 20% of illicit raw tobacco movements (i.e.
twice the current estimated detection levels) would lead to a reduction of illicit profit margins by
less than 20% in the absence of excise duty and by 35% if excise duties are applied. In a
hypothetical scenario where excise duties are applied and one-third of illicit raw tobacco is seized,
illicit manufacturing activities would no longer be economically viable.
The estimates outlined are merely indicative. However, the feedback collected from countries that
have set up fiscal regimes for the control of raw tobacco (along with positive excise duties) would
confirm that a significant reduction of the grey trade deemed conducive to diversion can be
achieved. It seems plausible to assume, for analytical purposes, that the proposed measures could
lead to increases in the current detection and seizures (or risks thereof) from the current estimated
10% up to an estimated 20% to 30% of the volume of illicit manufactured cigarettes. Data on other
products (i.e. fine-cut tobacco and waterpipe tobacco) are sparser, but it can be assumed that effects
of similar magnitude would be registered on the illicit manufacturing of these products.
4.2. Impact on revenue
The expected reduction in the sale of illicit products manufactured in the EU would have direct
positive effects on Member States tax revenues, as the losses caused by tax fraud will be partially
recovered. A tentative assessment of the magnitude of such impact has been carried out, based on
the estimated decline of illicit product volumes. The indicative results illustrated in Table A17-8
below.
Table A17-8. Indicative impact on forgone revenue associated to illicit manufacturing within
the EU
Product Baseline Reduction under Option 1
(zero rate)
Reduction under Option 2
(positive rate)
Volume Foregone
revenue (in
billion)
Volume Foregone
revenue (in
billion)
Volume Foregone
revenue (in
billion)
Cigarettes 13 billion
sticks
EUR 3.1 3.5 billion
sticks
EUR 0.8 6.8 billion
sticks
EUR 1.6
FCT 10 500 tonnes EUR 1.6 2 800 tonnes EUR 0.4 5 500 tonnes EUR 0.8
WPT 3 000 tonnes EUR 0.4 800 tonnes EUR 0.1 1 600 tonnes EUR 0.2
Total EUR 5.1 EUR 1.3 EUR 2.6
Source: External study
304
Compared to legal products, where an increase in manufacturers costs (including tax charges) is passed on to the
retail selling price, it can be assumed that the increase of costs for illegal products should be absorbed by the operator.
195
4.3. Impacts on administrative costs and savings of enlarging the scope of the
Directive to raw tobacco
Administrative and compliance costs for economic operators
The results of the analysis on costs incurred by economic operators (see Table A 17-9) inevitably
present some degrees of uncertainty due to data gaps and the variability in the unit costs of required
actions for different types of operators (by country, size, efficiency and position on the value
chain).
Table A 17-9. Regulatory costs for raw tobacco economic operators
Obligation Brief description
Aggregated
incremental costs
(EUR million)
Registration in the
excise system
Operators must be authorised by the competent
Member State authority according to the relevant
excise duty profile (warehouse keepers, registered
or certified consignor/consignee). Registration for
duty-suspension operations is deemed more costly.
In 15 Member States, economic operators are
already deemed compliant (national fiscal regimes
are in place). Manufacturers and second processors
are assumed to be already compliant. The
simulation assumes that growers and their
organisations are exempted. First processors would
opt for duty-paid authorisations under option 1
(zero rate) and duty suspension authorisations under
option 2 (positive rate), while importers would
possibly opt for duty-paid transactions in both
cases.
One-off costs
Option 1: EUR 0.1
Option 2: EUR 0.1
Set up/ operate a tax
warehouse
This obligation would regard primarily first and,
storage warehouse operators while second
processors and manufacturers are assumed
compliant. It is applicable only where the proposed
raw tobacco regime involves a positive excise duty
rate (option 2) The obligation has two main cost
components: (1) the investment to set up
appropriate premises (one-off); (2) the recurrent
costs of operations, including keeping registers of
in/out movements.
One-off costs
EUR 39.7
Recurrent costs:
EUR 2.4
(only under Option 2)
EMCS
This obligation has two main cost components: (1)
adopting an IT system to operate the EMCS
(assumed on annual subscription basis); and (2)
recurrent costs for movements (inclusive of book-
Recurrent costs:
EUR 2
196
keeping, weighing of products, and all EMCS-
related procedures305
). These costs will regard all
economic operators including from countries where
national fiscal legislation is already in place.
Manufacturers and second processors are assumed
already compliant with the IT system obligation. It
is assumed that growers and their organisations are
exempted.
Total Option 1:
One-off costs: EUR 0.1
million
Recurrent costs: EUR 2
million
Option 2:
One-off costs: EUR 39.7
million
Recurrent costs: EUR 4.4
million
Source: External study
Administrative and adjustment costs for Member States authorities
The costs that Member States authorities would incur from the adoption of a harmonised excise
category for raw tobacco are of two main kinds: (1) the costs for including new economic operators
in the excise system, which relate to registration activities (one-off and periodical renovation); and
(2) the costs related to operations, which include capital costs of adapting the IT infrastructure
(EMCS interface, etc.) to the enlarged scope of the system, and the costs of individual transactions
(verification and confirmation of movements under EMCS).
The costs examined are incremental, i.e. they do not include costs already incurred in Member
States where a fiscal regime for raw tobacco is already in place. Fiscal registration is already
envisaged in 15 Member States, in which no additional costs for registration have been estimated.
For the IT infrastructure costs, it was assumed that all Member States would incur additional costs,
as EMCS is not currently used for raw tobacco in any Member State.
Overall, estimated costs would amount to:
▪ One-off costs would be around EUR 9.7 million. The bulk of the estimated additional costs
relates to the adjustment of the IT system and related training costs
▪ Recurrent costs would amount to EUR 0.7 million per year, mostly in relation to EMCS
transactions.
The different policy scenarios examined can influence the extent of the costs incurred by Member
States authorities. In particular, the zero-rate option (Option 1) might prompt operators to use the
duty-paid procedure instead of duty suspension where feasible. The former is associated with
reduced costs regarding authorisation.
305
The estimation of the number of annual movements have been assumed based on the volume of intra-EU
movements of raw tobacco (by typology) and establishing a typical movement of 20 tonnes per large enterprise and
of 2 tonnes per SME. The outcome of the analysis is indicative.
197
The costs incurred by specific Member State would vary depending on the number of operators
and transactions.
5. Environmental impacts
The first comprehensive assessment of the environmental footprint of tobacco was provided in a
seminal report of the WHO FCTC Secretariat in 2018. This study concludes that every stage in the
global tobacco supply chain involves considerable resource inputs, and results in the production
of wastes and emissions. The environmental damage that tobacco causes makes it incompatible
with the global development agenda. Since then, the interest on environmental impact of the
tobacco value chain has grown and, eventually, the topic gained prominence in the latest edition
of the FCTC Conference of Party (COP10 - February 2024, Panama), which took the decision of
urging Parties to consider the environmental impacts of the tobacco cycle - from cultivation to
waste disposal – and adopt national policies to protect the environment from the externalities of
tobacco.
The tobacco supply chain is characterised by intensive water and energy demand, especially for
curing and the complex logistics and distribution. The output of tobacco supply chain includes
solid waste, wastewater, and CO2 emissions. Based on a paper presented at the United Nations
Climate Change Conference (COP27), the key environmental impact of tobacco can be
summarised as in Figure A 17-5.
Figure A 17-5. Scale of global tobacco impact
Source: Prof. Nick Voulvoulis (Imperial College of London), “Tobacco’s global environment footprint”
(presentation, 2022).
The European Commission has identified tobacco filters among the top five most common pieces
of litter found on beaches. With the adoption of the single use plastics Directive306
and the
introduction of an Extended Producer Responsibility scheme, manufacturers are expected to cover
the costs of waste management and clean-up, as well as awareness raising measures for tobacco
products with filters (such as cigarette butts). The single use plastics Directive also foresees that
306
Directive (EU) 2019/904 of the European Parliament and of the Council of 5 June 2019 on the reduction of the
impact of certain plastic products on the environment (europa.eu)
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Member States should promote a wide range of measures to reduce litter from post-consumption
waste of tobacco products with filters containing plastic.
The environmental impact of the proposed revision of the Directive cannot be estimated precisely.
However, as the EU market consists of around 0.5 trillion stick-equivalent / year (i.e. one-sixth of
global market), it somehow accounts - directly or indirectly - for about 17% of the global
environmental impact of tobacco. The estimated reduction in consumption associated to increased
EU minima ranges between 5% and 14% of the total EU market for traditional tobacco products.
In this sense, if applied to the estimates put forward in Figure A 17-5, the revision of EU minima
might reduce, inter alia, CO2 emissions by 4-12 mega tonnes (Mt), water depletion by 1 100-3 100
Mt, and solid waste by 1.2-3.5 Mt.
In conclusion, any reduction in tobacco consumption triggered by taxation would, in theory, reduce
its environmental impact. Also, it is likely that any reduction in tobacco consumption would be
associated with some reduction in the overall energy intensity and CO2 emissions of the economy as
a whole, as well as water consumption. The closer the environmental impact takes place to the final
act of tobacco consumption, the more likely the impact itself is to occur within the EU. This is fully
in line with the EU environmental and climate policy and would contribute to achieving the
objectives of the European Climate Law.
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ANNEX 18: ELASTICITY
1. Market effects: elasticity
The demand estimation model developed consisted of three-level estimations:
1. at the first level, the price elasticity of the demand for tobacco products was assessed i.e.
how the expenditure of consumers on any kind of tobacco products varies in relation to the
average price of tobacco products;
2. at the second level, the conditional demand for the different types of products was measured,
i.e. how the above-mentioned expenditure would be allocated by consumers between the
different products in relation to their relative prices, thereby measuring the conditional own-
and cross-price elasticity between different products;
3. at the third level, the conditional demand for cigarettes belonging to different price segments,
namely premium vis-à-vis low- and mid-price cigarettes was estimated, i.e. how the above
expenditure on cigarettes estimated at the second level would be further split between
different segments depending on the respective price levels, that is the conditional own- and
cross-price elasticity between different market segments of cigarettes.
The impact of the tax on prices was also estimated in a log-linear model and therefore the model
actually measured the ‘pass-through elasticity’, i.e. the percentage increase in price levels that is
associated to a percentage increase of taxes. An overall pass-through elasticity of 0.7 was applied
for traditional tobacco products, which means that an excise duty increase of 10% translates, on
average, into a price increase of 7%. The effects on VAT were included in the overall price impact.
Regarding the impact on the demand, the elasticity coefficient of -0.54 was used, which is broadly
in line with the relevant economic literature on this matter (see section 2 below).
Regarding the price elasticity of demand for HTP, liquids for e-cigarettes and nicotine pouches,
the coefficient applied is -1.36.307
2. The price elasticity of the demand for tobacco products in the relevant literature
The impact of tax increases on cigarettes demand worldwide is modelled in a seminal World Bank
report published nearly 20 years ago (Jha & Chaloupka, 1999). Compiling point estimates from a
range of country-level studies, the report assumed an elasticity of the demand for cigarettes of -
0.4 in high income countries (based on UK and US studies) and of -0.8 in low/middle income
countries (averaging estimates from China, Brazil, South Africa etc).
As argued by Gallus et al. (2006), the assumptions on which that model is based are highly
conservative, therefore the results possibly underestimate the actual impact. A more recent meta‐
analysis, reviewing 86 different econometric studies on smoking, reported a mean price elasticity
of -0.48 (Gallet & List, 2003). This encompassed various country-level studies, providing different
estimates, for instance the UK (-0.37) (Townsend, 1996), Finland (-0.5 to -0.95) (Pekurinen,
1989), Italy (-0.44) (Gallus et al., 2003), Spain (-0.2 to -1.25) (Fernandez et al., 2004), California
(around -0.5) (Keeler et al., 1993; Sheu et al.,2004) and Canada (-0.52) (Gruber, 2003).
307
External study.
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As regards Europe on the whole, in a seminal study based on cross‐sectional data from 27
European countries, Townsend (1988) reached a point estimate of price elasticity of -0.4 and of
income elasticity of -0.5. In a more recent work on price and cigarette consumption in Europe,
Gallus et al. (2006) concludes that ‘controlling for male to female prevalence ratio, price
elasticities for consumption were -0.46 (95% confidence interval (Cl) -0.74 to -0.17) and -0.74
(95% Cl -1.13 to -0.35) for local and foreign brand, respectively.’
The recent monograph published by the U.S. National Cancer Institute and the WHO confirmed
the inelastic nature of the demand for cigarettes in high income countries: ‘nearly all empirical
studies have found that the price elasticity of demand for tobacco products lies between zero and
minus one.’ The study recognised the variability of the point estimates available in the literature,
while confirming that the -0.4 average value laid down in the previous World Bank report can still
represent a valid benchmark.
The econometric estimates elaborated are therefore broadly in line with the relevant economic
literature. In particular, both the range (from -0.39 to -0.64) and the retained point estimate (-0.54)
of the price elasticity for tobacco products is rather consistent with the abovementioned results of
previous keynote studies.308
308
Economisti Associati, ‘Study on Council Directive 2011/64/EU on the structure and rates of excise duty applied to
manufactured tobacco’, 2019.
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ANNEX 19: EXPRESSING REVISED EU MINIMA IN NOMINAL TERMS
1. Traditional tobacco products
The impacts of revising EU minima for traditional tobacco product in EUR expressed in nominal
terms were also assessed. The options (limited, moderate and high increase) are the same as the
ones described in section 5.2.
1.1. Economic impacts
Table A19-1. The main impacts of the options expressed in nominal terms
Current EU minima
(EUR/1,000 for cigarettes;
per kg for other products)
Cigarettes
EUR 90
FCT
EUR 60
Cigars
EUR 12
Cigarillos
EUR 12
OST
EUR 22
Option 1: Limited increase of EU minima
Fixed minimum 155 155 107 107
Increase of the fixed minimum
(%)
72% 158% 792% 386%
Average increase of excise duty
for Member states
(%)
14% 12% 14% 23% 13%
Member States affected 19 9 3 6 7
Market sales (%) -6% -6% -2% -10% -9%
Impact on revenues
(EUR million)
+ 4 700 + 700 + 50 + 50
Option 2: Moderate increase of EU minima
Fixed minimum 179 179 143 143
Increase of the fixed minimum
(%)
99% 198% 1092% 550%
Average increase of excise duty
for Member states
(%)
27% 16% 27% 42% 28%
Member States affected 21 12 8 8 12
Market sales (%) -10% -7% -5% -13% -12%
Impact on revenues
(EUR million)
+ 8 900 + 800 + 90 + 80
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Option 3: High increase of EU minima
Fixed minimum 215 215 143 143
Increase of the fixed minimum
(%)
139% 258% 1092% 550%
Average increase of excise duty
for Member States
(%)
47% 25% 27% 42% 28%
Member States affected 21 17 8 8 12
Market sales (%) -16% -9% -5% -13% -12%
Impact on revenues
(EUR million)
+ 13 700 + 1 200 + 90 + 80
Source: External study.
Note: Estimates refer to the EU-wide aggregated market. Figures are rounded.
As regards cigarettes the majority of Member States would be forced to increase their rates under
all options (up to 21 Member States under option 3). The average rates increase in Member States
would be respectively +14%, +27% and +47% under option 1’ (limited increase), 2’ (moderate
increase) and 3’ (high increase).
Price level increases would in turn reduce demand and sales of tobacco products. Based on the
estimation model applied, such reduction would range from 2% to 10% under option 1, from 5%
to 13% under option 2 and from 5% to 16% under option 3. The average weighted average price
(WAP) for 1 000 cigarettes is estimated at EUR 322 in option 1, at EUR 343 in option 2 and at
EUR 376 in option 3. For kg of FCT, it is estimated at EUR 279 under option 1, at EUR 285 under
option 2 and at EUR 295 under option 3.
The global impact on tax revenues would be an increase of EUR 5.5 billion for option 1, 9.9 billion
for option 2 and 15.1 billion for option 3.
Regarding impact on inflation, the increase in the price of tobacco products would impact on
inflation rates in the Member States, proportionally to the extent of the increase and of the weight
of products on consumer’s basket - as measured by Eurostat’s HICP. The results are reported in
Figure A 19-1 below. Overall, the ‘rate of increase’ for the HICP would amount to 0.21%
(weighted EU average) in the case of option 1, to 0.38% for option 2 and reach 0.62% for option
3.
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Figure A 19-1. Estimated increase of the HICP index caused by tobacco price increase
Source: External study.
The results, summarised in Table A 19-2, show that the increase of EU minima would be
associated with a reduction of cross-border flows of cigarettes and FCT, however the impact
would be very similar to the impact under the PPP approach (as presented in section 6) for FCT
and slightly lower for cigarettes.
Table A 19-2. Impact on cross-border flows of cigarettes and FCT
Volumes Changes in volumes with respect
to Baseline
Baseline Option 1 Option 2 Option 3 Option 1 Option 2 Option 3
Cigarettes (mln sticks) 28 400 26 800 25 200 22 800 -5.6% -11.1% -19.7%
FCT (t, lb) 8 300 8 100 8 050 7 800 -2.2% -2.9% -6.1%
FCT (t, ub) 14 000 13 700 13 600 13 150
Source: External study.
Note: lb and up stand for the lower and upper bound, respectively. Numbers were rounded with different precision
applied to different products.
1.2. Public health impacts
As presented in
Table A 19-3 all the options considered would contribute to reducing smoking prevalence among
the general population (aged 15+) and to meeting the target of Europe’s Beating Cancer Plan goals.
Table A 19-3. Estimated impacts on tobacco consumption
Options Impact on consumption Impact on the number of
smokers*
Impact on smoking
prevalence*
Billion
items
in % Million population in %
Baseline 502 92.1 24.0%
Option 1 -30 -6% -5.4 22.6%
Option 2 -49 -10% -9.0 21.7%
Option 3 -73 -15% -13.5 20.5%
Source: External study.
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Notes: FCT and OST have been converted into items applying a 0.75g=1 stick equivalence. (*) The estimates for
these variables are presented with a higher degree of granularity for the sole purpose of showing the possible different
impact across scenarios.
1.3. Comparison of nominal versus partial PPP approach
The proposal for the revision of EU minima is to adopt a partial PPP system where 2/3 of the tax
is expressed in nominal terms and 1/3 in PPP terms.
This proportion between nominal and PPP components has been derived from the increase
scenario for the EU minima on cigarettes that corresponds to the average expectations of Member
States, as emerged from the tax authorities’ survey. It strikes a good balance between increasing
convergence and distributing the impact across Member States.
Figure A19-2. Comparison of nominal versus partial PPP approach in case of cigarettes
weighted average price (WAP in EUR)
Source: Commission analysis based on External study
Note: Figures in this figure represent ‘High’ value.
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2. New products
As regards new products (heated tobacco products, liquids for e-cigarettes, other manufactured
and related products), the possibility of applying excise duty based in nominal terms has been
assessed. However, the impact would not essentially differ from the purchasing power values as
presented in section 6.2.