Background on the European Commission and its Relevance
The European Commission, the executive branch of the European Union (EU), is responsible for proposing legislation and implementing decisions. It plays a crucial role in shaping policies that affect member states, including health-related matters. In this case, the Commission aims to increase the minimum tax on tobacco products across the EU.
Proposed Changes in Minimum Tobacco Tax
The European Commission has proposed raising the minimum tobacco tax, which could result in a price increase of up to €2 per pack. This dual objective is to reduce the cost disparity between member states and boost fiscal revenues. Furthermore, 15% of the community minimum tax applicable to each product will be allocated to the EU budget through a new special tobacco tax resource.
Currently, the minimum tax in the EU is at least €90 (US$104) per 1,000 cigarettes or 60% of the average retail sale price. However, in practice, the average special tobacco tax applied in several member states nearly doubles these figures.
New Minimum Tax Levels
Under the new review, the Commission intends to elevate these minimums to €215 (US$249) per 1,000 units and 63% of the average retail sale price.
According to Commission data, six member states already tax cigarettes at a level higher than the proposed reform, thus meeting the revised requirements. The remaining 21 member states would need to increase their current tax levels to comply with the new standards.
In Spain, for instance, the current minimum tax is €150 (US$173) per 1,000 cigarettes, along with a proportional tax rate of 48.5% and a specific tax of €33.50 (US$38.81) per 1,000 cigarettes.
Impact on Prices and Revenue
Although the Commission acknowledges that predicting the actual impact on cigarette prices is challenging due to varying government policies, brand strategies, and market conditions, it estimates a price increase of between US$1 and US$2 per pack.
Tobacco tax revenues amount to €80,000 million (US$92.68 billion), with cigarettes accounting for 87% of the total. However, the review aims to tax new products deemed a growing health threat, such as e-cigarettes, vaporizers, and nicotine pouches.
Expanding Tax Scope
The Commission proposes extending the tobacco taxation directive’s scope to these new products, which currently represent 13% of the market value of tobacco derivatives sold in the EU. These products include e-liquids, vaporizers, and nicotine pouches.
E-liquid will be taxed at a minimum of 20% of the retail sale price or €0.12 (US$0.13) per milliliter for up to 15mg of nicotine, while refills exceeding 15mg will be taxed at 40% of the retail sale price or €0.36 (US$0.41) per milliliter.
Nicotine pouches will be taxed at 50% of the retail sale price, and other products like gum or inhalers will be taxed at 50% of the retail sale price, including taxes.
Allocating Tobacco Tax Revenue to the EU Budget
Additionally, the Commission wants 15% of the community minimum tax applicable to each product to go towards the EU budget through a new special tobacco tax resource (Tedor). This could potentially generate up to €11.2 billion (US$12.975 billion) annually, though numerous delegations have already rejected establishing new revenue sources for the 2028-2034 period.
Key Questions and Answers
- What is the European Commission proposing? The European Commission is proposing to raise the minimum tax on tobacco products across the EU, which could increase cigarette prices by up to €2 per pack.
- Why is the Commission making this proposal? The dual objectives are to reduce cost disparities between member states and boost fiscal revenues. 15% of the community minimum tax will be allocated to the EU budget through a new special tobacco tax resource.
- Which member states are already above the proposed tax level? Six member states currently tax cigarettes at a level higher than the proposed reform, thus meeting the revised requirements.
- How will this impact prices and revenue? The Commission estimates a price increase of between US$1 and US$2 per pack. Tobacco tax revenues amount to €80,000 million (US$92.68 billion), with cigarettes accounting for 87% of the total.
- What new products will be taxed? The Commission aims to tax new products deemed a growing health threat, such as e-cigarettes, vaporizers, and nicotine pouches.
- How much revenue is expected from the new tax resource? The new special tobacco tax resource (Tedor) could potentially generate up to €11.2 billion (US$12.975 billion) annually.
