Revision of the Tobacco Excise Tax Directive (TED) - take concerns seriously. TAE calls for revision and valid regulatory impact assessment

Taxpayers Association of Europe (TAE) has deep concern about the revision of the Tobacco Excise Tax Directive (TED), in particular the associated threat of price increases through increased excise duties on tobacco and nicotine products, as recently revealed by media reports and online leaks.

We are very surprised that the Commission appears to be abandoning what we consider a balanced and pragmatic approach outlined in the 2022 draft. Excessive prices not only distort markets, they also encourage the underground economy, thus leading to tax losses and ultimately undermining public health policy objectives. Above all, we cannot understand the impact assessment in this regard. Neither for large companies nor for SMEs. Both would be disproportionately burdened, directly (manufacturers) and indirectly (suppliers), by the proposed, sometimes exorbitant, tax increases. If, to cite just one example, the proposed increase in the minimum tax on cigars/cigarillos were to come into effect, this would mean an increase from €12 to €143 – nearly 1,100 percent! This would no longer be feasible for the medium-sized cigar industry in Germany and Europe and would have serious repercussions for the associated jobs in Europe and in third countries. Furthermore, it would run counter to the economic policy turnaround initiated by the EU Commission.

Such an increase in tobacco tax carries the latent risk of a massive increase in the shadow economy and thus more illegal trade, as well as ultimately national tax revenue shortfalls. According to estimates (KPMG report), the tax shortfall in the EU on tobacco products already amounts to around €19.4 billion per year. France and the Netherlands are cautionary tales: In France, the black market has flourished following the tobacco tax increase, leading to tax shortfalls of over €9.4 billion per year. The same is true in the Netherlands, where the tax authorities lose more than €860 million per year. In view of these figures, it would be a mistake to believe that consumers are not price-sensitive. They simply shop wherever they can find their products cheaper, legally or even illegally.

Likewise, the impact on producers in the EU should not be trivialized. In countries like Italy, Greece, Bulgaria, Croatia, and Poland, thousands of families have been growing tobacco for generations. Not out of conviction, but because the soil doesn't support anything else. Sandy, dry, nutrient-poor soil – unsuitable for wheat or vegetables, but ideal for tobacco! This aspect should also be considered in a reform of the Tobacco Directive.

In order to prevent damage, the TAE believes that the following points should be considered in the upcoming revision of the Tobacco Directive:

• Ensuring the correct proportionality of taxation: Any potential changes to the already published minimum rates for 2022 should retain the harm-based taxation approach. Price is an important reason for consumers to switch to less harmful products. New products should therefore not be taxed at a rate that is close to that of combustible tobacco, i.e. cigarettes. Because if the price is almost the same, this reason no longer applies. In this respect, heated tobacco products, which are substitute products, should benefit from a similar excise duty differential as e-cigarettes. This would also be important because, as far as we know, e-cigarettes are predominantly imported, whereas heated tobacco products were not only developed in the EU but are also manufactured there. Furthermore, one should always keep an eye on the relationship between the cost of tax collection and the market share of the respective products. Snuff, for example, has a market share of only around 0.1 percent. Although it is a smokeless tobacco product consumed more regionally, it is already heavily regulated. If further tax-related price increases were to occur, production would become unprofitable, and consumers would seek alternative sources of supply.
• Avoiding excessive tax increases: In our opinion, applying the full Harmonized Index of Consumer Prices (HICP) 2022-2025 to the 2022 tax rates would lead to an excessive tax increase and encourage additional inflation in the market. A doubling of tax rates on tobacco products has already been proposed for 2022, and this should not be exceeded . As part of an indexation initiative, we therefore recommend using core inflation as the index, but excluding outlier years 2022-2023 with exceptional inflation, to ensure a fair and sustainable adjustment that does not place undue burdens on the market and thus on consumers.
• Consider current practice in EU Member States. Appropriately include product innovations in the scope of the directive: Overall, given the still tense economic situation, a moderate tax burden should be aimed for in the interest of consumers. In our opinion, all market products and innovations that contribute to reducing smoking rates should be given preferential tax treatment. The current practice of taxing heated tobacco products, which has been adopted by the majority of Member States, should be retained as an alternative to individual taxation. This avoids additional loopholes due to product heterogeneity and ensures continuity and predictability for both consumers and national budgets. This was probably also the reason why they fell within the scope of the TED Directive as planned in 2022 and received equal tax treatment alongside other novel nicotine products. The KPMG report also shows that tobacco taxation is successful when it is designed in a country-specific and sensitive manner. Member states that only have internal EU borders face different challenges than countries with external EU borders, and the same applies to countries with access to the sea.
• Maintaining purchasing power parity (PPP): The PPP index is essential to ensure fair treatment among member states with different purchasing power levels. Abolishing this adjustment would disproportionately affect countries in Central and Eastern Europe, further fueling inflation and illicit trade there.
• Impact on producers and jobs in the EU: A comprehensive evaluation of the impact on producers and jobs of the TED reform is needed, including a forecast of the costs of the structural adjustments required by the TED reform.

The aim is to ensure a balanced, fact-based revision of the TED that strengthens public health, but at the same time does not jeopardize economic stability and excludes an excessive burden on consumers. All this within the framework of a transparent and comprehensive impact assessment.

In our opinion, the revision of the Tobacco Products Directive should under no circumstances be used to generate additional new own resources for the EU. The discussion of own resources must be conducted separately and equally transparently, and requires a comprehensive public debate.

Brusselsl/Munich, June 23, 2025