Single market, public health, risk of illicit trade: European Parliament questions EU tobacco tax reform

Brussels – The outcry over the controversial proposed revision of the EU directive to increase and harmonise minimum tax rates on heated tobacco products and electronic cigarettes continues. The European Commission defends the measure’s merits, not only as a step toward achieving the objective of reducing smoking below 5% by 2040, but also to ensure the proper functioning of the single market, now subject to severe distortions. However, according to several members of Parliament, the tobacco industry (and several Member States), the tax increase risks proving to be a dangerous boomerang, increasing illicit trade and penalising the less harmful alternatives to traditional cigarettes. 

Today (20 November), the topic was the focus of the European Parliament’s Subcommittee on Taxation (FISC) meeting. In addition to MEPs, the EU executive, represented by Maria Elena Scoppio, head of the Directorate General for Taxation and Customs Union, several academics and international experts, the umbrella organisation of manufacturers – Tobacco Europe – and the NGO coalition Smoke Free Partnership were present. 

Scoppio summarised the three lines of action planned by the Commission: the increase of minimum rates for traditional tobacco products, which today “no longer act as an effective deterrent” and which “would be adjusted based on the economic situation of each Member State;” the inclusion of electronic alternatives to tobacco – and Snus sachets – within the scope of the directive; and the introduction of additional measures to control the trade in raw tobacco, from which much of the illicit trade originates. 

The main issue is the taxation of e-cigarettes and vaping. Scoppio reiterated the Commission’s stance that “new nicotine products attract young people,” pose health risks “beyond cancer, prolong addictions, and are a gateway to traditional cigarettes.” However, the inclusion of the new products “is not only based on health issues, but also on distortions of the internal market,” Scoppio pointed out. They are currently not subject to any minimum taxation at the EU level, and Member States have adopted different approaches. 

Brussels estimated that the higher taxation will also lead to “an increase in tax revenue of EUR 15 billion across the EU,” while reducing healthcare expenditure on tobacco-related diseases. The existing minimum rates, now “obsolete,” have “contributed to a 40 percent drop in smoking rates over the last decade.”

According to Christa Pelsers, of Tobacco Europe, the Commission’s proposal is flawed on all fronts. Starting with the fact that nicotine – the basis of electronic alternatives to tobacco – is not recognised as a cause of cancer. The minimum rates “are excessive,” and “will destroy demand for these products, at least for the legal ones,” warned Pelsers.

Instead of equating e-cigarettes and vaping with traditional cigarettes, taxation could be progressive, i.e., proportionate to the risks of the product. “Tariffs on alcohol increase based on how much alcohol they contain,” pointed out Francesco Moscone, professor at Ca’ Foscari University in Venice and Brunel University in London. In addition to citing several independent scientific studies that “consistently find that newer nicotine products are less toxic than combustible cigarettes,” the economist stated that – according to one of his recent studies – “if half of Italian smokers switched to reduced-risk products, such as heated tobacco and e-cigarettes, we could save around EUR 700 million in direct costs each year, and the indirect savings could be even greater.”

 According to Moscone, equal taxation for unequal risks “removes price incentives for smokers to switch to less harmful alternatives and leads to avoidable health costs.” The economist called for following Italy’s example, where there is currently a “42 percent tax differential between traditional products and heated tobacco.”

The other virtuous example for those arguing for a step back by the European Commission is undoubtedly Sweden, which has set lower excise taxes on alternatives to traditional cigarettes. The Scandinavian country is the only EU member state where the sale of snus, which, according to the Swedish Health Agency, is regularly used by 14 percent of the population, is legal. For Gijs Van Wijk, of the Smoke Free Partnership, the narrative of nicotine sachets leading to a historic reduction in smoking “is artfully fabricated,” because the “story is different.” Van Vijk claims that in Sweden, “29 percent of 17-year-olds” use snus, “an entire generation dependent on nicotine.” Just like snus, the new nicotine products “are not harmless, they are addictive, and have impacts on the cardiovascular system,” he added.

It is a thorny issue, made even more complex by the fact that “in no other area do we hear such differing opinions, numbers, and figures,” said Gaetano Pedullà, MEP for the 5 Star Movement. The MEP shared the alarm raised by the tobacco industry: “They would have to cut jobs, partly halt production—a tragic situation. The public must always derive the greatest possible benefit, but causing supply chains to collapse is not a benefit,” he said.

According to Marco Falcone, MEP for Forza Italia, the European Commission “was right to initiate a review that takes into account innovations in the tobacco market.” However, “unfortunately, the proposal does not introduce a clear fiscal distinction based on health risk.” For the Forza Italia MEP, there is also a question of the “fiscal sovereignty of the Member States.” Brussels would, in fact, have the power, through delegated acts, to update tax levels every three years based on inflation and purchasing power across different countries.