Brussels –
The European Court of Auditors does not agree with the approach that the European Commission is taking to tobacco management and, in particular, to combating the illegal trade in tobacco. This is an issue that concerns both the method—the European Court of Auditors considers the European initiatives “piecemeal” and lacking a “clear direction,” with persistent gaps in cooperation between national authorities—as well as the substance.
Petri Sarvamaa, a member of the European Court of Auditors responsible for the audit, notes that “it stands to reason that taxation could have a channelling effect, particularly on the lucrative markets for illicit tobacco products.” Because, while the illicit market continues to grow, Brussels is also preparing to take action on the taxation of tobacco products. This is what emerges from the special report drawn up by the EU Court of Auditors, published today (8 September).
The 13-billion paradox
According to the Commission’s estimates cited by the Court of Auditors, the illicit trade in tobacco deprives the EU and Member States’ budgets of around €13 billion in revenue each year. At the same time, the Commission aims to raise €11.2 billion a year through the new tax on tobacco products, which is intended to help fund the next European budget.
In other words, the EU would lose more revenue each year due to the illegal market than it expects to collect from the new tax.
However, the Court itself advises that the figure of 13 billion should be treated with caution: the European Commission does not have an “independent and reliable” estimate of the actual size of the European illicit market.
And, according to the Court, the situation is changing rapidly. Smuggling remains a problem, but criminal groups are increasingly shifting production directly within the EU, shortening supply chains and moving closer to consumers. Illegal production sites have been identified in almost all Member States. The auditors visited Belgium, Spain, Poland, and Romania, finding significant differences in the capacity of national authorities to tackle the problem.
In Belgium, for example, the Court cites the case of an illegal factory where each machine was capable of producing around one million cigarettes an hour. In Spain, at the largest illicit cigarette factory ever dismantled in the country, three million packets of counterfeit cigarettes were seized. These figures show that this is no longer merely a matter of small-scale smuggling rings, but of organised industrial production.
Criticism of the European Commission
“We are making it very clear to the Commission that it must step up its game: in coordination, in ensuring that we have accurate estimates of the scale of the problem, in coordinating Member States, and in examining differences and shortcomings,” explained Petri Sarvamaa. According to Sarvamaa, the report, while worded “politely”, represents an explicit criticism of the Commission: there are insufficient tools to support Member States and reduce the loopholes that criminal organisations are able to exploit.
The main problem is the fragmentation of the European system. The rules are not harmonised, and the methods of monitoring, the powers of the authorities, the definition of offences, and even the severity of penalties vary from country to country. It is precisely this lack of uniformity, according to the Court, that creates potential “opportunities” for organised crime.
Products are changing too. The share of new tobacco products is on the rise, and these are particularly appealing to younger consumers. In 2023, the Commission estimated that illicit products accounted for 8.8 per cent of total cigarette consumption in the EU, while the overall illicit market—excluding cigarettes—amounted to almost 21,000 tonnes.
The Commission is becoming increasingly isolated
The Court of Auditors’ criticisms come at a time when the European Parliament has also already taken a firm stance against the Commission’s proposal on excise duties. It is therefore precisely on the European tobacco strategy that the EU Commission risks finding itself increasingly isolated.
In the European Parliament, MEPs did not merely reject the Commission’s proposal to increase excise duties on tobacco and alternative products, but formally called on the Berlaymont to withdraw it in its entirety.
Opposition, therefore, is not coming solely from governments or industry players: one of the EU’s main supervisory institutions, the Court of Auditors, is now also questioning the European Commission’s strategy, while the European Parliament has already called for the proposal on excise duties to be scrapped.
The crux of the matter is that, according to the Court, Brussels is seeking to take action on taxation without yet having a sufficiently clear picture of the illicit market and without having resolved the profound differences between Member States. The Court itself does not rule out that taxation may play a role in combating the illicit market, but calls first and foremost for more reliable data, greater coordination, and more harmonised rules.
The next step will therefore be a discussion between the Court of Auditors and MEPs on the audit findings. This stage could highlight even more clearly the divide between the Commission and the other European institutions over the way forward for tobacco policy.
English version by the Translation Service of Withub
