The European Commission has launched a public consultation to gather views of all stakeholders regarding the taxation of tobacco products. The period for concerned parties to submit comments opened on 30 March 2021.
The EU’s rules for taxation of tobacco products are contained in Directive 2011/64/EU, which is often called the “Tobacco Tax Directive.” It contains the basic framework for taxing manufactured tobacco products including rules for the structure and minimum levels of excise taxes to which all Member States must adhere. Product descriptions are also to be found in the Directive.
There are several key factors driving the reexamination of the Directive. The Commission wants to make certain that the rules for taxation “ensure the proper functioning of the internal market and at the same time provide a high level of health protection” which means to reduce tobacco consumption through higher tax rates. According to the Commission, the minimum tax rates for tobacco products are no longer effective. “Divergences in the rates among Member States lead to excessive cross border purchases and to an incentive for some individuals and criminal organizations to engage in fraudulent activity.” In addition, novel products such as e-cigarettes and heated tobacco, which are growing in popularity, were not addressed when the Directive was drafted in 2011.
In a report to the European Union’s Council of Finance Ministers (ECOFIN) dated 12 January 2018 the Commission concluded that due to a lack of sufficient data on the market for these products it would not propose a harmonized approach to taxation at the present time. In the intervening years, novel vapor products have been launched in the majority of Member States. Excise taxes have been applied to heated tobacco products in every market where they have appeared while most Member States have introduced taxes on e-cigarettes in some manner.
These policies have been enacted by individual Member States without guidance or a mandate from the Commission. While the overwhelming majority have adopted a similar approach – specific tax based on the weight of tobacco or volume in the case of e-cigarette liquid – there is currently no harmonized approach required by EU law. Rates of excise on these products are generally substantially lower than those applied to cigarettes.
The Commission has invited the public to submit comments until 22 June 2021.