TAE on EU Tobacco Directive (TPD)

Planned EU Tobacco Directive encourages illegal trade, causes tax losses and threatens jobs.
Comprehensive and transparent assessment of regulatory impacts required!

The European Commission’s plans for a revision of the Tobacco Products Directive (TPD) are now clearly defined. Media reports indicate that the Commission’s draft document envisages that 75 per cent of the surface of a cigarette pack will have to be covered with 'shock images' in future. As also reported a kind of standardised cigarette is being proposed. Ingredients such as menthol are said to be banned. The Taxpayers Association of Europe (TAE) does not consider these measures as effective and warns of consequences as a rise in the black market and tax losses in the billions.

The Taxpayers Association of Europe criticises the planned measures

“The protection of public health is a valuable end. The improvement and protection of health is number one priority, especially with regard to minors. But we fear that the planned measures will not have the desired effect. Instead, they are more likely to undermine the protection of health and to promote the black market,” warns Rolf von Hohenhau, President of the TAE: “This will inevitably lead to high losses of tax revenues and consequently lead to job losses. And this right now, when the EU is in a threatening financial crisis.“

Switch away from the legal trade to the black market

The proposed standardization of cigarette packs (big warnings, color, shape, size), and also the products (one size for cigarettes) is likely to stimulate and will increase in the illicit trade of tobacco products. Counterfeiting becomes easier and less expensive. Standardising the product means banning entire segments of the market. This will affect, amongst others, menthol cigarettes and ‘slim’ cigarettes, which currently account for a significant part of the tobacco market, particularly in the Eastern European states. Precisely these countries that today are most affected by by illicit trade today. “The consumers in question will demand the products they are used to smoking on the black market. This will result in even more illegal trade and an increase of crime.” says the president of the taxpayer association von Hohenhau. By turning the previously legal, taxed market into an illegal - and therefore untaxed - market, EU Member States will loose tax revenues in the billions.

Fears of tax losses running into billions

The annual tax revenue from tobacco products in the EU is currently around 98.7 billion euros. According to estimates today, the European states are already losing over 10 billion euros in tax revenues purely due to tobacco smuggling. The measures being envisaged in the revision of the Tobacco Products Directive could result in tax losses of over 30 billion euros annually. “In view of the European financial crisis, which has us in suspense day by day, that would be a horrendous scenario for Europe,” warns von Hohenhau.

Revision of Tobacco Directive requires comprehensive and transparent assessment of regulatory impacts

A dramatic market intervention, like the revision of the Tobacco Products Directive (TPD), with serious anticipated outcome for the national budgets in the EU, without a proof of changed consumer behavior, necessarily requires comprehensive discussions, where all those affected must be heard. The Taxpayers Association of Europe is of the opinion that the revision of the Tabacco Product Directive should be initially focused and concentrated on measures that have been proven to reduce smoking. This would include prevention and education campaigns instead of endangering government revenues and jobs in an undifferentiated radical movement and possibly help individual producers gaining competitive advantages, who could not have prevailed on the market so far for quality reasons, so President von Hohenhau.
For ensuring that the goal of improving health protection is actually reached, the Taxpayers Association of Europe calls for a comprehensive and transparent appraisal of the regulatory impacts in the revision of TPD. In that regard, concern is raised by a recent report from Europolitics (“Tobacco directive: Barroso puts pressure on Commission services”), according to which direct pressure was applied by the president of the commission José Manuel Barroso on the responsible Directorates-General inside the Commission to complete the draft Directive as quickly as possible and not to express any negative opinions. Thus means that constructive criticism and open-ended discussion is not allowed.

Munich/Brussels, December 18, 2012