Revision of the Tobacco Taxation Directive (TED) – taking concerns seriously. TAE calls for a revision and a thorough impact assessment.

The European Taxpayers’ Association (TAE) is deeply concerned about the revision of the Tobacco Taxation Directive (TED), in particular the associated risk of price rises due to 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 to be the balanced and pragmatic approach of the 2022 draft. Excessive prices not only distort markets but also encourage the black economy, leading to a loss of tax revenue and ultimately undermining public health policy objectives. Above all, we find the impact assessment incomprehensible in this context – neither for large enterprises nor for SMEs. Both would be disproportionately burdened by the proposed, in some cases exorbitant, tax increases – directly (manufacturers) and indirectly (suppliers). If, for example, the proposed increase in the minimum tax on cigars and cigarillos were to come into force, this would amount to a rise from €12 to €143 – almost 1,100 per cent! This would no longer be sustainable for the small and medium-sized cigar industry in Germany and Europe and would have serious consequences for the associated jobs in Europe and in third countries. Furthermore, it would run counter to the economic policy reorientation initiated by the European Commission.

Such an increase in tobacco duty carries the latent risk of a massive rise in the black economy and, consequently, in illicit trade, as well as ultimately leading to tax revenue shortfalls for the state. According to estimates (KPMG report), tax revenue shortfalls on tobacco products in the EU already amount to around 19.4 billion euros per year. France and the Netherlands serve as cautionary examples: in France, the black market has boomed following the tobacco tax increase, leading to tax revenue shortfalls of over 9.4 billion euros annually. The same applies to the Netherlands, where the tax authorities lose more than 860 million euros a year. In view of these figures, it would be a mistake to believe that consumers are not price-sensitive. They simply buy where they find their products cheapest, whether legally or even illegally.

Nor should the impact on producers in the EU be underestimated. In countries such as Italy, Greece, Bulgaria, Croatia and Poland, thousands of families have been growing tobacco for generations. Not out of conviction, but because the soil is unsuitable for anything else. Sandy, dry, nutrient-poor soil – unsuitable for wheat or vegetables, but ideal for tobacco! This aspect should also be taken into account in any reform of the Tobacco Products Directive.

To avoid harm, the TAE believes that the following points should be taken into account in the forthcoming revision of the Tobacco Products Directive:

Ensuring appropriate taxation: Any changes to the minimum tax rates already published for 2022 should maintain the harm-based approach to taxation. Price is a key factor in consumers switching to less harmful products. New products should therefore not be taxed at a rate close to that of tobacco heaters (cigarettes). This is because, if the price is almost identical, this incentive no longer applies. In this context, heated tobacco products, which are regarded as substitute products, should benefit from a similar differentiation in excise duty to that applied to e-cigarettes. This is also important because, to the best of our knowledge, e-cigarettes are predominantly imported, whilst heated tobacco products are not only developed but also manufactured within the EU. Furthermore, the relationship between the costs of tax collection and the market share of the respective products should always be borne in mind. Snuff, for example, has a market share of only around 0.1 per cent. Although it is a smokeless tobacco product that tends to be consumed regionally, it is already heavily regulated. Should further tax-induced price rises occur, production would become unprofitable and consumers would seek alternative sources of supply.
Avoiding excessive tax increases: In our view, applying the full Harmonised Index of Consumer Prices (HICP) for 2022–2025 to the 2022 tax rates would result in an excessive tax increase and further fuel inflation in the market. A doubling of tobacco tax rates has already been proposed for 2022 and should not be exceeded. As part of an indexation initiative, we therefore recommend using core inflation as the index, whilst excluding the outlier years of 2022 and 2023 – which saw exceptionally high inflation – to ensure a fair and sustainable adjustment that does not place an excessive burden on the market and, consequently, on consumers.
Take into account current practice in the EU Member States. Product innovations should be appropriately included within the scope of the Directive: given the continuing economic challenges, a moderate tax burden should be sought in the interests of consumers. In our view, all products and innovations on the market that contribute to reducing smoking rates should receive preferential tax treatment. The current practice of taxing tobacco heaters, which has been adopted by the majority of Member States, should be retained as an alternative to individual taxation. This avoids additional loopholes arising from product heterogeneity and ensures continuity and predictability for both consumers and national budgets. This was presumably also the reason why, as planned, they fell within the scope of the TED Directive in 2022 and were treated equally for tax purposes alongside other novel nicotine products. The KPMG report also shows that tobacco taxation is successful when it is tailored to specific national circumstances and implemented sensitively. Member States with only internal borders within the EU face different challenges to those with external 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 of Member States with different levels of purchasing power. Abolishing this adjustment would hit countries in Central and Eastern Europe disproportionately hard and further fuel inflation and illicit trade there.
Impact on producers and jobs in the EU: A comprehensive assessment is needed of the impact of the TED reform on producers and jobs, including a forecast of the costs of the structural adjustments required by the TED reform.

The aim is a balanced, evidence-based revision of the TED that strengthens public health whilst not jeopardising economic stability and ensuring that consumers are not placed under undue strain. All of this takes place within the framework of a transparent and comprehensive impact assessment.

In our view, the revision of the Tobacco Products Directive should under no circumstances be used to generate additional own resources for the EU. The discussion on own resources must be conducted separately and with the same level of transparency, and requires a comprehensive public debate.

Brussels/Munich, 23 June 2025