The Smoke Free Partnership Statement on the delay of the EU Tobacco Tax Proposal
Wednesday, 07 December 2022
The presentation of the Council Directive 2011/64/EU on excise rules for tobacco (the Tobacco Tax Directive - TTD) was planned for 7 December 2022 in line with the European Commission published work programme for 2022. The release has been postponed. This cannot be a surprise given the tobacco industry’s omnipresence, lobbying and interference at the EU level.
Tobacco consumption continues to be the leading cause of preventable cancer, with 27% of all cancers attributed to tobacco use. The approval of Europe’s Beating Cancer Plan in February 2022 by the European Parliament is a major political milestone in the fight against cancer in Europe. Together with the US Cancer Moonshot, Europe's Beating Cancer Plan is one of the most ambitious plans to address the disease. The Plan includes a commitment to creating the conditions and environment where children and youth would not start using tobacco, and people who want to quit would have the support they need. The goal of achieving a tobacco-free generation in Europe, where less than 5% of people use tobacco by 2040 compared to around 25% today, is a realistic goal that can be met through strengthening EU tobacco control legal instruments. One of the key instruments in this regard is a revised Tobacco Tax Directive, as tax induced price increases are widely regarded as one of the most effective ways of reducing tobacco consumption.
The decision of the Gentiloni’s cabinet to postpone the presentation of the proposal on excise rules for tobacco products to 2023 cannot be justified by the energy and inflation crises. It is obvious that the delay is only beneficial to the tobacco industry, disregarding the urgent need to save lives by preventing cancer caused by tobacco use.
The Smoke Free Partnership, since the beginning of the TTD revision, supported the Commission’s intention to update the EU Tobacco Tax Directive, including proposing higher minimum tax rates on cigarettes and considering taxes on novel products. The proposal that has been leaked to the media allows us to assume that the Commission has made progress and was ready to present the proposal in December this year as planned. The current minimum cigarette excise tax rates were adopted in 2011. They were EUR 90 for 1000 cigarettes from 2014, and EUR 60 for 1 kg of fine cut tobacco for rolling-your-own cigarettes (RYO) starting in 2018. Using inflation data published by the European Central Bank, these minima translate to EUR 109 and EUR 70 in November 2022, and EUR 117 and EUR 75 in 2023, respectively. Therefore, the proposed minimum cigarette excise tax of EUR 180, though welcome, only constitutes a 54% increase in real terms of the existing minima.
The Commission further proposes that the minimum tax rates be partially set by the purchasing power of consumers in different countries. Given the diversity in income levels between Member states and the impact this has on the affordability of tobacco, we welcome this innovation.
It is important to consider that higher inflation might be here to stay for a few years. What does this mean for the proposed minima? Their real values would decline over time. To prevent that, an automatic inflation adjustment for the EU minima has been included in the proposal.
The proposal attempts to address the need for greater convergence in the prices of different tobacco products. It states it does so for the ‘proper functioning of the internal market’ but we welcome it for another reason – if different tobacco products are not taxed at a similar level, consumers can easily switch products to avoid taxes rather than quit. This has been an issue in recent years as consumers have responded to higher tobacco prices by increasingly switching from factory made cigarettes to roll-your-own tobacco, or more recently, cigarillos, both bearing lighter taxes.
We welcome the suggestion to reclassify cigarillos to eliminate their current tax advantage compared to cigarettes. However, in our view, the proposal stops short of aligning the tax rates of cigarettes and their close substitutes. If consumers are going to use such products as cigarettes, they should be taxed as cigarettes.
For instance, for Heated Tobacco Products (HTP), the Commission proposes a minimum tax rate of either €91 per 1,000 sticks or 55% of their retail price. The latter possibility would make the minimum tax rates on HTP dependent on pricing decisions, thus allowing a loophole that the industry can use to market cheap products. While the short- and long-term health effects of HTP use and exposure are still unknown, many of the chemicals found in HTP emissions are toxic and carcinogenic posing serious risks to human health. The tax rates proposed by the Commission contradict the recommendation of the WHO to tax HTPs at the same rate as cigarettes. Unfortunately, the proposal contemplates the possibility of setting minimum taxes as either a fixed amount per quantity of product or a percentage of their retail price for all products but cigarettes. We would welcome the removal of this loophole. In the case of vaping products, the proposal allows for the possibility of setting a minimum tax ranging from 40% to 20% of the product’s retail price, depending on its nicotine content. In the case of the Czech market, where an e-cigarette Maskking High 2.0 Disposable (Red Apple) is currently available for CZK 99 (EUR 4), adding 20% tax would merely increase the price by CZK 25 (EUR 1).
In his mission letter Paolo Gentiloni, Commissioner for Economy, says, “As part of a strong and fair economy that works for people, we need tax policies that increase fairness and reduce social inequalities…” We urge the Commissioner to release the proposal at the beginning of 2023 and put the interest of EU citizens over the vested interest of the tobacco industry.