What is the Tobacco Excise Tax Directive?
Excise duties are indirect taxes on the sale or use of goods such as alcohol/alcoholic drinks, fuel or tobacco products.
Today, Directive 2011/64/EU “on the structure and rates of excise duty applied to manufactured tobacco” (Tobacco Excise Directive) covers product definitions, excise tax structure (how excise tax is calculated), tax base (what exactly is taxed, for example a cigarette stick or a kg of fine-cut tobacco), and tax level (how much the minimum tax per unit must be) for combustible tobacco (cigarettes, fine-cut tobacco, cigars, cigarillos, pipe and other smoking tobacco).
However, the upcoming revision will not only impact the existing product categories but also products that are currently not covered by the Directive, such as vaping products, heated tobacco products or nicotine pouches.
What does the revision seek to achieve?
Based on the information revealed during the process to date, the revision will probably seek to increase EU tax minima for combustible products currently covered by the Directive and include new tobacco and nicotine product categories; but it could also discuss the need to include other products that may be viewed as tobacco substitutes such as CBD products and herbal cigarettes.
Put simply, the revision of the Directive may lead to minimum excise taxes being applied to vaping products and other safer nicotine products in all EU member states, thereby making the products less affordable and less competitive vis-à-vis cigarettes.
What is the status of the process and next steps?
A number of steps have already taken place, most notably:
- In February 2020, the European Commission (or EU “government”) published its evaluation of the Directive as well as the summary of the study on the functioning of the Directive conducted by external consultants. The evaluation highlights the main limitations of the current regulatory framework and concludes that the Directive does not achieve its objective in relation to the proper functioning of the internal market and at the same time a high level of health protection, as the minimum tax rates have lost their effectiveness. Furthermore, the Directive is not able to cope with market developments and new products that have entered the market.
- On 2 June 2020, the Council adopted a set of Conclusions on the review of the Directive, based on the findings of the evaluation. The Council invited the Commission to submit a legislative proposal for the revision of the Directive based on an impact assessment and to carefully consider the fiscal national legislations Member States had already adopted on the new products, to consider “good practices” to harmonize.
- ETHRA participated in the Commission's roadmap consultation which ran from 8 December 2020 to 5 January 2021. In our submission we argued that taxation should be risk proportionate, and that a clear distinction must be made between high-risk combustible products and low-risk non-combustible safer nicotine products.
- We built on these points in our submission for the Open Public Consultation, which ran from 30 March 2021 - 22 June 2021. We highlighted that almost all tobacco related harms are due to the toxic products of combustion. Therefore, the tax rate for non-combustible safer nicotine products should be low or zero. This would incentivise switching from high-risk to low-risk products.
- The Commission published the report on the Open Public Consultation 18 October 2021.
The Europe’s Beating Cancer Roadmap indicates that the Commission will publish the formal proposal for a revised Directive, alongside an impact assessment, sometime early 2022 (as the adoption is also foreseen for 2022).
The good, the bad, and the ugly
The good news is that the Open Public Consultation showed broad support from stakeholders for a reasonable and risk-proportionate approach to taxing e-cigarettes and other novel products, mirroring the situation that already exists in a number of EU Member States.
On taxation of vaping products, 50% of the respondents recommended that no excise tax be applied. 44% said that vaping products should be taxed in line with the lowest level currently applied in EU Member States (EUR 0.1/ml). Finally, 6% wanted vaping products to be taxed in line with the highest level currently applied in EU Member States (EUR 0.3/ml).
On heated tobacco, 75% of respondents wanted the products to be taxed at a level that is lower than the tax applied to fine-cut tobacco, 9% wanted similar levels to fine-cut, 1% higher than fine-cut, 8% said heated tobacco should be taxed at the same level as cigarettes and 7% did not have an opinion.
The bad news is that while the Commission needs to take these views into consideration, it does not have to respect them.
- In the ugly scenario, we could see the Commission propose taxes on safer nicotine products at a level that would make these much safer alternatives a less viable option for consumers or even unaffordable. We already know that the Commission’s DG Sante (or “Ministry of Health”) views these products as a threat to public health, rather than as an opportunity that has helped millions of Europeans to quit cigarettes for good.
How can you participate in the process?
Decisions on excise taxes in the EU require unanimity by all Member States with the European Parliament playing only a consultative role. It will therefore be crucial for advocates to educate decision-makers in their respective countries.
ETHRA plans to follow the process closely and we will try to update you on a regular basis and of course inform you as soon as the Commission’s proposal is released.