COMMISSION OF THE EUROPEAN COMMUNITIES 
C0MC89) 525 final 
Brussels, 19 December 1989 
Amended proposal for a 
COUNCIL DIRECTIVE 
on the approximation of taxes on cigarettes 
Amended proposal for a 
COUNCIL DIRECTIVE 
on the approximation of taxes on 
manufactured tobacco other than cigarettes 
(presented by the Commission) 
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EXPLANATORY MEMORANDUM 
I. INTRODUCTION 
1. The present proposals for directives concern the tax burden on 
cigarettes and on manufactured tobacco other than cigarettes. 
They lay down the common structure and the rates to be applied not 
later than 31 December 1992. They are based on the need to strike a 
balance in the efforts to be made by Member States to approximate 
rates and harmonize structures while, at the same time, limiting the 
distortions of competition. In addition, they are designed to 
accommodate the warries expressed in connection with protection of the 
health of consumers. 
II. BACK6R0UN0 
2. Each of the proposals amends certain articles in the proposals for 
Directives (C0M(87)325 and C0M(87)326) of 21 August 1987 on the 
approximation of taxes on cigarettes and on manufactured tobacco other 
than cigarettes. 
3. In the aforementioned proposals for directives, the Commission had 
advocated single rates for manufactured tobacco throughout the 
Community. This attempt at harmonization as unveiled in 1987 brought 
to light the continuing diversity of situations in the Community, a 
diversity that is more difficult to counter in the case of manufactu­
red tobacco because of the very different circumstances in Member 
States, whether or not they are producers of raw tobacco. 
A. Furthermore, the Member States and Parliament took the view that the 
introduction of an element of flexibility in the rates proposed in 
1987 was the only way of progressing towards harmonization. It was 
with this in mind that the Commission, in its Communication to the 
Council and to Parliament of 14 June 1989, introduced the concept of 
flexibility. 
III. FLEXIBILITY WILL RESPECT THE PRINCIPLE OF ABOLITION OF FRONTIERS IN 1992 
5. The concept of flexibility in the case of manufactured tobacco must be 
in keeping with the provisions of the Single European Act and must 
under no circumstances jeopardize the fundamental principle of 
abolition of customs and tax frontiers by 1 January 1993. 
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Such flexibility must take account of the regional disparities that 
exist within the Community with regard to manufactured tobacco and 
must reflect the" various essential requirements identified by the 
Commission and the Council in the public health field (see the 
programme "Europe against Cancer"). 
Tobacco products are intended basically for personal consumption. 
As a result/ the •--• sk of distortion -,$ confined to -..ross-frontier 
purchases although K must not be forgo elm that the level of taxation 
is very high. 
IV. NATURE OF FLEXIBILITY 
6. It transpires from the foregoing observations (essential requirements 
in the health field, regional disparities, etc.) that flexibility in 
the form of minimum rates for the products concerned is justified. 
7. In practice, this flexibility will have the following consequences: 
7.1. On 1 January 1993,an initial move towards alignment of rates 
will take place, with each member State being required, in any 
event, to apply rates higher than, or equal to, these minimum 
rates set for each product category. 
7.2. After that date, this initial flexibility will entail gradual 
alignment of rates on bench mark values that will be known as 
target rates, mainly with a view to attaining the objectives 
for the internal market. 
At Community level, these rates will also have to be set at a 
level compatible with essential public health requirements. 
That is the reason why the target rates have been significantly 
overvalued compared to the rates proposed in 1987. 
In order to make it easier for Member States to adapt their 
rates and structures, and with a view to reducing the 
distortions of competition associated with the continued 
existence of different rates, only those adjustments conducive 
to convergence on the target rates will be authorized. 
7.3. Every two years, and for the first time not later than 31 
December 1994, the Council shall examine the target rates of 
duty and the minimum rates and shall, acting unanimously, make 
the necessary adjustments. 
Without prejudice to the first paragraph, every two years, and 
for the first time than 31 December 1994, the Council, acting 
by qualified majority on a proposal from the Commission, shall 
adjuste the rates in order to maintain their real value. 
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V. SPECIFIC CONSIDERATIONS FOR EACH PRODUCT 
A. CIGARETTES 
8- Cigarettes account for over 90% of the market in manufactured 
tobacco. The structure (specific component and ad valorem 
component) of the excise duty is not neutral in its impact. It 
determines the rates actually applied and hence the retail 
selling price. 
This retail selling price is freely determined by the 
manufacturer or the importer in accordance with Directive 
(72)464 EEC. 
The final amount of the excise duty is calculated on the basis 
of the maximum selling price inclusive of all taxes. 
9. Taxation of cigarettes is characterized by a mixed excise-duty 
structure that influences the way in which tax is calculated: 
- a fixed specific component (fixed amount per number of 
cigarettes); 
- a proportional component (ad valorem, as percentage of retail 
selling price Inclusive of all taxes). 
The excise duty actually levied is a combination of the two 
amounts resulting from the above two calculations. 
10. Where cigarettes are concerned, two opposing trends art 
currently discernible within the Community and correspond to the 
predominance of different products depending on particular 
traditions of taxation: 
- the southern Member States (including those with State-run 
enterprises) at present apply tax that 1s, for the most part, 
proportional to the retail selling price; 
- by contrast, the northern Member States tend to apply a 
predominantly specific tax (fixed excise duty for a given 
quantity of product/ regardless of price). 
In other words, the proportional tax favours law-priced products 
as opposed to expensive products while the specific tax has 
precisely the opposite effect. 
11 • The Commission's new approach towards flexibility in the rates 
levied on cigarettes Involves setting the following rates: ~" 
" Q" 1 January 1993, the excise duty will have the following two 
components: 
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. specific component: its basic amount may not be lower than 
the minimum rate of 15 ECU per 1000 cigarettes; 
. ad valorem component: this will be established in such a way 
that the combination of these rates with the rate of VAT may 
not be lower than the minimum rate of 45% of the retail 
selling price inclusive of all taxes; 
" A* the end, Member States will apply an excise duty with the 
following two target-rate components: 
• Specific component: target rate of 21.5 ECU per 1000 
cigarettes; 
. Ad valorem component: target rate fixed in such a way that 
the combination of this ad valorem component and the rate of 
VAT may not be Lower than 54% of the retail selling price 
inclusive of all taxes. 
12. These minimum rates specified in the present proposal are 
designed to reduce the deflections of trade resulting from 
distor ions of competition and from different selling prices. 
13. They are also designed to even out the structural disparities in 
the taxation of cigarettes in the different Member States and 
require a reasonable effort both on the part of the countries in 
the south of the Community (characterized by a predominant ad 
valorem component) and on the part of those countries where the 
specific component is predominant (essentially the countries in 
the north of the Community): 
- For the Member States with ad valorem systems the reduction in 
the minimum specific component in terms of the fixed rate 
proposed in 1987 takes account of the market share of low-
priced cigarettes, mainly in the southern Member States. For, 
as the specific component declines and the ad valorem 
component increases, the spread of retail selling prices 
widens. For these countries therefore, the narrowing of the 
spread of retail selling prices will be less pronounced than 
that which would have resulted from the 1987 proposals; 
- For the Member States with specific systems, the fact of being 
able to move towards a lower ad valorem component than that 
fixed in 1987 results in a smaller tax multiplier. For them, 
therefore, the widening of the spread of retail selling prices 
will be less pronounced than that which would have resulted 
from the 1987 proposals. 
14. The target rates are significantly higher than the rates 
proposed in 1987, the purpose being to take greater account of 
the health aspect. 
15. The minimum rates fixed above and the legislative provisions in 
the paragraph 7.3, 1st alinéa should facilitate the transition 
to target rates. 
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16. The point must also be made that the specific component of both 
the minimum rate and the target rate will be indexed as 
mentioned fn the paragraph 7.3, 2nd alinéa provisions. 
B. MANUFACTURED TOBACCO OTHER THAN CIGARETTES 
17. The target rates fixed in the present proposal display a purely 
ad valorem structure. Such a structure, based as it is on the 
retail selling prices freely determined by manufacturers or 
importers in accordance with Article 5 of Council Directive 
72/464/EEC, Is the system of taxation that best reflects price 
ranges, variations in weight and differences in product quality 
and variety. 
Moreover, this system 1s already applied by nine Member States 
for cigars and cigarillos and by seven Member States for smoking 
tobacco, snuff and chewing tobacco. The Commission thus takes 
the view that where target rates are concerned, a purely ad hoc 
system best fits the bill as a Community system. 
18. As far as the target rates of the various products here 
determined, it is necessary to take Into account the paragraph 
7.3, 1st alinéa provisions. 
19. Special transitional arrangements for Member States with 
structure of taxation other than a purely ad valorem structure. 
Although most Member States apply ad valorem rates to the 
products in question some of them apply a different structure 
of taxation. In order to permit certain Member States which, on 
31 December 1992 will apply a purely specific or mixed excise 
duty to certain categories of manufactured tobacco other than 
cigarettes to move gradually towards a purely ad valorem 
structure, the Commission takes the view that they should be 
allowed to apply to such categories a. mixed structure (specific 
excise duty + ad valorem excise duty + VAT) during a period not 
exceeding 5 yearaP not later, on condition that the sum of the 
ad valorem components of this mixed structure is not lower than 
the minimum rates fixed for each product category. 
B.1. Cigars and cigarillos 
20. The Commission's new approach towards flexibility in the rates 
levied on cigars and cigarillos involves setting the following 
ad valorem rate: 
- on 1 January 1993, the excise-duty rate will be established 
in such a way that the total tax burden resulting from the 
combination of this rate with the rate of VAT may not be lower 
than the minimum ad valorem rate of 25% of the retail selling 
price inclusive of all taxes; 
•7-
- At the end, Member States will apply the target rate in such a 
way that the combination of this rate with the rate of VAT 
equals 36%" of the retail selling price inclusive of all taxes. 
21. This minimum rate proposed by the Commission is designed to 
reduce the deflections of trade resulting from distortions of 
competition and from different selling prices. 
Tt takes account of the desiderata expressed by Parliament and of the 
opin on o he Eco omic and Social Committee CC0M(237)88) namely, a 
lower level of taxation than the rates specified in the 1987 proposal, 
given that the cigar and cigarillo industries are experiencing a 
decline in business. 
23. The cigar and cigarillo market is entirely independent of, and 
separate from, the cigarette marktet, and the substitution 
effect between these products is virtually zero. The cigar 
industry is concentrated primarily in the Benelux countries. 
Germany and Spain, where more cigars and cigarillos are smoked 
than cigarettes. 
These five countries also impose the lowest tax burden on these 
products. 
Consequently, the proposal that, the minimum rate be fixed at 
25% of the retail selling price inclusive of all taxes is fully 
justified. 
B.2. Smoking tobacco 
24. The Commission's new approach towards flexibility in the rates 
levied on smoking tobacco involves setting the following ad 
valorem rate: 
On 1 January 1993, the excise-duty rate will be estblished 
in such a way that the total tax burden resulting from the 
combination of this rate with the rate cf VAT may not be lowt." 
than the minimum ad valorem rate of 50% of the retail selling 
price inclusive of all taxes; 
At the end, Member States will apply the target rate in such a 
way that the combination of this rate with the rate of VAT 
equals 56% of the retai I selling price inclusive of all taxes. 
25. This minimum rate fixed by the Commission is designed to reduce 
the deflections of trade resulting from distortions of 
competition and from different selling prices. 
26. This minimum rate of 50% for tobacco has been fixed by 
No Community definition exists that would make it possible to distinguish 
betiweemhandrolling tobacco and pipe tobacco. 
-8-
reference to the rates applicablee to cigarettes in order to 
avoid any undue risk of substitution between these products. 
It also takes account of the rates applied in the Member States 
where smoking tobacco accounts for a substantial share of the 
market (Netherlands, Germany, United Kingdom). 
B.3. Snuff and chewing tobacco 
27. The Commission's new approach towards flexibility in the rates 
levied on snuff and chewing tobacco Involves setting tïïê 
following ad valorem rat "el 
On 1st January 1993/ the excise-duty rate will be established 
in such a way that the total tax burden resulting from the 
combination of this rate with the rate of VAT may not be lower 
than the minimum ad valorem rate of 37% of the retail selling 
price inclusive of all taxes; 
At the end/ Member States will apply the target rate in such a 
way that the combination of this rate with the rate of VAT 
equals 43% of the retail selling price inclusive of all taxes. 
28. This minimum rate fixed by the Commission is designed to reduce 
the deflections of trade resulting from distortions of 
competition and from different selling prices. 
29. Given the extremely marginal consumption of these products 
(representing 0.8X of all manufactured tobacco products)/ 
adoption of the minimum rate of 37% of the retail selling price 
Inclusive of all taxes should not pose too «any problems for the 
individual Member States. 
TAX STRUCTURE "> O R HOST POPULAR CIGARETTE 
t — _•-_.. *... r\* r\* net .»-... * t »/*r* *^ I **.****.*- t 
Retail selling prlca 
on 01-04-89 lu ECU 
Tax rates on 01.04.8^ 
- Specific excise in ECU 
- <Ad valortn • VAT) aa 
ft oT ratal I sailing 
prlca,giving a fis­
cal multiplier of 
Hon lax portion 
In ECU 
as X or recall price 
Taxes 
VAT 
In ECU 
rate on 01•04.89 
as ft of retail price 
EXCISES 
r.pec 1 f 1c 
In ECU 
«o ft oT retail price 
ad valorem 
In ECU 
as ft of recall price 
total excises 
in ECU 
as ft of retail pries 
TOTAL 
in ecu 
as ft of retail price 
(tax incidence) 
Specific excise as % 
of total taxaa 
Estimated consumption In 
19B5 , Hlo pieces 
Total tax revenue Hlo ECU 
iKilitiiiiixiiiiiriiini D 
70.65 
4.01 
65-33* 
2.00 
20-46 
28. 99* 
4.00 
6.0O* 
5.66ft 
4 01 
5.68ft 
42. 16 
59.6 7ft 
46. \7 
65.35ft 
50-17 
71.01* 
0.00*• 
1599 7 
803 OK 
160.4 7 
74. 90 
39.25ft 
1 .©5 
22-58 
14.07ft 
28.94 
22.00ft 
18.03ft 
74.90 
46.68ft 
34.05 
21 .22* 
108.95 
67.89» 
137.89 
6593ft 
54.32ft 
7646 
1054 
iiiiiim D 
101 09 
27. 13 
43-70% 
1 .78 
29-70 
29-30ft 
12.41 
14.00ft 
I22B* 
27. 13 
26.04ft 
31 04 
31•50ft 
58.97 
58-34* 
71 .39 
70.62ft 
30.00ft 
121235 
8655 
IHtlHI' El. 
3 1 25 
0 99 
66 - 38* 
2.97 
9.M 
30- 44* 
8.27 
36.00* 
26.4 7* 
0.99 
3.10* 
12.47 
39.91* 
13.46 
43.09* 
21 . 74 
69-56* 
4 . 5 7* 
2 765 7 
60 1 
IIII1U1 P. 5 
•10. 1 I 
1 . 16 
» 53.9-1* 
2.17 
17.32 
4 3 10* 
4 . 79 
13.56* 
11.94* 
1 . 16 
2.00* 
16.05 
1 42.00ft 
1800 
> 44.60ft 
22 .79 
5o 62ft 
5 00* 
7V 140 
-« 1004 P 
71 .06 
2 57 
60 64* 
3. 19 
i«P 72 
27. 7T»V 
15.97 
29.00* 
22 48ft 
2.57 
3.61ft 
32.00 
46.16ft 
3537 
49.77ft 
51.34 
72.25ft 
5-OOft 
9c>209 
4940 
• 1 i J J t 1.1 1 IRL 
128. 10 
52. 17 
33.5o* 
1 51 
32.99 
£'.•. 71V 
25. 64 
25.OO* 
20.O0* 
52. W 
40.70ft 
17. 30 
13.56» 
69.55 
54.26ft 
95. 19 
74.26ft 
54.0 1* 
ftloO 
50 7 
1 1 J 1 < i 4 » 114 I 
62-21 
2.07 
60-64* 
3. 19 
17.44 
20.O3\ 
9.93 
19.O0* 
15.97* 
2 07 
3.33* 
32.7 7 
52.67ft 
34.84 
56-00* 
44. 77 
71 .9 7ft 
•1 .62* 
105314 
4715 
» < 1 J »i « L 
55.05 
1 .06 
63.35» 
2-74 
• 8.21 
33.0 7* 
3.30 
6. 36ft 
6-00* 
1 .06 
3.38ft 
31 68 
57.55X 
33.84 
60.93ft 
36.64 
66.93ft 
5.04* 
3615 
133 
IIIIDIIII NL 
72. 39 
2589 
34.67ft 
153 
21 .40 
29.5 7« 
11.30 
10.50ft 
15-61ft 
25-89 
33.76* 
13.80 
19.06ft 
3969 
54 82ft 
50-99 
70.43» 
50-76« 
16289 
031 P 
43-6 
2.63 
68.53* 
3. 18 
1 1 .09 
25.44* 
6. 34 
17.00* 
14.53* 
2.63 
6.03ft 
23.54 
54.00* 
26. 17 
60.03* 
32.51 
74.56* 
6-06* 
13000 
423 
X * » 1 I • • 1 UK 
123.64 
4B 75 
3404*ft 
1 52 
32-SO 
26.53ft 
16. 13 
15.00* 
13.04* 
40. 75 
39.43ft 
25.96 
21 OOft 
74. 71 
60.43ft 
90.84 
734 7ft 
53.67ft 
97750 
0fi7V 
tttt.ii • < 
IMPOSITION DU TABAC A PRISER ET MACffgR 
( <iu 01.04.8'' ) 
TAX RATES ON CIGARETTES 
(VAT and ail valorem excHt>rate 
as X of retail telling price 
target rate .- xx 
minimi» rate : 45X 
fiimaun rate : 15 ECU «^-
target rate .- ?i,s ECU «J£-
Speclffc excite rate In ECU per 
1000 cigarettes 80 -i ( VAT AND EXCISE DUTIES ) 
70 
60 *a 
50 -
40 
30 
20 
10 
0 
10 
2SL-A 
30 
40 
50 
60 
70 
80 \A 
N m N1/ 
by • 
V 
^ 
"1 m M 
N V N A 
/ > M KM 
N 
tsrj-
K W 
*3 M ^ 
tazr H 
* 
} ;* 
N 
tSZT M 
/I 
MJ n 
N4 
IN/ 
Is 
/I s/ 
î &U 
PK ~r 
o EL ES IRL HI / 
/ 
N 
»T • M 
w a. 
s* 
K 
Ufc 
(XD pr-p.87 prop.89 
l>ro|>. 87 - (VAT and id vetorcm excite) - rate applicable u.c.f. 01.04.87 
prop. 89 * " " " " '• " " 01.04.89 EZ53 spec.87 \\/\ spec.89 
spec. 87 •• specific excise rate applicable w .e.(. 01.04.87 
spec. 89 * " " " " " 01.04.89 -^ 
^ 
IMPOSITION DES CIGARES ET CIGARILLOS 
( on OI.(U.fl7 ) 
IMPOSITION DU TABAC A FUMER 
( ou 01.04.87 ) 
(Ad valorem * VVA) en X du prix 
consommateur final 
taut objecitf. w x 
taux »lniaxm : 50 X 
Accise spécifique en ECU par kg 
l\ I ad vqloren* 
T .V.A ]/y A accise spécifique. 
(A) 
COMMISSION 
Aoendod proposal for « Council Directive on the opproxinotlon of toxos on cigarette» 
0B1C1HAL PROPOSAL (G0M(67) 525 final/2 of 21 August 1967) 
THE COUNCIL OF THE EUNOFEAN (MBJUNITIES. 
Moving regard to the Treaty establishing ths European Econenic 
ilty. and in particular ArtloU Of thereof. 
»t. Having regard to the prepeaol frou the Canalsalon. 
Having rogord to ths opinion of the Curopoan Par IN 
Having regard to the opinion of the Econoaic and Soclol Coanlttee,2 
Miereas Counci I Oiraetivo 72/484/EGC of 19 Oacaabar 1972,^ as last 
anended by Olroctiva 66/246/EEC,4 lays down general provisions relating 
to excise duties an aanufoctured tobacco and apeciol provîeîone relating 
to the structure of excise eat lea applicable to c I gar et t tee; 
ffhereos Council Directive 7J/32/EBC5 lays aeon the dsfinitions of the 
different types of uanafoctarsd tobacco; 
•hereas, in the case of cigarettes, harwonizetien. as provided for In 
Directive 7^/464/EEC. of the ratio between the specific excise duty and 
the sua of the proportional excise duty and VAT does not sake it possible 
to harsjonlze the rates of taxât ion; 
•hereas, for the purpose of establishing an internal aarket without 
frontiers. It is necessary to bring wore closely together the rates 
of taxes on canauaption; 
Whereas, in the case of clgarettee, those taxas are aads up of o 
alxad exciss duty and VAT; whereas they dleptay spec Te I character 1st Ice, 
notably as regard* their cuaulatlvs and nwftiplisr effects; «hereas. 
therefore, all the coaponants of those taxas should he horaonized; 
3 OJ No L 303, 31.12.1972. p. 1. 
4 OJ No L 104. 20.6.196s. p. 26 
5 OJ N» L 16, 16.1.1979. p. 6. AMENDED PROPOSAI. 
THE COUNCIL Of THE EUROPEAN COMMUNITIES, 
unchengsd 
unchanged 
unchanged 
unchanged 
unchanged 
unchanged 
unchanged 
:s 
ORIGINAL PROPOSAL AMENDED PROPOSAL 
Whereas harmonization of all the components of the tax on cigarettes 
must be based on an average of those components in the Member States; 
Whereas to establish a convergence process, it is necessary to fix 
target rates of excise duty on cigarettes; 
Whereas the components of the tax based on that average cannot be applied 
immediately because of the diverse situations in the Member States; 
Whereas those diverses situations should be evened out; 
whereas to that end, flexibility of those tax components should be introduced 
in the form of minimum rates in order to achieve an internal market 
without frontiers at 1 January 1993; 
Whereas minimum and objective prices are contained in this Directive; whereas 
they should be adapted to the prices evolution; and whereas these decisions 
shall be taken by the Council by means of a simplified procedure; 
Whereas, for the purpose of applying this Directive, sufficient time 
should be allowed for there to be a movement from these minimum rates 
towards closer integration based on the target rates laid down in this 
Directive, 
HAS ADOPTED THIS DIRECTIVE: 
Article 1 HAS ADOPTED THIS DIRECTIVE: 
Article 1 
1. Not later than 31 Oeceaber 1962. H*^ stat#t ^g, ^^ to 
cigarette, appraxisxitod taxes an canauwption oubjoct to the condition, 
and within the Halts laid down In this Directive. 
This provision anal I apply to the taxes which, pursuant to 
Dlrectlvo 72/464/BEC. are levied an ci goret tee and which caaprlsa: 
(a) a specific excisa duty per unit of the product; 
(b) a proportional excisa duty calculated an the basis of the aaxiaua 
ratalI selling price; 
(c) a VAT proportional to the retail selling price. 1- Member States shall apply to cigarettes taxes on consumption 
according to the rules determined in this Directive. 
2. Unchanged 
v/ 
ORIGINAL PROPOSAI. 
Article 2 
Not later than 31 Deceabar 1902, each Msaber State shall apply: 
(a) a specific excise duty, the basic anount of which is fixed 
at 19.5 ECU par 1 www clgsrettee and which is to be adjusted 
In Una with the general consuwsr pries index in ths Coswunlty. 
taking 1967 as ths reference year; 
(b) a proportional excise duty, the rote of which Is to ha fixed 
in such a way that the coabined Incidence of this rate and the 
VAT rate lies between S2X and 34X of the retail sailing price 
incluelve of all t< AMENDED PROPOSAL 
Article 2 
In the longer term, each Member State ehall apply the 
following target anount• and rates: 
(a) a specific excise duty the basic anount of which is 
fixed at 21.5 ECU par 1 006 cigarettes and which is to be 
adjusted in line with the general consuasr price Index in 
the Hi—m M j as such indicated in the second paragraph 
of Article 3; 
(b) e proportional excise duty the rate of which is to be 
fixed In such a way that the coabined incidence of this 
rate and the VAT rate aasunts to5470 of the retail selling 
•rice inclusive of all taxas. 
Article 2a 
Not later than 1 January 1993, each Meiiber State shall apply: 
(o) a opacifie excise duty the basic snount of which way 
not be lasa than 15 ECU par 1 666 cigarettes and which 
la to be adjusted in line with the general coneuwer 
price Index In the Ceanwilty. as indicated in the 
second paragraph of Article 3; 
(b) a proportional excise duty the rate of which is to be 
fixed In such a way that ths coabined Incidence of 
this rats and ths VAT rate way not bs less than 45K of 
tho retail selling price inclusive of all taxes. 
Article 2b 
ir States way adjust the excise duty rates and/or 
its applicable to cigarettes provided that they wove 
closer to the target ratea or awounts laid down in 
Article 2„ 
cr-ï 
Article 3 Article 3 
The provisions governing the periodic adjustment of the rates of the 
specific excice duty and the provisions governing the arragement Every two years, and for the first time not later than 31 December 1994, 
the Council, acting on the basis of a report and, where appropriate, a 
proposal from the Commission, shall examine the target rates of duty and 
the minimum rates and shall, acting unanimously, make the necessary 
adjustments. 
Without prejudice to the first paragraph, every two years, and for the first 
time not later than 31 December 1994, the Council, acting by a qualified 
majority on a proposal from the Commission, and after consultation with the 
European Parliament, shall adjust the rates in order to maintain their real 
value. 
Article 3a 
The provision concerning methods of collection and time periods for payments 
shall be established before 1 January 1993 in directives adopted by the 
Council acting on proposals from the Camrission. 
Article 4 
Article 1, Article 4(3) and (4) and Titles II and Ha of 
Directive 72/464/EEC shall cease to apply once Member States 
have brought into force the national provisions necessary to 
comply with this Directive. Unchanged. 
^ 
ORIGINAL PROPOSAL AMENDED PROPOSAL 
Article S ArtlcL 5 
Mswber States shall bring into force the laws, regulations and 
aasjlnistratlve provisions necessary to coup I y with this Directive 
not later than 31 Osissuer 1992. They shall forthwith infora the 
Cownlssion of any previsions of national law which they adopt In 
ths field governed by this Oirectlve. unchanged 
The provisions adopted pursuant to the first paragraph shall make 
express reference to this Directive. 
Article 6 Article 6 
This Directive is addressed to the 
Done at Brussels, States. uni 
Done at Brussels, 
oQ 
^3 
FINAIJCIAL STATEMENT 
I. Will application of the present proposal for a Directive result in an 
increase in Community resources? 
The effect of the proposal for a Directive cannot be quantified as regards 
VAT own resources. 
^ 
STATEMENT OF IMPACT CN SMEs AND TflffTjCftMENT 
Approximation of taxes on cigarettes 
The approximation of indirect taxes (VAT and excise duties) on cigarettes 
is necessary if tax frontiers are to be abolished and is an integral part 
of the measures for completing the internal market. 
As to the actual impact, reference should be had to the statement contained 
in the 1987 proposal for a Directive (0CM(87)325) in view of the fact that 
the situation in the cigarette sector has changed little in the intervening 
two years. 
I. A/imin1 stratlve obligations on businesses arising from application of 
the present Directive 
- Same constraints as those spelt out in 1987. 
II. What are the advantages for businesses? 
- The advantages resulting from the approximation of rates could not be 
determined. 
III. Are there any drawbacks for businesses in terms of additional costs? 
- Application of the present Directive will not impose any additional costs 
on businesses. 
IV. Effects on employment 
- The possible effect of the approximation of rates on employment in the 
sector concerned cannot be determined. 
V. The two sides of industry have not been consulted. 
VI. No less binding alternative is available with a view to abolishing 
tax frontiers. 
COMMISSION 
Amended proposal for o Council Directive on the 
approximation of taxes on manufactured tobacco other than cigarettes 
ORIGINAL PROPOSAL C0M(87)326 flnal/2 of 21 August 1987 
THE COUNCIL OF THE EUROPEAN COMMUNITIES. 
Having regard to the Treaty establishing the European Econoalc 
Community, and In particular Article 99 thereof, 
Having regord to the proposal frow, the Commission, 
Having regard to the opinion of the European Pari lament,* 
Having regord to ths opinion of the Econoalc and Soclol Committee,2 
Whereas Council Directive 72/464/EEC.3 as last amended by 
Directive 86/246/EEC.4 sets out In Tit to I general provisions 
relating to excise duties applicable to oil groups of aanufactured 
tobacco; whereas special provisions rslotlng to cigarettes have 
olready been adopted In Title II of that Directive; whereas special 
provisions still havs to be adopted for other aanufactured tobacco 
products; 
Whereas Council Directive 79/32/EEC* loys down the dsfInitions of the 
different types of manufactured tobacco; 
Whereas. In order to establish an Internal market without frontiers, 
the structures of sxclsa duties and VAT nesd to be harmonized and 
their rotes brought more closely Into line; 
Whereas, In the oase of manufactured tobacco other than cigarettes, an 
excise duty structure proportional to the retail se! ling «rices Is the 
structure best suitsd to achieving that objectiva; AMENDEO PROPOSAL 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
unchanged 
unchanged 
unchanged 
unchanged 
unchanged 
unchanged 
unchanged 
Whersos, In ths cose of aanufactured tobacco other than cigarettes, an 
excise duty structure proportional to the retail selling prices Is the 
structure best suited to achieving that objective» pees lb) y following a 
transitional psriod for some Member States applying a different structure 
of taxation; 
OJNoL 303, 31.12.1972, p. 1. 
OJ No L 164, 20.6.1966, p. 26. 
S OJ No L 10, 16.1.1979, p. 8 ^ 
ORIGINAL PROPOSAL AMENDED PROPOSAL 
Wheraoa a proportional excise duty displays special characteristics, 
notably with regard to its multiplier effect in combination with VAT; 
whereoa. therefore, the Incidence of the sum of the rotes of those two 
taxes should be harmonized aa a proportion of the retail celling 
prices of the producte in question; 
Whereas the Incidence of taxation should be hormonlzed In the cose of 
all producte belonging to the same group of manufactured tobocco. unchanged 
unchanged 
Whereas harmonization of the taxation of manufactured tobacco other than 
cigarettes must.be based on an average Level of taxation in the Member 
States; 
Whereas to establish a convergence process, it is necessary to fix target rates 
of excise duty in respect of manufactured tobacco other than cigarettes; 
Whereas taxation based on that average cannot be applied immediately, 
because of the diverse situations in the Member States; 
Whereas those diverse situations should be evened out; whereas, to that end, 
flexibility of rates should be introduced in the form of minimum rates, in 
order to achieve an internal market at 1 January 1993; 
Whereas, for the purpose of applying this Directive, sufficient time should 
be allowed for there to be a movement from these minimum rates towards 
closer integration based on the target rates laid down in this Directive; 
Whereas, in order to enable those Member States which, on 31 December 1992, 
apply either purely specific taxation or mixed taxation to certain categories 
of manufactured tobacco other than cigarettes to move gradually towards a 
purely ad valorem structure, they should be permetted to apply to those 
categories a mixed structure (specific excise duty + ad valorem excise duty 
+ VAT) during a period not exceeding 5 years., provided that the sum of the 
ad valorem components of that mixed structure is at least equal to the 
minimum rates laid down in this Directive, 
HAS ADOPTED THIS DIRECTIVE: HAS ADOPTED THIS DIRECTIVE: 
ORIGINAL PROPOSAL 
Article 1 
The foi lowing groups of home-produced and imported manufactured 
tobacco shall bs subject, in each Member State, to on ad valorem 
excise duty calculated on the baels of ths maximum retol I selling 
price of each product, freely determined by manufacturers and 
importers In accordance with Article 5 of Oirectlve 72/464/EEC: 
(a) cigare and cigarillos; 
(b) smoking tobacco; 
(c) chawing tobacco; 
(d) snuff. 
Article 2 
For the purposes of this Directive, the definitions of the products 
rsfsrred to In Article 1 shall be those laid down in Articles 2, 4, 5, 
6 ond 7 respectively of Directive 79/32/EEC. 
Article 3 
1. Not later than 31 December 1992, each Member State shall apply an 
ad va lores» rats of excise duty In such o way that the total tax 
burden resulting from ths combination of exeiss duty and VAT Is: 
for cigars and clgaritlos: between 34* and 36* ) of the retail 
for smoking tobacco: between 54* ond 36% ) «elling price 
- for snuff ond chewing tobacco: between 41% and 43%) Inclusive of 
) oil taxes. 
2. These ratee shall be effective for all products belonging to the 
group of manufactured tobacco concerned, without distinction 
within that group os to quality, prsssntotion, origin of the 
products, the materia le ussd, ths characteristics of the firms 
Involved or any other criterion. AMENOED PROPOSAL 
Article 1 
unchanged 
unchanged Article 2 
Article 3 
1. In the longer term, each Member State shall apply a target ad valorem 
rote of exolss duty in such o way thot the total tax burden resulting 
from the combination of the exoise duty and VAT le: 
- for cigars and clgorlllos: 36% ) of the retail selling 
- for smoking tobacco: 561 ) pries Inclusive 
- for snuff and chewing tobacco: 45%;) of al I taxes. 
2. unchanged 
Article 3a 
1. By 1 January 1993 at the latest, each «ember State shot I apply on 
ad valorem- rate of excise duty In such a way that the total tax 
burden resulting from the combination of the excise duty and VAT Is 
not lees than: 
- for cigars and cigarillos: 25% ) of ths retail celling 
- for smoking tobacco: 59% ) P^cs Incluslvs 
- for snuff ond chewing tobacco: 37%) of oil taxes. 
2. The rates referred to in paragraph 1 shall be applied on all the products 
belonging to the group of manufactured tobacco concerned in accordance with 
the provisions laid down in Article 3(2). «N^ 
VICINAL PûO^yJAL AMENDED PROPOSAL 
Article 4-
• r-.i O;--JV: Ï:OH3 r 11 o t i r n ;0 t.i-i or ranoe-nents for collecting th* dut; 
-.no ih« vi-i.-j ailow^d fo~ po>~*nt nhcl 5 b* laid dc«n before 
1 January 1983 in Qi.-rjctiv»» adopted by the Council acting on 
proposals frow tho Conml*s>on. Article 3b 
3y way of derogotlcn from Article 3(1), those Member States which, on 
31 December 1992, Impose either a purely specific tax or a rclxed tax on 
certain categories of manufactured tobacco other then cigarette* «oy 
ocply to tlose catégorie» a mixed structure (specific excl9e duty + 
od valore» excise duty + VAT) during a period not exceeding 5 years 
p'ovlded tfiot the »u» of the ad valorem component» of that mixed 
structure i» not lees than the minimum rote» laid down In Article 3a. 
Artlcls-3c 
Member States may adjust their excise duty rates and/or amounts 
applicable to manufactured tobacco other thon cigarettes, provided that 
they move closer to the target rotes lafd down In Artlcle3(1). 
Article 4 
Every two years, and for the first time not later than 31 December 1994, 
the Council, acting on the basis of a report and, where appropriate, a 
proposal from the Commission, shall examine the target rates of duty and 
the minimum rates and shall, acting unanimously, make the necessary 
adjustments. 
Article 4a 
Provisions concerning methods of collection and time periods 
for payments shall be established before 1 January 1993 in 
directives adopted by the Council acting on a proposal from the 
Commission. 
Article 5 Article 5 
Honbor States «hall bring Into force the laws, regulations end 
caninUtrat Ive provision» nece«»ory to comply with this Directive not 
later tnan 31 Decentoer 1992. 
Tioy «hoi ) forthwith Infor.** the Commfeelon of ony provision» of 
nationo! i<r# which thoy cdcot in the field governeo by thl» Directiva. 
Article 8 
fhli gl-ictiv} in <iikJr<j93id to the Ue<sb«r Stotîs. 
Doni ot Bruas^'13, unchanged 
The provisions adopted pursuant to the first paragraph shall make 
express reference to this Directive. 
Article 6 
unchanged 
Done at Brussels, N* 
FINANCIAL STATBŒNT ~> r 
I. See financial statement for cigarettes. 
16 
STATEMENT OF IMPACT CN SMEs AM) EMPLOYMENT 
Apprcgdjmation of taxes on mairafaotured tahaooo othftr than cigarettes 
The approximation of indirect taxes (VAT and excise duties) on the products 
in question is necessary if tax frontiers are to be abolished and is an 
integral part of the measures for completing the internal market. 
As to the actual impact, reference should be had to the statement contained 
in the 1987 proposal for a Directive (0CM(87)326) in view of the fact that 
the situation in the sector has changed little in the intervening two 
years. 
EN 2-1 
ISSN 0254-1475 
COM (89) 525 final 
DOCUMENTS 
06 03 09 
Catalogue number : CB-CO-89-510-EN-C 
ISBN 92-77-54542-9 
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