EN    EN EN 
 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 16.7.2008 
SEC(2008) 2267 
  
COMMISSION STAFF WORKING DOCUMENT 
 
Accompanying the  
Proposal for a 
 
COUNCIL DIRECTIVE 
 
amending Council directive 95/59/EC, 92/79/EEC  and 92/80/EEC on the structure and  
the rates of excise duty app lied to manufactured tobacco 
IMPACT ASSESSMENT SUMMARY  
{COM(2008) 459 final} 
{SEC(2008) 2266} 
 
EN 2   EN Summary 
Commission staff working document accompan ying the Proposal for a Council Directive 
amending Council Directives 95/59/EC, 92/79/ EEC and 92/80/EEC on the structure and 
the rates of excise duty app lied to manufactured tobacco. 
The Commission services made an impact a ssessment focusing on potential measures that 
could modernise or add more transparency to  the structure of excise duties on tobacco 
products. In addition, particular attention was pa id to the relationship between public health 
and the final price of the products, taking stock of the WHO Framework Convention on 
Tobacco Control, as well as to the options to bring the structure and th e rates of excise duties 
for fine-cut smoking tobacco ("roll-your-own"), into line with excise duties for cigarettes. 
A broad consultation process pr eceded this impact assesmen t. Associations and other 
stakeholders (trade, health, etc.) were invited to submit position papers via a public web- consultation.  
In order to examine how the different objective s for tobacco taxation could be addressed, the 
Commission assessed four  basic approaches. 
The first approach consists of not intervening  further at Community level (the no policy 
change option). This approach will not solv e the problem of distor tions of cross-border 
shopping and smuggling currently existing on the tobacco market, which has consequences in terms and revenue and health protection.  
In addition, it will not resolve the fiscal inst ability and distortions of competition which are 
currently created by the most popular  price category (MPPC) concept. It  will also not address 
the problem of substitution and tax induced dist ortions of competition between the different 
products of manufactured toba cco. It was therefor e not an option that  the Commission chose 
to pursue. 
The second approach option consists of changing only the structure of excise duties  on 
cigarettes . In order to resolve the problems wh ich are currently created by the MPPC 
concept, the Impact assessment examines abolishing the concept of the MPPC as benchmark for minimum requirements. Currently excise duties must be at least 57% of the tax inclusive retail price and at least €64 pe r 1000 cigarettes of the MPPC. In stead, the Impact assessment 
examines two alternatives: a) applying the EU  minimum requirements of 57% and €64 to all 
cigarettes or b) applying th e minimum requirements in accord ance with weighted average 
prices (WAP). Simultaneously the impact is assessed of providing more flexibility to Member States as concerns the structure of the excise duties at national level. 
Both alternatives would simplify the arrangem ents as compared to the current situation. 
Neither applying minimum requireme nts on all cigarettes or on WAP  would entail an increase 
of administrative costs for any of the stakeholde rs. Both alternatives would also resolve the 
problem of the fiscal instability and distortio ns of competition which are currently created by 
the MPPC concept. However only applying the minimum of €64 on all cigarettes would 
create a tax floor for all cigarettes in the EU. It would also reduce the tax and price gap 
between Member States more than the other op tions and, to an apprec iable extent, integrate 
public health concerns. Therefor e this option gets priority from an internal market and a 
 
EN 3   EN health point of view. However, applying the 57% rule on all ciga rettes would for a number of 
Member States result in a compulsory ad valore m duty and not be in line  with the objective to 
provide more flexibility to Member States as concerns the relation sp ecific and ad-valorem 
duties. Therefore applying the 57% ru le on WAP is the favoured option. 
The second approach would, however, not sufficientl y take account of health considerations.  
The third approach  consists of increasing the minimum rates of excise duties on 
cigarettes (in addition to changes to the structur e). The Impact assessment simulated a 
number of increases of the minimum rates of exci se duties on cigarettes, either the 57% or the 
minimum of €64 per 1000 cigarettes. It conclude s that an increase of the monetary minimum 
of €64 is the best instrument to achieve approxima tion of taxes and prices of cigarettes in the 
EU in the interest of the Internal market a nd with a view to tobacco control. However an 
increase of the monetary minimum should be  combined with an increase of the 57% 
minimum requirement, which would require an upda te of the escape clau se, currently set at 
€101 (when the excise duty is at  least €101 on the MPPC memb er States do not any longer 
have to comply with the 57% requirement). An update to €122 would keep pace with the recent evolution of excise duties on cigarettes in the Internal Market a nd would have the same 
effect as in 2001, namely cover the fi ve highest taxing Member States.  
Over the last five years the consumption of ci garettes in the EU dec lined by more than 10%. 
In the same period the excise duties have increased by more th an 30%. In order to trigger a 
similar decline in consumption over the coming 5 years further increases in excise duties 
would be desirable. Taking into account a price elasticity of -0.43 as suggested by the World 
Bank, a 25% price increase is needed to achieve a 10% reduction in demand. A 10% 
reduction over a period of 5 years would also be inline with the European Strategy for Tobacco Control" (ECTC), adopted by the Regi onal Committee for WHO Europe which sets 
as the principal target to bring sm oking prevalence down by 2% per year.  
In view of the above, the Commission has c onsidered a number of possible increases. 
An increase to €90 on all cigarettes and 63% on WAP would trigger a probable decrease of 
demand of on average 10% in 22 Member States
1. In addition it would pave the way for 
further increases of excise duties on cigarett es, also by those Member  States which already 
have a high level of taxation. Apart from BG and RO it would not render prices extremely 
expensive as compared to the local purchasing power in the Member States. 
All in all, in the field of cigarettes, this a pproach appears best suit ed to ensure the proper 
functioning of the Intern al Market and, at the same time, a high level of health protection. 
The fourth approach  consists of changing the structures and minimum rates of excise 
duties on other products , in particular fine-cut tobacco, in order to avoid substitution of 
cigarettes by less taxed tobacco products. 
The substantial differences in tax levels amon g Member States on fine-cut tobacco entail 
smuggling and cross border shopping between a number of neighbouring countries and give 
rise to distortions in the inte rnal market. In addition, the gap between the level of taxation of 
cigarettes and fine-cut tobacco gives rise to s ubstitution. Official releases for consumption of 
cigarettes in the EU 27 decreased during 2002-2006 by around 13%. Convers ely, the releases 
                                                 
1 Not in DE, UK, IE, FR (and RO was not included in the simulation) 
 
EN 4   EN for consumption of fine cut tobacco increased by around 10%. There is little justification for 
significant differences in the minimum rates for these products at Community level. This 
applies both in a perspective of fair compe tition and, given the harmful character of both 
products, from a health point of view. Theref ore the minimum rates for fine-cut tobacco 
intended for the rolling of cigarettes should be br ought into line with th e rate for cigarettes. 
For fine-cut Member States may choose between complying with a monetary or  an ad 
valorem minimum rate. However since the m onetary minimum requirement is the best 
approximating factor, there should be (in addition to the ad valorem minimum rate a 
compulsory monetary minimum rate for all Member States, as for cigarettes. 
Taking account of the specific characteristics of  fine cut tobacco, the previous Commission 
report stated the minimum excise for fine-cut tobacco could be fixed at about two thirds of the minimum excise incidence for cigarettes. In orde r to respect a two thirds relationship between 
fine-cut and cigarettes, the monetary mini mum requirement should be fixed at €43 per 
kilogram and the proportional minimum requirement at 38%.  
Applying the aforementioned 2:3 re lationship on the suggested in creases for cigarettes, would 
increase the minimum rates for fine cut to €60 and 42% over a period of five years. Assuming 
the same price-elasticity as for cigarettes, an increase of the minimum requirements to €60 
and 42% would trigger a reduction in de mand of around 20% in 19 Member States. 
****