COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the document Proposal for a COUNCIL DIRECTIVE on the structure and rates of excise duty applied to tobacco and tobacco related products (recast)
Date: 2025-07-16
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: excise duty, smoking, tax harmonisation, tobacco, tobacco industry

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 16.7.2025  SWD(2025) 561 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT  Accompanying the document Proposal for a COUNCIL DIRECTIVE on the structure and rates of excise duty applied to tobacco and tobacco related products (recast) {COM(2025) 580 final} - {SEC(2025) 560 final} - {SWD(2025) 560 final}  
 
 
Executive Summary Sheet  

Impact assessment for a proposal for a Council Directive on the structure and rates of excise duty applied 
to tobacco and tobacco related products 

A. Need for action 

What is the problem and why is it a problem at EU level?  

The initiative for a revision of the Council Directive 2011/64/EU on the structure and rates of excise duty 
applied to manufactured tobacco is part of Europe’s Beating Cancer Plan.  

The  problem  addressed  by  the  impact  assessment  is  the  fact  that  the  current  Directive  no  longer  fully 
achieves its twin objectives, that of ensuring both the proper functioning of the internal market and a high 
level  of  health  protection.  The  current  minimum  tax  rates  have  lost  traction  in  terms  of  making  an 
effective contribution to reducing tobacco consumption. Existing  differentials incentivise irregular cross-
border flows. The current scope of the Directive is not adapted to market developments, it does not cover 
new products such as liquids for electronic cigarettes and the application of excise duty to heated tobacco 
products is not explicitly established. Furthermore, illicit trade in tobacco products remains substantial and 
continues to constitute a source of concern in Member States.  

The  main  drivers  of  the  problem  are:  i)  relative  price  accessibility  of  tobacco  products;  ii)  unfit  EU 
minima;  iii)  divergent  approaches  to  taxation  between  both  products  and  Member  States;  and  iv) 
ineffective control of the entire tobacco supply chain by Member States. 

What should be achieved? 

The revision of the current provisions of the Directive aims to: 

▪  update EU minima to ensure the proper functioning of the internal market and at the same time a 

high level of health protection in line with the objective of Europe’s Beating Cancer Plan; 

▪  ensure  coherent  fiscal  treatment  of  new  products  in  the  EU  (in  particular  liquids  for  electronic 

cigarettes and heated tobacco products, as well as new modern oral products); 

▪  bring raw tobacco within the excise movement and control system (EMCS) to tackle the increase 

of illicit manufacturing of cigarettes inside the EU. 

The main objectives of the proposed policy options are to: 

▪  ensure the proper functioning of the internal market; 
▪  ensure a high level of health protection; 
▪ 

fight against fraud and safeguard Member States revenues.  

More specifically, this initiative intends to: 

▪  approximate Member States tax rates and regimes over the medium term1;   
▪  discourage tax induced substitution between different tobacco products and their substitutes within 

▪ 

the short term; 
increase relative price levels to influence consumption behaviours with a view to reducing smoking 
prevalence along Europe’s Cancer Beating Plan objective for 2040; 

1 In this paragraph, the short term refers to the period following implementation of the revised Directive until the 
preparation  of  the first  evaluation  (i.e,  within  five  years  of  the  application  date  of  the  new  legislation),  while 
medium-term effects shall be measurable up to 15 years after the implementation of the revised Directive. 

 
 
 
▪  ensure  legal  certainty  in  terms  of  product  definition  and  fiscal  classification  for  all  stakeholders 

within the short term; 

▪  ensure  effective  excise  administration,  including  effective  enforcement,  tax  collection,  fraud  and 
avoidance  mitigation,  within  the  short  term  by  expanding  application  of  movement  and  control 
provisions. 

What is the value added of action at the EU level (subsidiarity)?  

The problems identified, in particular the incoherent fiscal treatment between and across products and the 
increasing illicit manufacturing of tobacco products within EU, and their drivers cannot be addressed by 
Member  States  in  isolation.  The  limitations  of  the  current  regulatory  framework  negatively  affect  the 
effectiveness  of  national  tobacco  control  and  public  health  policies,  which  undermines  the  objectives  of 
Europe’s Beating Cancer Plan. A revision of the Directive is therefore necessary. No alternative national, 
bilateral  or  other  international  initiative  would  provide  the  same  level  of  effectiveness  in  terms  of 
addressing this issue for all stakeholders at EU level.   

B. Solutions 

What are the various options to achieve the objectives? Is there a preferred option or not? If not, 
why? 

The policy areas examined in the impact analysis are (1) revising the EU minima and certain categories 
traditional tobacco products; (2) enlarging the scope of the Directive to new products; and (3) enlarging 
the scope to raw tobacco.  

The  options  for  revising  the  EU  minima  and  certain  categories  of  tobacco  products  follow  the  Council 
Conclusions, which noted that they should take into account the different economic situations of Member 
States. The three options propose a limited (Option 1), moderate (Option 2), and high (Option 3) increase 
of  the  EU  minima,  partially  expressed  in  purchasing  power  parities  (PPP)  so  as  to  better  adjust  for  the 
economic  reality  of  each  Member  State.  At  the  same  time,  to  ensure  the  durability  of  the  policy  stance 
over  time,  the  minimum  rates  of  excise  duty  should  take  into  account  the  EU  average  inflation  trends, 
based on the Harmonised Index of Consumer Prices (HICP). Options 2 and 3 include gradual increases for 
cigars,  cigarillos  and  other  smoking  tobacco,  designed  to  progressively  bridge  the  gap  with  the  rate  for 
cigarettes over the medium term, contributing to the goal of Europe's Beating Cancer Plan.  

The options for enlarging of the scope of the Directive to new products seek to create a level playing field 
and support the proper functioning of the internal market. For heated tobacco products, Option 1 proposes 
a  moderate  EU  minimum  rate;  Option  2,  a  higher  EU  minimum.  For  liquids  for  electronic  cigarettes, 
Option 1 proposes a zero rate for the EU minimum; Option 2, a positive rate; and Option 3, differing rates 
depending on nicotine concentration. For other manufactured tobacco and related products (including, new 
commercial nicotine products targeting young people), Option 1 proposes basic minimum rates; Option 2, 
limited minimum rates; and Option 3, high and gradually increasing rates. 

The  options  for  enlarging  the scope to  raw tobacco bring raw tobacco within  the excise movement  and 
control  system  (EMCS)  in  order  to  fight  against  the  surge  of  clandestine  factories  in  the  EU.  Option  1 
proposes a zero rate for the EU minimum; Option 2, a positive rate aligned with the minimum rate levied 
on ‘other smoking tobacco’ products. 

The  preferred  option  combines  an  ambitious  approach  to  minimum  excise  duty  rates  for  traditional 
tobacco and new products, in order to effectively achieve the objectives set for the revision, consistently 
with broader policy objectives, while balancing out the incurred costs and administrative burden. 

 
 
What are different stakeholders' views? Who supports which option?  

The public consultation confirmed the importance of tackling the increasing substitution of cigarettes with 
other  tobacco  products  (mainly  with  fine-cut  tobacco  for  the  rolling  cigarettes)  and  even  more  so,  with 
new unregulated ones (such as liquids for electronic cigarettes and heated tobacco). Despite citizens and 
industry  respondents  resisting  the  idea  of  increased  taxation  for  a  number  of  products,  a  majority  of 
respondents  agreed  on  the  need  to  reduce  the  gap  in  tax  levels  between  traditional  tobacco  products. 
However, they were not supportive of the full equalisation of rates among different products. Academics, 
NGOs, public health experts and other respondent categories almost universally agreed that taxation had to 
be increased and existing gap levels, closed. 

Regarding new products, there was a broad consensus on the need to consider and harmonise the taxation 
of  new  products  with  the  notable  exception  of  replies  from  citizens  regarding  e-cigarettes  (however, 
respondents were mainly e-cigarettes consumers). A majority of the respondents considered that electronic 
cigarettes should be taxed at a lower rate than traditional tobacco products. 

Respondents acknowledged the importance of fighting against illicit trade and manufacturing of tobacco 
products  and  called  for  increased  EU  action.  The  majority  (with  the  notable  exception  of  industry 
representatives)  were  in  favour  of  including  raw  tobacco  among  the  goods  to  be  monitored  through  the 
excise movement and control system (EMCS).  

As  the  impact  assessment  was  not  followed  by  a  legislative  proposal  at  that  time,  a  study  was 
commissioned  in  2024  to  provide  for  an  update  of  market  and  regulatory  developments  and  related 
analysis.  The  study  confirms  that  the  options  envisaged  remain  the  most  relevant  and  their  estimated 
impacts remain accurate. The impact assessment has been updated to the extent necessary to incorporate 
such  recent  analysis  and  to  reflect  in  the  proposed  EU  harmonised  minimum  rates  the  inflation  that 
occurred  since  2022.  It  has  also  been  complemented  with  the  competitiveness  check  and  SME  check  - 
both  available  in  the  respective  annexes  of  the  impact  assessment,  according  to  new  Better  Regulation 
requirements. 

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise of main ones)?  

The preferred option for revising the EU minima and certain categories of tobacco products is option 3 – 
a high increase of the minimum rates with a transitional period of 4 years for cigars, cigarillos, waterpipe 
tobacco and other smoking tobacco. This option is the most effective in curbing tobacco consumption. It 
would reduce smoking prevalence to 20.8%, in line with the long-term goal of Europe’s Beating Cancer 
Plan  of  a  tobacco-free  generation  (where  less  than  5%  of  the  population  uses  tobacco  by  2040),    This 
option could also lead to a significant increase in excise duty in nearly half of the Member States, and for 
some,  an  unprecedented  increase,  notably  for  products  with  historically  low  tax  levels  like  cigars  and 
cigarillos, which makes it difficult to envisage all market effects (reduced sales, high compliance costs for 
economic  operators).  However,  the  partial  PPP-based  approach  mitigates  the  most  extreme  effects, 
allowing for higher ambition. 

The preferred option for enlarging of the scope of the Directive is to introduce new excise categories for 
each  of  the  new  product  categories.  In  terms  of  the  minimum  rates,  option  2  is  preferred  for  heated 
tobacco  products;  for  liquids  for  electronic  cigarettes  option  3  is  preferred,  combining  two  flat  rates  for 
low and high-nicotine content products; option 3 is preferred for other manufactured tobacco and related 
products with a gradual increase of the fixed minimum over 4 years to EUR 143. Establishing harmonised 
definitions, tax treatment, movement and control requirements for new products would close a regulatory 

 
 
gap,  remove  substantial  fragmentation  caused  by  various  different  national  regimes,  and  enhance  the 
functioning of the market for these products. Regarding the proposed excise duty rates, the introduction of 
high EU minima would reduce the tax gap between new products and traditional tobacco products, hence 
tax induced substitution. 

The  preferred  option  for  enlarging  the  scope  to  raw  tobacco  is  option  1  -  new  excise  category  for  raw 
tobacco  with  a  zero  minimum  rate.  This  option  envisages  applying  the  EMCS  system  to  cross-border 
movements. In this sense, Member States authorities would have access to a readily available IT tool that 
allows monitoring of supply-chain operations, and therefore assists in detecting irregularities and potential 
diversion  routes. By introducing  a zero rate, the  mechanism  remains proportionate with  the objective of 
addressing tax evasion, fraud and avoids double taxation.  

What are the costs of the preferred option (if any, otherwise of main ones)?  

The preferred option for extending the scope to new products and raw tobacco would generate a moderate 
increase  in  administrative  costs  for  economic  operators,  which  can  occasionally  be  more  significant  for 
SMEs  (mainly  in  the  electronic  cigarettes  sector)  due  to  the  need  to  implement  movement  and  control 
requirements applying to excise goods. Big tobacco companies active in the segment of new products are 
already  equipped  to  deal  with  these  rules.  The  additional  administrative  costs  for  tax  authorities  would 
also be moderate as Member States that have introduced excise duties for new products and raw tobacco 
already apply similar rules and control measures as for conventional tobacco products. 

What are the impacts on SMEs and competitiveness?  

Harmonised  excise  treatment  and  application  of  movement  and  control  requirements  (EMCS)  for  new 
products would remove market barriers caused by the fragmentation of Member State rules and regimes, 
creating  new  opportunities  for  operators,  including  SMEs,  to  expand  their  activities  to  other  markets 
However,  SMEs  would  be  comparatively  more  affected  as  they  are  less  capable  to  absorb  the  cost 
increase. On the other hand, the tobacco sector is largely dominated by big tobacco companies, so negative 
effects  for  SMEs  are  expected  only  in  the  e-cigarettes  sector,  and  to  a  much  lesser  extent,  in  the  raw 
tobacco sector, and in limited subsectors (e.g. cigars, pipe tobacco, smokeless tobacco). 

Introduction  of  control  requirements  at  EU  level  for  raw  tobacco  would  reduce  the  availability  of  illicit 
tobacco  and  tobacco  products  in  the  market,  so  that  legal  players  would  experience  lower  competitive 
pressure from the illegal value chain, and this could partly compensate the extra costs incurred. Overall, it 
is not expected that these costs would significantly affect the competitiveness of EU-grown tobacco. 

Will there be significant impacts on national budgets and administrations?  

EU  minima  increases  for  traditional  tobacco  products  will  result  in  an  estimated  increase  in  annual  tax 
revenues of EUR 14 billion in tax revenue across EU Member States.  
The introduction of excise duty rates for new products will increase revenue by an estimated EUR  900 to 
1 700 million under the preferred option. 

The  establishment  of  a  harmonised  category  for  raw  tobacco  in  EU  excise  legislation  will  result  in  an 
estimated reduction in foregone tax revenues of approximately EUR 1.3 billion per annum. 
Will there be other significant impacts?  

No 

Proportionality?  

 
 
The proposal is proportionate and necessary to achieve the objectives, as it addresses current limitations of 
the legal framework at EU level. The proposed increase of EU minima is conducive to meeting Europe’s 
Beating Cancer Plan goals. At the same time, Member States remain free to adapt the actual excise duty 
rates, and to some extent the tax structure, according to their national preferences. Clearer definitions of 
product categories, and the extension of the scope of the Directive to new products and to raw tobacco will 
support effective enforcement by Member States, and the smooth functioning of the internal market. 

D. Follow up 

When will the policy be reviewed?  

The Commission will prepare an evaluation at the earliest five years after the application date of the new 
legislation, allowing markets to adjust and the results and impacts to materialise. Given that the revision of 
the  Directive  is  one  of  the  policy  proposals  under  Europe’s  Beating  Cancer  Plan,  monitoring  and 
evaluation could be carried out in line with the other elements of the package.