COMMISSION STAFF WORKING DOCUMENT 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) 560 final  COMMISSION STAFF WORKING DOCUMENT  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) 561 final}  
 
 
Table of contents 

INTRODUCTION: POLITICAL AND LEGAL CONTEXT ............................................................... 7 
1. 
2. 
PROBLEM DEFINITION ..................................................................................................................... 9 
3.  WHY SHOULD THE EU ACT? ......................................................................................................... 19 
4.  OBJECTIVES: WHAT IS TO BE ACHIEVED?................................................................................ 20 
5.  WHAT ARE THE AVAILABLE POLICY OPTIONS? ..................................................................... 22 
6.  WHAT ARE THE IMPACTS OF THE POLICY OPTIONS? ........................................................... 35 
7.  HOW DO THE OPTIONS COMPARE? ............................................................................................ 52 
8. 
PREFERRED OPTION ....................................................................................................................... 55 
9.  HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? .................................. 59 
ANNEX 1: PROCEDURAL INFORMATION ............................................................................................ 61 
1. 
LEAD DG, DECIDE PLANNING/CWP REFERENCES .................................................................. 61 
2.  ORGANISATION AND TIMING ...................................................................................................... 61 
CONSULTATION OF THE RSB ....................................................................................................... 63 
3. 
4. 
EVIDENCE, SOURCES AND QUALITY ......................................................................................... 67 
ANNEX 2: STAKEHOLDER CONSULTATION (SYNOPSIS REPORT) ................................................ 68 
CONSULTATION STRATEGY ........................................................................................................ 68 
1. 
FEEDBACK ON THE POLICY PROBLEMS ................................................................................... 69 
2. 
3. 
FEEDBACK ON SPECIFIC POLICY OPTIONS .............................................................................. 73 
ANNEX 3: WHO IS AFFECTED AND HOW? ........................................................................................... 78 
PRACTICAL IMPLICATIONS OF THE INITIATIVE ..................................................................... 78 
1. 
SUMMARY OF COSTS AND BENEFITS ........................................................................................ 78 
2. 
3. 
RELEVANT SUSTAINABLE DEVELOPMENT GOALS ............................................................... 84 
ANNEX 4: ANALYTICAL METHODS ...................................................................................................... 88 
1. 
INTRODUCTION ............................................................................................................................... 88 
2.  DATA COLLECTION ........................................................................................................................ 88 
3.  DESK RESEARCH ............................................................................................................................. 90 
CALL FOR A DATA .......................................................................................................................... 91 
4. 
5. 
CASE STUDIES ................................................................................................................................. 92 
6.  METHODOLOGICAL LIMITATIONS ............................................................................................. 92 
BASELINE SCENARIO ..................................................................................................................... 93 
7. 
8. 
IMPACT ANALYSIS ......................................................................................................................... 96 
ANNEX 5: COMPETITIVENESS CHECK ............................................................................................... 105 
1.  OVERVIEW OF IMPACTS ON COMPETITIVENESS ................................................................. 105 
2. 
SYNTHETIC ASSESSMENT .......................................................................................................... 105 
ANNEX 6: SME CHECK ........................................................................................................................... 108 
ANNEX 7: SMOKING PREVALENCE AND PRICE LEVELS............................................................... 114 
SMOKING PREVALENCE.............................................................................................................. 114 
1. 

1 

 
 
2. 
SMOKING PREVALENCE. GENDER AND SOCIO-ECONOMIC GROUPS .............................. 115 
3.  AFFORDABILITY AND THE ROLE OF EU MINIMA ON TOBACCO PRODUCTS ................ 118 
4. 
EXCISE DUTY LEVELS ................................................................................................................. 121 
ANNEX 8: CROSS-BORDER FLOWS OF TOBACCO AND NEW PRODUCTS .................................. 123 
CONTEXT ........................................................................................................................................ 123 
1. 
2.  ASSESSMENT OF CROSS-BORDER FLOWS .............................................................................. 123 
ANNEX 9: ILLICIT TRADE AND MANUFACTURING OF TOBACCO PRODUCTS ........................ 130 
1.  OVERVIEW ...................................................................................................................................... 130 
ESTIMATED MAGNITUDE AND CHARACTERISTICS OF ITTP ACROSS THE EU .............. 131 
2. 
ILLICIT MANUFACTURING WITHIN EU ................................................................................... 133 
3. 
ANNEX 10: INCOHERENT FISCAL TREATMENT OF CIGARILLOS AND WATERPIPE TOBACCO136 
1. 
CIGARILLOS ................................................................................................................................... 136 
2.  WATERPIPE TOBACCO ................................................................................................................. 136 
ANNEX 11: PURCHASING POWER PARITIES APPROACH ............................................................... 138 
1.  OVERVIEW ...................................................................................................................................... 138 
2. 

COMPARISON  BETWEEN  RELATIVE  INCOME  PRICE  (RIP)  AND  PURCHASING  POWER 
PARITIES (PPP) BASED MECHANISMS ...................................................................................... 138 
LIMITS OF THE PPP APPROACH ................................................................................................. 139 
3. 
CONCLUSION ................................................................................................................................. 140 
4. 
ANNEX 12: HEATED TOBACCO PRODUCTS ...................................................................................... 143 
1.  MARKET AND DEMAND TRENDS .............................................................................................. 143 
LEGAL FRAMEWORK OF HTP IN MEMBER STATES.............................................................. 146 
2. 
3. 
TAX REVENUE ............................................................................................................................... 149 
ANNEX 13: LIQUIDS FOR ELECTRONIC CIGARETTES .................................................................... 150 
1.  MARKET TRENDS AND DEMAND .............................................................................................. 150 
LEGAL FRAMEWORK FOR E-CIGARETTES IN MEMBER STATES ...................................... 155 
2. 
LIQUIDS FOR E-CIGARETTES REGIME’S IMPLEMENTATION AND OBLIGATIONS ........ 155 
3. 
TAX REVENUE ............................................................................................................................... 156 
4. 
ANNEX 14: OTHER TOBACCO-RELATED PRODUCTS ..................................................................... 158 
1.  MARKET TRENDS AND DEMAND .............................................................................................. 158 
LEGAL FRAMEWORK IN MEMBER STATES ............................................................................ 159 
2. 
ANNEX 15: RAW TOBACCO .................................................................................................................. 160 
1. 
RECONSTRUCTION OF THE TOBACCO SUPPLY CHAIN ....................................................... 160 
LEGAL FRAMEWORK FOR RAW TOBACCO IN MEMBER STATES ..................................... 166 
2. 
ANNEX 16: CURRENT EXCISE DUTY RULES FOR MANUFACTURED TOBACCO ...................... 168 
EXCISE DUTY STRUCTURE ......................................................................................................... 168 
1. 
2. 
RELEVANCE OF THE CURRENT EXCISE DUTY STRUCTURE .............................................. 170 
ANNEX 17: IMPACTS OF THE PROPOSED OPTIONS ........................................................................ 171 

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3. 
4. 

REVISION OF EU MINIMA FOR TRADITIONAL TOBACCO PRODUCTS ............................. 171 

1. 
2.  HOLDING, MOVEMENT AND CONTROL REQUIREMENTS UNDER HORIZONTAL DIRECTIVE

 ........................................................................................................................................................... 174 
ENLARGING THE SCOPE TO NEW PRODUCTS ........................................................................ 176 

IMPACTS  RELATED  TO  ENLARGING  THE  SCOPE  OF  THE  DIRECTIVE  TO  RAW  TOBACCO
 ........................................................................................................................................................... 181 
5. 
ENVIRONMENTAL IMPACTS ...................................................................................................... 186 
ANNEX 18: ELASTICITY ......................................................................................................................... 188 
1.  MARKET EFFECTS: ELASTICITY................................................................................................ 188 
2. 

THE PRICE ELASTICITY  OF THE DEMAND FOR TOBACCO PRODUCTS IN THE RELEVANT 
LITERATURE .................................................................................................................................. 188 
ANNEX 19: EXPRESSING REVISED EU MINIMA IN NOMINAL TERMS ........................................ 190 
1. 
TRADITIONAL TOBACCO PRODUCTS ...................................................................................... 190 
2.  NEW PRODUCTS ............................................................................................................................ 194 

3 

 
 
 
 
 
Glossary 

Term or acronym 

Meaning or definition 

B2B 

CN 

Horizontal Directive 

Business to business 

Combined Nomenclature 

Council  Directive  2008/118/EC  concerning  the  general 
arrangements  for  excise  duty  and  repealing  Directive 
92/12/EEC 

The Directive  

Council Directive 2011/64/EU on the structure and rates 
of excise duty applied to manufactured tobacco 

Council Directive 2007/74/EC  Council Directive 2007/74/EC of 20 December 2007 on 
the exemption  from  value added tax  and excise  duty  of 
goods imported by persons travelling from third countries 

CJEU 

Court of Justice of the European Union 

Tobacco Products Directive 

Directive 2014/40/EU of the European Parliament and of 
the Council of 3 April 2014 on the approximation of the 
laws,  regulations  and  administrative  provisions  of  the 
Member States concerning the manufacture, presentation 
and  sale  of  tobacco  and  related  products  and  repealing 
Directive 2001/37/EC 

DG TAXUD  

Directorate-General for Taxation and the Customs Union  

DG SANTE 

DG AGRI  

E-cigarette 

EDY 

EMCS 

Directorate-General for Health and Food Safety  

Directorate-General 
Development 

for  Agriculture 

and  Rural 

Electronic cigarette, that can be used for consumption of 
vapour  via  a  mouthpiece,  or  any  component  of  that 
product,  including  a  cartridge,  a  tank  and  the  device 
without cartridge or tank  

Excise duty yield 

Excise movement and control system 

4 

 
 
 
 
 
EU 

EUROPOL 

FCT  

FCTC 

GDP 

HICP  

HTP 

ITTP 

MED 

NGOs 

OLAF 

OST 

PPP 

RIP  

RSP  

RFC 

SEED 

SDG 

SMEs 

TEDB 

TFEU 

WAP  

European Union 

European  Union  Agency 
Cooperation 

for  Law  Enforcement 

Fine-cut tobacco intended for the rolling of cigarettes 

Framework Convention on Tobacco Control 

Gross Domestic Product 

Harmonised Indices of Consumer Prices 

Heated tobacco product 

Illicit trade of tobacco products 

Minimum Excise Duty  

Nongovernmental organisations 

European Anti-Fraud Office 

Other Smoking Tobacco 

Purchasing Power Parity 

Relative Income Price 

Retail Selling Price 

Release for consumption  

System for Exchange of Excise Data 

Sustainable Development Goals 

Small and medium enterprises 

Taxes in Europe Database 

Treaty on the Functioning of the European Union 

Weighted average price 

5 

 
 
 
WHO 

WPT 

World Health Organization 

Waterpipe tobacco 

6 

 
 
 
 
1. 

Introduction: Political and legal context 

Tobacco consumption is one of the greatest avoidable health risks in the European Union.1 Tobacco 
is a highly addictive substance, and its use is linked to cardiovascular and respiratory diseases, and 
27% of all cancers. Tobacco consumption remains the largest behavioural risk factor to health and 
each year accounts for about 700 000 deaths across EU Member States. In Europe’s Beating Cancer 
Plan2, the European Commission proposed to create a ‘Tobacco Free Generation’ and set a target of 
reducing smoking prevalence to less than 5% of the population by 2040. The plan is based on a wide 
consultation with stakeholder groups, the European Parliament and the Member States. 

The revision of Council Directive 2011/64/EU on the structure and rates of excise duty applied to 
manufactured tobacco (‘the Directive’), which is the subject of this impact assessment, as an integral 
part  of  Europe’s  Beating  Cancer  Plan,  should  focus  on  ensuring  a  high  level  of  human  health 
protection. Higher tobacco taxes and prices have been demonstrated to be the single most effective 
measure  to  reduce  overall  tobacco  use,  induce  current  smokers  to  quit,  reduce  uptake  by  young 
people, lower consumption among those who continue to smoke, improve population health, increase 
tobacco tax revenues, and produce additional public health benefits. The revision of the Directive will 
contribute to the delivery of these objectives.  

Other  actions  contributing  to  these  objectives  include  the  adoption  in  December  2024  of  updated 
Council  Recommendation  on  Smoke-Free  Environments  (to  extend  its  coverage  to  emerging 
products, such as electronic cigarettes and heated tobacco products)3 and a comprehensive evaluation 
of  the  Tobacco  Products  Directive  and  the  Tobacco  Advertising  Directive4.  The  evaluation  will 
determine whether and to what extent the current legal frameworks needs to be amended. 

reviewing the Tobacco Products Directive. Tobacco tax policy and other tobacco control policies act 
in synergy. Taxation in addition to its behavioural impact, delivers an overall ‘price signal’ to society 
that smoking is indeed harmful for consumers and should be discouraged by all possible means.  

The  revision  of  the  Directive  will  support  Member  States  in  meeting  the  objectives  of  the  WHO 
Framework  Convention  on  Tobacco  Control5,  including  by  adopting  tax  measures  to  reduce  the 
demand for tobacco.  

The  initiative  shall  also  be  considered  in  the  context  of  the  EU  agenda  to  strengthen  EU 
competitiveness  and  growth  while  upholding  high  standards  and  achieving  economic,  social,  and 
environmental goals and to fight against fraud. These political objectives, in the tobacco context, have 
three main dimensions: 

1  OECD  (2024), Beating  Cancer  Inequalities  in  the  EU:  Spotlight  on  Cancer  Prevention and  Early  Detection,  OECD 
Health Policy Studies, OECD Publishing, Paris, https://doi.org/10.1787/14fdc89a-en, p 12. 
2 Europe's Beating Cancer Plan, SWD (2021) 44 final. 
3 https://ec.europa.eu/commission/presscorner/detail/en/ip_24_6185 
4 Directive 2014/40/EU of the European Parliament and of the Council of 3 April 2014 on the approximation of the laws, 
regulations  and  administrative  provisions  of  the  Member States  concerning  the  manufacture,  presentation  and  sale  of 
tobacco and related products and repealing Directive 2001/37/EC, OJ L 127, 29.4.2014, p. 1–38.  
Directive 2003/33/EC of the European Parliament and of the Council of 26 May 2003 on the approximation of the laws, 
regulations and administrative provisions of the Member States relating to the advertising and sponsorship of tobacco 
products, OJ L 152, 20.6.2003, p. 16–19. 
5 The WHO Framework Convention on Tobacco Control (FCTC) is a legally binding international treaty that aims to 
reduce the health and economic impact of tobacco consumption. 

7 

 
 
 
▪  To streamline rules and reduce the administrative burdens6  for businesses by introducing clear 
definitions  of  new  tobacco  and  tobacco-related  products  to  facilitate  cross-border  trade 
involving these products while, at the same time, helping Member States enforce tax rules and 
improve tax compliance, ensuring they can secure reliable tax revenues. 

▪  The fight against illicit tobacco trade, in line with the 2nd EU Action Plan7, which focuses on 
limiting some of the key input materials going into the illicit manufacture of tobacco products, 
including raw tobacco, and the use of the Excise Monitoring and Control System (EMCS) for 
risk analysis and control.  

▪  The fight against tax fraud and evasion, in line with the EU Action Plan for fair and simple 
taxation supporting the recovery8, which sets out measures to help Member States enforce tax 
rules and improve tax compliance, ensuring they can secure reliable tax revenues. 

EU legislation for the taxation of manufactured tobacco products9, in place since the 1970s, lays down 
minimum tax rates that Member States must respect when taxing tobacco products. The Directive 
continues to be an instrument for Member States to collect tax revenues10. The legal framework has 
been revised and amended several times11. The Directive is part of a broader EU policy framework 
that includes the common provisions applicable to all products subject to excise duty and the customs 
union legislation, as well as key tobacco control policies. 
This revision follows the evaluation of the Directive published on 10 February 2020.12 The evaluation 
highlights the main limitations of the current regulatory framework and concludes that the Directive 
no longer fully achieves its objectives. The current minimum tax rates have lost traction in terms of 
making  an  effective  contribution  to  reducing  tobacco  consumption.  Notwithstanding  that  the 
Directive contributed to the decline of smoking prevalence, to a certain extent, smoking prevalence 
levels remain higher than expected. Existing differentials incentivise cross-border flows. The current 
scope  of  the  Directive  is  not  adapted  to  market  developments  such  as  electronic  cigarettes  (‘e-
cigarettes’)  and  heated  tobacco  products.  Furthermore,  illicit  trade  in  tobacco  products  remains 
substantial  and  continues  to  constitute  a  source  of  concern  in  Member  States.  Most  public  health 
authorities of the Member States are not satisfied with the impact of the Directive on tobacco control 
targets and call for stronger fiscal measures. 

The Directive can support and complement the objectives of Europe’s Beating Cancer Plan by better 
aligning  the  taxation  of  tobacco  and  related  products  with  health  objectives,  adapting  to  new 
developments and market trends, and introducing harmonised rules on tobacco and related products. 

6 https://commission.europa.eu/law/law-making-process/better-regulation/simplification-and-implementation_en  
7  COMMUNICATION  FROM  THE  COMMISSION  TO  THE  EUROPEAN  PARLIAMENT,  THE  COUNCIL  AND 
THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE 2nd Action Plan to fight the illicit tobacco trade 2018-
2022 (COM/2018/846 final) 
8 COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL AN 
ACTION PLAN FOR FAIR AND SIMPLE TAXATION SUPPORTING THE RECOVERY STRATEGY (COM(2020) 
312 final) 
9 For the purposes of the provisions of this Directive, manufactured tobacco are: cigarettes; cigars and cigarillos; smoking 
tobacco (fine-cut tobacco for the rolling of cigarettes and other smoking tobacco). For more details see ANNEX 16: 
10 In 2020 at EU level tobacco excise duties provided around 2% share of tax revenues and 0.93% of GDP (Gross Domestic 
Product). 
11  Council  Directive  92/79/EEC;  Council  Directive  92/80/EEC;  Council  Directive  95/59/EC;  Council  Directive 
2002/10/EC; Council Directive 2003/117/EC, Council Directive 2010/12/EC. In 2011, the Council adopted the revised 
Directive which codified the previous legislation in a single act. 
12 Evaluation of the Council Directive 2011/64/EU of 21 June 2011 on the structure and rates of excise duty applied to 
manufactured tobacco, SWD(2020) 33 final. 

8 

 
 
 
On  2  June  2020,  the  Council  adopted  conclusions  on  the  review  of  the  Directive13  based  on  the 
findings from the evaluation. The Council invited the European Commission to submit a legislative 
proposal for the revision of the Directive on the basis of an impact assessment. 

2.  Problem definition 

This section defines and analyses the problems and their drivers and it assesses the expected evolution 
of these problems in the absence of any EU policy intervention. Figure 1 shows visually the problems, 
their drivers, as well as the consequences if unaddressed. 

Figure 1. Problem tree 

Source: Commission analysis  

2.1.  What is/are the problems? 

At the time of its adoption, the Directive represented a positive contribution to the EU legislative 
framework by harmonising rules for the taxation of tobacco. However, the Directive has remained 
unchanged over the past 15 years, despite changes in the tobacco market, other EU legislation, and 
the political context with an increased focus on public health both at national and EU level. As noted 
above the evaluation found that the Directive no longer fully achieves its objectives, which for this 
impact  assessment  is  translated  into  three  intervention  areas:  (1)  revising  EU  minima  and  certain 
categories for traditional tobacco products as smoking prevalence is not declining sufficiently quickly 
to meet Europe’s Beating Cancer Plan objectives; (2) enlarging the scope of the  Directive to new 
products as the current scope of the Directive is not adapted to market developments and the fiscal 
treatment between and across products is incoherent; and (3) enlarging the scope of the Directive to 
raw  tobacco  to  address  increasing  illicit  manufacturing  of  tobacco  products  within  the  EU.    As 
verified in the evaluation, in general the regulatory burden and the current excise duty structure for 
tobacco products is neither an issue for Member States authorities nor for operators (also see ANNEX 
16:2 on relevance of the current excise duty structure). Only certain provisions of the Directive related 
to  the  definitions  of  and  EU  minima  for  traditional  tobacco  products  need  to  be  revised,  and  the 
regulatory framework should be updated due to the disparities in the tax treatment of new products 
across Member States and due to the lack of a proper control system for raw tobacco. The options 
envisaged for each of the identified problem areas will be subsequently presented. By tackling the 
problem  drivers,  each  policy  option  aims  at  achieving  one  or  several  of  the  specific  objectives. 

13 Council conclusions concerning the structure and rates of excise duty applied to manufactured tobacco. 

9 

Relative low average price levels of productsIncreasing illicit manufacturing of tobacco products within EUUnfit EU minimaSmoking prevalence not declining sufficiently quickly to meet Europe’s Beating Cancer Plan objectivesIncoherent fiscal treatment between and across the productsIneffective control of tobacco supply chain by Member StatesNegative impact on Member States revenue (fraud, tax avoidance, ineffective tax collection) and securityMarket and competition distortionsNegative public health impact (smoking related diseases, addiction levels and relatedsocial costs)DRIVERSPROBLEMSCONSEQUENCESDivergent approaches to taxation between products and Member States 
 
 
Acknowledging the complexity of the issues at stake and their analysis, Figure 3 offers an overview 
of the intervention logic behind the initiative (see section 4). 

2.1.1.  Smoking  prevalence  not  declining  sufficiently  quickly  to  meet  Europe’s  Beating 

Cancer Plan objectives 

Although smoking prevalence has declined in the EU over the past decade (from 28% to 24% between 
2012 and 2023), substantial differences remain between countries and population groups. In some 
Member  States  (e.g.  Greece,  Bulgaria  and  Croatia)  smokers  still  represent  more  than  35%  of  the 
population, while in others (e.g. Denmark, the Netherlands and Sweden) prevalence has fallen below 
15%.14 Without intervention, even at current rates of declining usage, the long-term target set out in 
Europe’s Beating Cancer Plan, which is to reduce smoking prevalence to less than 5% by 2040, will 
not be achieved. 

Around 40% of the smoking prevalence decline in the EU can be attributed to the impact of taxation 
policies.15  The  effectiveness  of  taxing  addictive  substances  in  changing  behaviour  and  improving 
public health is widely recognised and reflected by, amongst others, the World Health Organisation 
(WHO)16,  the  World  Bank17,  and  academics.18  According  to  the  WHO,  a  tax  rise  that  increases 
tobacco prices by 10% decreases tobacco consumption by about 4% in high-income countries and by 
up to 8% in most low- and middle-income countries.  

Furthermore,  taxation,  as  a  measure  to  reduce  tobacco  consumption,  is  specifically  called  for  in 
Article 6 of the WHO Framework Convention on Tobacco Control.19 The European Union is a Party 
to the Convention. 

While other policy measures such as product regulation, smoke-free environment policies, tobacco 
advertising bans, health warnings and labelling policy measures can reduce demand, the relationship 
between  tobacco  control  policies  and  taxation  is  complementary  in  fostering  greater  reduction  in 
smoking prevalence than each element would have achieved alone.20 

14 In the case of the Netherlands – from 24% to 11%; in the case of Sweden – from 13% to 8%; in the case of Denmark – 
from 26% to 14%. See  ANNEX 7:1 for details. 
15 Economisti Associati ‘Impact analysis of the review of tobacco excise duty rules’ (‘EA 2021 study’)..  
16 https://www.who.int/activities/raising-taxes-on-tobacco 
17   Chaloupka,  FJ,  Curbing  the  Epidemic  -  governments  and  the  economics  of  tobacco  control,  Tobacco 
Control 1999;8:196-201. Marquez, Patricio V.; Moreno-Dodson, Blanca. 2017, Tobacco Tax Reform at the Crossroads 
of Health and Development: A Multisectoral Perspective, World Bank. 
18 Kara A. Contreary, Sajal K. Chattopadhyay, David P. Hopkins, Frank J. Chaloupka, Jean L. Forster, Victoria Grimshaw, 
Carissa  B.  Holmes,  Ron  Z.  Goetzel,  Jonathan  E.  Fielding,  Economic  Impact  of  Tobacco  Price  Increases  Through 
Taxation: A Community Guide Systematic Review, American Journal of Preventive Medicine, Volume 49, Issue 5, p. 
801. 
19  Article  6(1)  provides:  ‘The  Parties  recognize  that  price  and  tax  measures  are  an  effective  and  important  means  of 
reducing tobacco consumption by various segments of the population, in particular young persons’. - WHO Framework 
Convention on Tobacco Control. 
20 Ballester L, Auchincloss A, Robinson L, Mayne S. Exploring impacts of taxes and hospitality bans on cigarette prices 
and smoking prevalence using a large dataset of cigarette prices at stores 2001–2011, USA. Int J Environ Res Public 
Health. 2017;14(3):e318 (Exploring Impacts of Taxes and Hospitality Bans on Cigarette Prices and Smoking Prevalence 
Using a Large Dataset of Cigarette Prices at Stores 2001–2011, USA - PMC (nih.gov), accessed 15 July 2022). White, 
V.M., Warne, C.D., Spittal, M.J., Durkin, S., Purcell, K. and Wakefield, M.A. (2011), What impact have tobacco control 
policies, cigarette price and tobacco control programme funding had on Australian adolescents' smoking? Findings over 
a 15-year period. Addiction, 106: 1493-1502. https://doi.org/10.1111/j.1360-0443.2011.03429.x 

10 

 
 
 
Within the EU, the relationship between the Weighted Average Price (WAP) of cigarettes in each 
Member State and prevalence of smoking may be demonstrated (see  

Figure 2 below).  In general, the higher WAP of cigarettes, the lower the smoking prevalence within 
that Member State. 

Figure 2. Weighted Average Price per 1000 cigarettes in EUR (WAP) and Smoking prevalence 
in % within the EU (2023) 

40

35

30

25

20

15

10

5

0

900

800

700

600

500

400

300

200

100

0

SE NL DK FI

IE LU BE PT MT CZ DE ES

IT

SI EE HU FR PL SK CY LT AT LV RO HR EL BG

WAP cigarettes

Prevalence

Linear (WAP cigarettes)

Linear (Prevalence)

Source: Commission analysis  

The  EU  minima  set  in  the  Directive  have  been  moderately  effective  in  raising  tax  rates,  and 
consequently, prices in  Member States, especially in  the case of cigarettes.  However, EU minima 
have not been updated since 2010 and inflation21 has eroded their effectiveness. This loss of traction 
of EU minima is confirmed by public health authority’s survey results, where a majority admitted 
that their smoking prevalence reduction objectives over the last few years could be achieved only to 
some moderate or limited extent, particularly among young people and women. In addition, the real 
effect of price increases on consumers is dependent on income levels within Member States and this 
is  not  reflected  in  the  Directive.  Artificial  tax  driven  cross-border  shopping,  whereby  private 
individuals buy tobacco products in another Member State and bring them home for consumption22, 
lowers the effective price at which tobacco is available. This lack of convergence is to be seen together 
with  the  difficulties  of  enforcing  the  concept  of  personal  use  as  foreseen  by  Article  32  of  the 
Horizontal Directive (guidance to what quantity of excise good a private person can transport across 
Member  States  borders  for  his/her  own  use).  The  high  levels  of  (cheaper)  cross  border  cigarettes 
clearly undermine national public health policies by reducing the effective price at which tobacco is 
available, hence affecting efforts to reduce smoking prevalence, although it is difficult to quantify. 
Such cross-border shopping distorts competition and market functioning by incentivising businesses 
to cluster in countries with lower tax rates. The loss of tax revenue is significant for some Member 

21 EU minimum rates are not adjusted on inflation. 
22 Personal use of excisable goods provided for by Article 32 of the Horizontal Directive. See ANNEX 8: for more details 
on cross-border acquisitions. 

11 

 
 
 
 
States, while others register considerable extra revenue compared with local consumption23. In 2023, 
the estimated of volume of cross-border purchases of cigarettes by private individuals for their own 
use  in  other  EU  Member  States  was  approximately  28  billion  pieces,  i.e.  around  7%  of  total 
consumption. In some Member States, the magnitude of cross-border flows is estimated to reach well 
above  10%  of  domestic  demand.24  The  aggregated  forgone  excise  revenues  throughout  the  EU 
amounts to approximately EUR 2.9 billion per annum (that can be used to compensate for the social 
costs of smoking). The incidence of cross-border flows is even greater for fine cut tobacco (FCT)25 
in relative terms, with volumes estimated to reach between 13% and 20% of the total consumption in 
the EU.26  The estimated forgone excise revenue associated would range between EUR 1.3 billion 
and EUR 2 billion. For heated tobacco products (HTP)27 and liquids for e-cigarettes28, recent market 
developments  show  cross-border  flows  which  are  also  relevant,  albeit  in  a  limited  number  of  EU 
countries (see ANNEX 8:). 

The  travel  restrictions  during  the  COVID–19  period  highlighted  the  extent  of  the  phenomenon. 
During  confinements,  consumers  had  more  limited  access  to  cheaper  tobacco  products  in  other 
Member States resulting in increases in the sales of domestic products. For example, in the case of 
France - a Member State with high cross-border inflows of tobacco products - during the lockdown, 
the estimated volume of cigarettes purchased cross-border was 9.5% of domestic sales while in 2023 
it  was  23.4%.29There  is  a  consensus  among  all  stakeholders  that  the  EU  tobacco  taxation  policy 
should contribute to reduce differences in taxation between Member States and therefore decrease 
the incentive for cross-border flows. 

2.1.2.  Incoherent fiscal treatment of certain products 

The lack of clarity as to the definition of products leads to the incoherent application of the Directive, 
resulting  in  difficulties  for  Member  State  authorities,  economic  operators,  and  consumers30.  This 
affects harmonised products, such as cigarillos and waterpipe tobacco as well as products that contain 
tobacco or nicotine but currently fall outside the scope of the Directive. 

Until recently, the heterogeneous nature of cigars and cigarillos, and their limited demand, meant that 
a single tax category was appropriate. However, the development of economy cigarillos (low priced 
cigarillos)  as  substitutes  to  cigarettes  has  differentiated  these  products.  Economy  cigarillos  take 

23 For a number of Member States, notably France and Germany, the revenue loss is significant. Conversely, three Member 
States, Luxembourg, Poland and Spain seemingly register considerable extra revenue in connection with cross-border 
shopping. 
24  In  a  number  of  Member  States  it  reaches  10%  or  more  of  the  total  consumption  of  cigarettes  (Austria,  Belgium, 
Denmark, France, Finland, Germany, Ireland and the Netherlands). The Luxembourg’s case stands out: seemingly almost 
90% of the cigarettes released for consumption in the country are actually consumed abroad. 
25 Fine-cut tobacco is loose tobacco, which the consumer can use to make cigarettes, by either hand rolling it into cigarette 
paper or using a device. 
26 Lower and upper bound. Similar to cross-border trade in cigarettes, Germany and France were identified as the main 
destinations, while Poland and Luxembourg were the main sources of FCT purchased cross-border (External study). 
27 Tobacco products prepared for consumption only in a special electronic device in which the tobacco is heated without 
burning. According to the majority (eight out of ten) of the Member States authorities that replied to the consultation, the 
substitution between cigarettes and HTP has increased in the past few years (External study). 
28 E-cigarettes are disposable or refillable devices, which can be used for consumption of vapour from liquid (nicotine 
containing or nicotine free) for electronic cigarettes. 
29 See ANNEX 8: for details on magnitude of cross-border flows. 
30 There is a significant consensus among all categories of stakeholders that divergences in new products fiscal treatment, 
in particular heated tobacco products (HTPs) and e-cigarettes, hinder their free circulation in the internal market and is a 
source of legal uncertainty and distortion of competition.  

12 

 
 
 
advantage  of  lower  taxation  rates  compared  with  cigarettes  under  the  Directive  and  a  lighter 
regulatory regime under the Tobacco Products Directive31, so undermining both price and non-price 
measures taken by Member States in pursuit of health objectives.  

Waterpipe tobacco (WPT) currently falls under the category of ‘other smoking tobacco’ for  excise 
purposes. The lack of a specific category reduces the ability of Member State authorities to monitor 
WPT  consumption  and  movements  specifically.32  The  combination  of  an  enhanced  economic 
incentive and poor visibility acts as an incentive to illicit trade. It is estimated that around half of all 
WPT consumed in the EU could come from illicit sources. 

Several products containing tobacco or nicotine fall outside the scope of the Directive. These include 
(1) other manufactured (smokeless) tobacco33 (chewing tobacco34, nasal tobacco35 and other tobacco 
for oral use36) and (2) related products (nicotine pouches, nicotine gums, other products for nicotine 
intake through chewing, dissolving, sniffing, etc.). The categorisation, and therefore fiscal status, of 
such products may be unclear, giving rise to uncertainty for economic operators and Member State 
authorities37.  Although  their  markets  remain  marginal,  such  products  have  become  increasingly 
available across the EU, especially after a new generation of oral tobacco and tobacco-free products 
containing nicotine has appeared on the market38. Nicotine pouches in this document refer to small 
flavoured pouches, placed between the lip and gum that releases a hit of nicotine to satisfy cravings. 
Approved nicotine replacement therapies are not part of this analysis. 

The growth of new products, such as heated tobacco products (HTP), e-cigarettes, other manufactured 
tobacco and other tobacco-related products, which primarily includes nicotine pouches used in the 
past years as substitutes to traditional tobacco products, especially among young people, has raised 
concerns among tax and public health authorities alike. While in 2018 these products accounted for 
little  more  than  4%  of  the  aggregated  EU  market  value  for  smoking  and  other  tobacco-related 
products, in 2023 this market had grown to nearly 13%, or an almost threefold increase. The existence 
of substitution patterns between traditional and new products is not only suggested by market trends 
but also confirmed on the supply side by the fact that these products (especially HTP and e-cigarettes) 
were developed as alternatives to cigarettes and are marketed as such by manufacturers. In 2023 15% 
of HTP users and 24% of e-cigarettes users were former smokers. While the percentage of former 
smokers among HTP users has increased since 2020 (from 9% to 15%) in the case of e-cigarettes it 

31 Regarding flavour ban, minimum pack size, pictorial warnings. See  ANNEX 10:1 for details. 
32 See ANNEX 10: section 2 for details. 
33 Article 2 of the Tobacco Products Directive defines ‘chewing tobacco’ as a smokeless tobacco product exclusively 
intended for the purpose of chewing and ‘nasal tobacco’ as a smokeless tobacco product that can be consumed via the 
nose. 
34  Commercialised  in  several  Member  States,  consumption  levels  are  mostly  negligible,  except  in  Poland,  Czechia, 
Denmark and Sweden. 
35 A niche product with some marginal consumption in Germany, Poland, Hungary and some Italian regions. 
36 Prohibited in the EU, except in Sweden, where snus is very popular. Snus is not covered in the proposed revision. 
37 As regards chewing tobacco 9 of 24 Member States that expressed an opinion during consultation that would favour its 
harmonisation at the EU level. As regards nasal tobacco – is not considered a product with future market growth or a risk 
for tobacco control policies by Member States authorities (External study). 
38  Majority  of  Member  States  tax  authorities  expect  substantial  growth  in  the  next  five  years,  especially  of  nicotine 
pouches (External study). 

13 

 
 
 
has  declined  (from  30%  to  24%),  possibly  related  to  the  younger  age  of  e-cigarettes  users.  The 
majority of new products users remain ‘dual’ users of new and traditional products.39 

In particular, the value of total sales of HTP exceeded EUR 12 billion in 2023, i.e. more than doubling 
the value recorded in 2020 and with a eight-fold increase compared with 2018., i.e. accounting for 
around  8%  of  the  total  tobacco  market  value.  The  total  HTP  users’  population  in  the  EU  can  be 
estimated  at  around  7.6  million,  and  the  consumption  prevalence  in  Member  States  is  generally 
comprised between 1% and 5%. The prevalence of HTP use among people in the 25-39 years age 
group was 3%, compared with just 1% for older generations.40 

After a few years of stagnation, the e-cigarettes market has expanded considerably in recent years, 
from an EU aggregate value of EUR 2.9 billion in 2020 to nearly EUR 5 billion in 2023. The share 
of Europeans regularly using e-cigarettes was at 3%. Prevalence varies across Member States from 
below  1%  in  Portugal  up  to  9%  in  Estonia.  The  prevalence  rate  is  higher  among  young  people. 
Overall, the e-cigarettes users’ population in the EU can be estimated at around 11.5 million.41 

Nicotine pouches are a relatively new product, and sales increased considerably in recent years. In 
2023, the EU market for nicotine pouches was valued at about EUR 1.1 billion, i.e. almost three times 
more than the value recorded in 2020 and more than twenty times the value recorded in 2018. At EU 
level, 1% of the population uses nicotine pouches, and the relative majority of daily users of nicotine 
pouches are found primarily in younger generations (15 – 24 age bracket).42 

Neither HTP nor the current generation of e-cigarettes and other tobacco-related products were on 
the  market  when  the  Directive  was  last  revised  and  Member  States  have  implemented  different 
national  measures  in  respect  of  such  products.  Incoherent  responses  have  resulted  in  a  range  of 
negative impacts on Member State authorities, economic operators, consumers, and the functioning 
of the Single Market. Differences in the structure and rates of taxation distorts competition between 
domestic and  foreign manufacturers,  especially  in Member States that  adopted relatively high  tax 
rates43. Different movement and control regimes result in additional administrative and compliance 
costs and cross-border movement difficulties. The absence of a common monitoring system reduces 
the  capacity  of  Member  State  authorities  to  identify  and  prevent  fraudulent  trade  and  detect  the 
emergence of ‘borderline’ products44. Diverging excise rates based on tax categorisation rather than 
consumer  usage  incentivises  economic  operators  to  develop  and  market  ‘borderline’  products  to 
circumvent  tax  categories  and  induces  consumers  to  adopt  substitutes,  which  may  be  equally 
damaging to health.   

39  Substitution  of  traditional  products  with  HTP  and  e-cigarettes  appear  only  in  part  driven  by  lower  prices.  The 
Eurobarometer survey showed that frequently the drivers behind e-cigarettes and HTP tobacco use are not related to price 
but to the willingness to quit/reduce smoking, to the perceived lower risk involved, social acceptability of these products 
and etc. (External study). 

40 See ANNEX 12: section 1 for details.  
41 See ANNEX 13: section 1 for details.  
42 See ANNEX 14: section 1 for details.  
43 External study.  
44  E.g.,  according  to  interviews  with  Member  States  authorities,  the  lack  of  harmonised  EU  approach  has  created  a 
breeding ground for illicit practices in liquid for e-cigarettes sector, which translates into severe tax losses, in percentage 
terms, for Member States (only about one-fifth of the theoretical tax revenue is actually collected). Due to their intrinsic 
characteristics, liquids can easily be moved across borders elusively, especially when directly shipped to consumers in 
small  quantities,  through  ordinary  courier  delivery  services.  Additionally,  business  to  business  movements  are  also 
difficult to control, since the excise movement control system does not cover e-cigarettes (External study).  

14 

 
 
 
Some Member States include HTP in a harmonised category, mainly other smoking tobacco (OST). 
However, this means that Member State authorities cannot distinguish between the regime applied to 
HTP and to other products in that category, such as pipe tobacco. Nor is it the case that the optimal 
tax rate for HTP is appropriate for pipe tobacco and vice versa. 

2.1.3.  Increasing illicit manufacturing of tobacco products within EU 

Illicit (tax-evaded) trade of tobacco products represents a major, persistent threat to the functioning 
of the internal market. It is also a serious problem both in terms of revenue losses and security – as it 
may  contribute  to  financing  organised  crime.  Additionally,  it  undermines  tobacco  control  policy 
causing adverse public health effects, as it reduces the cost of tobacco products making them more 
accessible  to  consumers.  Finally,  it  distorts  competition,  as  it  subtracts  consumers  from  the  legal 
market. 
It is estimated that around 13 billion illicit cigarettes are manufactured in the EU annually.45 In the 
case  of  fine  cut  tobacco  (FCT)  and  WPT,  it  can  be  assumed  that  half  of  illicit  products  are 
manufactured in the EU – i.e. more than 10 000 tonnes. Estimated foregone revenue associated to 
illicit  trade  of  cigarettes  amounts  to  approximately  to  EUR  9.0  billion  while  for  other  tobacco 
products – to approximately EUR 3.5 billion. Some Member States46 have adopted national measures 
to  monitor  and  control  the  movement  of  raw  tobacco.47  Measures  include  fiscal  definitions, 
authorisation schemes for operators, administrative controls on holding and movements, deposits and 
financial guarantees to cover diversion risks, prohibitions on selling to unauthorised operators, and 
the application of tax rates on raw tobacco48. However, divergent national definitions and procedures 
have led to legal uncertainty for legitimate economic operators and Member State authorities, and the 
number  of  seizures  and  disputes  over  shipments  of  (claimed)  raw  tobacco  has  increased  in  the 
majority of Member States. A majority of public consultation respondents see the need to fight illicit 
tobacco trade and manufacturing as a priority and called for increased EU action on the subject. 

2.2.  What are the problem drivers? 

2.2.1.  Relative low average price levels of tobacco products 

The Directive aims at impacting consumption behaviour through taxation. However, the evaluation 
of  the  Directive  concluded  that  current  level  of  the  minimum  excise  rates  had  been  moderately 
effective in raising tax rates and end-users prices in Member States. The metric used to analyse this 
evolution is affordability, i.e. the ability for an end-user to buy a given product.49 This indicator varies 
greatly across Member States: the lowest affordability levels for cigarettes (highest Relative Income 
Price (RIP)) can be found in countries with comparatively lower income, such as Romania, Bulgaria 
and Hungary, but also in countries with relative high price, like France. Conversely, cigarettes are 

45 Cigarettes illicitly manufactured in the EU account for approximately one-third of total illicit cigarettes consumed in 
the EU (External study). See ANNEX 9: for details.  
46 Such as Bulgaria, Greece, Croatia, Czechia, Hungary, Poland, Italy, Romania, Slovenia, Spain, Sweden, France.  
47 Raw tobacco refers to any form of tobacco that is neither a living plant nor a manufactured product, e.g. harvested 
tobacco leaves and intermediate products   
48 See ANNEX 15: section 2 for details on measures applicable in Member States.  
49 The standard indicator used to measure the affordability of a given product is the relative income price (RIP). In the 
case of cigarettes, it measures the percentage of per capita gross domestic product (GDP) required to buy 100 packs of 
cigarettes. An increase in the RIP value indicates that cigarettes have become less affordable (i.e. more expensive) and 
vice versa. See ANNEX 7: section 3 for details. 

15 

 
 
 
most  affordable  in  Luxembourg  and  Sweden.  The  affordability  of  cigarettes  has  only  marginally 
declined over time. In 2023, the EU average RIP index was only slightly higher than in 2011 (i.e. 
2.4% instead of 1.9%). In practice, the price of cigarettes in real terms has barely increased (although 
trends varied across Member States). 

2.2.2.  Unfit EU minima 

The current EU minima laid down in the Directive have lost traction and no longer make an effective 
contribution to reducing tobacco consumption. Excise levels in Member States are generally much 
higher than EU minima.50 

With respect to cigarettes, the Directive requires that the excise duty charged represents at least 60% 
of  the  weighted  average  retail  selling  price  (WAP)51  and  be  not  less  than  EUR  90  per  1 000 
cigarettes.52 In comparison, the excise duty rates53 levied by Member States range from EUR 95 to 
EUR 469 per 1 000 cigarettes, meaning that some Member States apply five times the EU minimum 
rate.  On  average,  the  excise  rate  effectively  applied  in  2023  (EUR  187)  is  more  than  twice  the 
minimum. For FCT, the Directive requires that excise duty represents at least 50% of WAP or be no 
less than EUR 60 per kg. Actual excise rates in Member States range from EUR 61 to EUR 437 per 
kg.  

The Directive requires excise duty levied on cigars and cigarillos to represent at least 5% of the retail 
selling price54 or be no less than EUR 12 per 1 000 items; the average excise duty levied by Member 
States in 2023 was EUR 727 per 1 000 items for cigars, and EUR 137 per 1 000 items for cigarillos. 
As regards other smoking tobacco, the Directive requires excise duty levied to represents at least 20% 
of the retail selling price or be no less than EUR 22 per 1 000 items; the average excise duty in 2023 
was EUR 132 per kg. 

The main reason why EU minima are so low is that they have been set in nominal terms, meaning 
that  both  inflation  and  income  growth  compound  to  make  them  quickly  obsolete.  Assuming  that 
smokers keep constant the quantity of tobacco they purchase, a 2% inflation rate coupled with a 1% 
increase  in  real  disposable  income,  which  would  represent  a  conservative  long-term  trend  for  a 
catching-up55 Member State, would imply that the excise burden on consumption falls by over 25% 
in ten years.  

This problem is exacerbated by the fact that EU minima, having been set at the same nominal level 
for each Member State56, take account of neither different income and price levels, nor different rates 
of economic growth.  Worse, there is  ample scope for divergence as both inflation rates and GDP 
growth rates differ significantly between Member States: the Harmonised Indices of Consumer Prices 

50 See ANNEX 7: section 4 for details. 
51 Article 8(2) of the Directive: the weighted average retail selling price in Member States is calculated by reference to 
the total value of all cigarettes released for consumption, based on the retail selling price including all taxes, divided by 
the total quantity of cigarettes released for consumption. 
52 Article 10(2) of the Directive provides that a Member State needs not to comply with the 60% requirement where an 
excise duty of at least EUR 115 per 1 000 cigarettes is levied (so called ‘escape clause’). 
53 Excise duty refers to excise duty yield (EDY), which is the excise duty levied at weighted average price level. 
54 Manufacturers or, where appropriate, their representatives or authorised agents in the EU, and importers of tobacco 
from third countries are free to determine the maximum retail selling price for each of their products. 
55 Catching-up refers to the process by which less developed or newer EU Member States experience faster economic 
growth rates to close the gap, or converge, with more established, high-income Member States. 
56 From 2018 in practice. Until then, a number of Member States were allowed a transitional period in order to reach EU 
minimum for cigarettes. 

16 

 
 
 
(HICP) inflation as of March 2022 ranged between a low of 4.5% in Malta to a high of 15.6% in 
Lithuania, whereas the 2021 real GDP growth rate ranged between 2.9% in Germany to  13.5% in 
Ireland. This situation leads to the rapid obsolescence of nominal minima fixed for all at the same 
level.  As  a  result,  in  nominal  terms,  EU  minima  for  cigarettes  in  Bulgaria  and  Romania  are  high 
relative  to  income  levels  because  of  a  lower  GDP  per  capita.  Conversely,  EU  minima  are  low 
compared with price and tax levels in Denmark and Sweden, which are among the highest in the EU. 
In other words, EU minima fixed at the same level in nominal terms inevitably imply that they are 
too cheap in more prosperous Member States while being very expensive in Member States with a 
lower GDP per capita.  

Almost all Member States have fought the erosion of the real value of EU minima by increasing their 
national excise duty rates. However, given freedom of movement within the EU, the effective price 
of tobacco products for consumers may be lowered, and health policy undermined, through access to 
cheaper  tobacco  products  (due  to  cross-border  shopping,  substitution,  and  the  illicit  market).  In 
particular, differentials in taxation and, consequently, retail prices between Member States continue 
to be a major driver of cross-border shopping. In turn, this can create negative economic incentives 
as Member States with a starting point of low excise duties may be held back from increasing them 
by  the  fear  of  a  loss  of  tax  revenue  from  cross-border  tobacco  sales.  Diverging  trends  in  prices, 
incomes and health policies inevitably make any set of nominal EU minima quickly obsolete over 
time.  

Moreover, differentials in excise duty levels encourage price-sensitive consumers (especially youth) 
to substitute cigarettes with less expensive alternatives.57 While the size of the cigarette market has 
fallen from some 678 billion sticks in 2005 to less than 400 billion in 2023, the volume of FCT sales 
had been increasing until 2012, when due to a reduction in the price gap, substitution plateaued and 
then  started  a  slow  decline  which  was  reversed  only  in  2020  presumably  in  conjunction  with  the 
consumers’  down-trading  registered  during  the  COVID  –  19    confinement  period.58  The  trend 
observed is a 3.78% year-on-year decline between 2020 and 2023.  On the one hand, differentials in 
EU minima across harmonised products unduly create a tax advantage for certain products such as 
FCT and economy cigarillos (low priced cigarillos)59 over cigarettes. On the other hand, the tobacco 
market  has  experienced  the  emergence  of  various  new  products,  which  are  not  covered  by  the 
Directive, being promoted as substitutes for cigarettes and other harmonised tobacco products. Tax-
induced substitution has several adverse effects, such as competitive distortions, tax revenue losses, 
and the undermining of tobacco control policies. 

57 The results of the Member States authorities’ survey support this finding. Nearly half of tax authorities have registered 
an increase in the substitution between cigarettes and FCT in the past three years. In the remaining Member States, the 
relative  market  share  of  these  products  has  remained  stable  and  only  one  country  reported  a  decline.  In  the  case  of 
cigarillos, substitution trends have accelerated in a smaller number of countries (4 out of 20 Member States) with none 
reporting a decline (External study). 
58 External study. 
59 A few years ago, ‘borderline’ cigarillos (also called ‘eco-cigarillos’) have spread in around half of EU Member States, 
and in particular in Germany, Spain, Denmark and in the Baltic countries. These products were in many respects similar 
to cigarettes but enjoyed a more favourable tax regime because they were classified as cigarillos. The issue was addressed 
by revising the definition of the tax category and by the phasing out of the derogation extended to these types of products 
in Germany and Hungary. Additionally, various Member States increased the domestic taxation of low-price cigarillos 
products (External study). 

17 

 
 
 
In addition to creating difficulties for Member State authorities and economic operators, uncertainty 
as  to  the  categorisation  of  products  creates  opportunities  for  those  involved  in  illicit  trade.  Such 
problems exist in relation to both WPT and raw tobacco. 

2.2.3.  Divergent approaches to taxation between new products and Member States 

The  growth  of  HTP  and  e-cigarettes  consumption  prompted  Member  States  to  establish  ad  hoc 
national tax regimes in order to address substitution. 
The varying excise regimes applicable to HTP may be summarised as follows:60 

▪  HTP  taxed  as  a  harmonised  product  in  seven  Member  States  (Bulgaria,  Germany,  Greece, 
Ireland,  the  Netherlands,  Spain  and  Sweden)  in  most  cases  in  the  OST  category.  Sweden 
differentiates  between  HTP  sticks  (taxed  as  cigarettes)  from  other  HTP  formats  (taxed  per 
weight).  In  Germany, HTP is  considered a harmonised product,  but  the rate is  calculated in 
relation to the rates of both cigarettes and OST.  This classification allows HTP to be controlled 
under the EU-wide Excise Movement and Control System (EMCS61).  

▪  Specific  tax  regime  for  HTP.  All  other  Member  States  where  HTP  is  commercialised  have 

adopted this national approach.  

At the end of 2024, 21 Member States had established ad hoc national taxes on liquids for e-cigarettes, 
three more countries will join in 2025 bringing the total to 24 Member States taxing liquids for e-
cigarettes. which may be summarised as follows:62 

▪  18 Member States are taxing any liquid, irrespective of whether they contain nicotine. Excise 
duty rate varies from EUR 0.09 to 0.70 per ml. Croatia remains the only Member State having 
a tax regime with a zero rate in place.    

▪  Denmark and Sweden apply tax only to nicotine-containing products.  

▪  Since 2021, Latvia has  abandoned its mixed system  that involved a specific flat  rate on the 
liquid plus another specific rate per mg of nicotine. Some Member States modulate the rates: 
Denmark, Spain and Sweden apply a higher rate if the nicotine concentration exceeds a certain 
threshold; Italy, Portugal and Slovenia apply a reduced rate to nicotine-free products. 

2.2.4.  Ineffective control of tobacco supply chain by Member States 

In  accordance  with  the  provisions  of  the  Horizontal  Directive63,  excise  goods  are  subject  to  the 
EMCS. Raw tobacco, including intermediate products such as first-processed tobacco, is outside the 
scope of the Directive and therefore not subject to EMCS. When diverted from the legitimate supply 
chain raw tobacco is an ingredient for illicit manufacturing activities. Member States tax authorities 
consider  the  poor  control  of  the  raw  tobacco  supply  chain  as  a  key  driver  of  illicit  domestic 
manufacturing. 

60 See ANNEX 12: section 2 for details on legal framework of HTP in Member States. 
61 EMCS provides real-time monitoring of movements of excise goods between authorised and registered locations, and 
ensures that excise goods can only be dispatched to such locations (a movement of excise goods is documented at every 
stage through an electronic administrative document). One of the purposes of EMCS is to combat fiscal fraud, with real-
time information and checks on goods being moved across the EU. 
62 See ANNEX 13: section 2 for details on legal framework of liquids for e-cigarettes in Member States. 
63 Council Directive (EU) 2020/262 of 19 December 2019 laying down the general arrangements for excise duty (recast)  

18 

 
 
 
2.3.  How likely is the problem to persist? 

In the absence of EU intervention, the problems identified will persist. The current EU minima for 
tobacco products will neither address the lack of convergence in price levels between countries, nor 
affect  sufficiently  consumption  behaviours  and  tobacco  products  substitution.  Spontaneous  price 
convergence is – in line with historical experience  - highly unlikely, as relative income prices are 
divergent  among  Member  States  and  economic  incentives  for  cross-border  shopping  remain.  The 
incoherent treatment of new products will continue among Member States and control will remain 
limited as Member States will continue to apply different ad hoc regimes. Market fragmentation will 
persist. The lack of harmonised rules at EU level on substitutes to cigarettes and to other traditional 
tobacco  products  will  lead  to  a  competitive  advantage  for  these  products  and  their  sellers.  New 
products  will remain out  of scope of EU legislation, creating further distortions  of competition in 
cross-border trade. The relevance of this problem is expected to intensify, in light of the speed of 
innovation  and  technological  development64  in  this  sector.  At  the  same  time,  effective  tax 
administration will not be ensured, as these products will not be subject to movement and control 
requirements established in the Horizontal Directive.  

Due to substitution and to illicit trade of tobacco products (including diversion of raw tobacco for 
illicit manufacturing), Member States will continue to lose revenue. The absence of EU intervention 
in the area of excise duty will continue undermining the effectiveness of tobacco control policies, 
leading to a negative impact on national health policies, and contradicting the ambition of Europe’s 
Beating Cancer Plan to reduce consumption of tobacco. 
Currently witnessed global megatrends65 are expected to increase the scale of the problems identified. 
Europe is facing shifting health challenges, as unhealthy lifestyles are causing an increasing burden 
on public health systems. Smoking is indirectly connected to two other megatrends: 

▪  Aggravating resource scarcity: tobacco production is related to the use of pesticides, water, land 
and energy. The land used for tobacco growing is not dedicated to food production. In addition, 
tobacco manufacturing has an impact on the environment due to water, energy, paper use, CO2 
and pollutants emissions. 

▪  Increasing inequalities: tobacco is a leading contributing cause to health inequities in Europe, 
and reduction in smoking has so far mainly benefitted middle- and high-income groups66. 

3.  Why should the EU act? 

3.1.  Legal basis 

The EU’s right to  act in the area of excise duty  is established in Article 113 of the Treaty on the 
functioning of the European Union (TFEU)67, which invites the EU to lay down harmonised taxation 
rules to ensure the proper functioning of the internal market and avoid distortion of competition.  

It is therefore necessary for the Commission, which is responsible for ensuring the smooth functioning 
of the internal market to propose action in this field. 

64 See Accelerating Technological development, The Megatrends Hub | Knowledge for policy (europa.eu) 
65 The Megatrends Hub | Knowledge for policy (europa.eu) 
66 Tobacco and inequities, WHO Regional Office for Europe 
67 Consolidated version of the Treaty on the Functioning of the European Union, OJ C 326, 26.10.2012, p. 47–390. 

19 

 
 
 
3.2. 

Subsidiarity: Necessity of EU action 

In  analysing the problems  and their drivers, it is  clear that EU action can best  achieve the proper 
functioning of the internal market and a high level of health protection across the EU. 

The increased divergence between excise duty rates since the Directive was last revised engenders 
significant cross-border shopping from low-tax to high-tax countries. 

Unclear  definitions  of  certain  tobacco  products  at  EU  level  (in  particular  waterpipe  tobacco  and 
cigarillos) resulted in varying national approaches to rates and taxation regimes as well as adapted 
business strategies aiming at circumventing the tax. 

The lack of EU level regulation of new products (mainly heated tobacco products and e-cigarettes) 
has led to different tax regimes for these products, leading to administrative difficulties in movements 
between Member States. There is a large consensus among stakeholders on the need to harmonise 
new  products  in  the  EU  excise  legislation68.  The  urgent  necessity  to  upgrade  the  EU  regulatory 
framework, in order to avoid legal uncertainty and regulatory disparities in the EU was highlighted 
in the Council conclusions on the evaluation of the Directive.69  

In  most  Member  States,  movements  of  raw  tobacco  are  subject  to  notification  obligations  to  the 
competent authorities. At the same time, Member States recognise that the strictly national scope of 
these regimes is a major limitation to their effectiveness. Cross-border movements of raw tobacco 
cannot be effectively controlled due to the absence of appropriate control rules at EU level. The latter 
is reiterated in the Council's conclusions.  

The issues outlined above damage the interests of Member States and have common roots. These 
issues also negatively affect the effectiveness of national tobacco control policies, which undermines 
the objectives of Europe’s Beating Cancer Plan. 

It is not possible for Member States to address the problems and their drivers in isolation without a 
proposal  to  amend  the  provisions  of  the  Directive.  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. 

3.3. 

Subsidiarity: Added value of EU action 

Under the Directive, EU countries can freely set the rates for different products according to their 
national preferences, as long as they are above the EU minima. Scope is also left to Member States 
as regards to the structure of the tax.70 As a result, the EU action is limited to addressing the issues 
that Member States cannot tackle at national level, in relation to the proper functioning of the internal 
market. The Directive remains the best instrument to achieve these objectives. 

Clearer  definitions  of  product  categories,  and  the  extension  of  the  scope  of  the  Directive  to  new 
products and to raw tobacco will support the effective enforcement of rules by Member States. 

The increases of EU minima proposed are proportionate with the objective of ensuring a high level 
of human health protection set out in the TFEU, and other measures will support the effectiveness of 
national  tobacco  control  policies.  At  the  same  time,  several  of  the  measures  proposed  aim  at 

68 Further discussed in section 5.3. 
69 Council conclusions concerning the structure and rates of excise duty applied to manufactured tobacco. 
70 Except for cigarettes.  

20 

 
 
 
minimising  the  burden  potentially  generated  by  the  revision  of  the  Directive.  For  example,  the 
structure of the excise duty rates, as currently implemented, remains broadly the same. 

4.  Objectives: What is to be achieved? 

As  detailed  in  the  problem  definition,  given  the  scope  of  the  Directive  covering  various  tobacco 
products and provisions, the problem areas of this initiative are somewhat different from each other 
and  require  specific  analysis.  The  revision  of  the  Directive  aims  at  filling  the  identified  gaps  and 
providing  tools  to  effectively  address  shortcomings.  By  tackling  the  problem  drivers,  each  policy 
option aims at achieving one or several of the general and specific objectives: 

▪  with the revision of current EU minima for traditional tobacco products and the introduction of 
EU minima for new products, to approximate tax levels, discourage tax induced substitution 
between products, and ensuring legal certainty to support the proper functioning of the internal 
market; 

▪  with  the  increase  of  EU  minima  (increasing  relative  price  levels),  to  influence  consumption 
behaviours and contribute to reduced smoking prevalence for a high level of public health;  
▪  with the harmonisation (and hence monitoring and control) of raw tobacco and new products, 
to ensure effective excise administration and tax collection as well as tax avoidance mitigation. 

The UN adopted the 2030 Agenda for Sustainable Development (the ‘2030 Agenda’) in 2015, at the 
heart of which are 17 Sustainable Development Goals (SDGs) and 169 associated targets. The 2030 
Agenda represents a commitment to eradicate poverty and achieve sustainable development by 2030 
worldwide. The EU is fully committed to be a frontrunner in implementing the 2030 Agenda and the 
SDGs, together with its Member States, in line with the principle of subsidiarity. 

The revision of the Directive supports the achievement of sustainable development goals, in particular 
SDG 3 concerning health, SDGs 10 and 17, concerning equality and resource mobilisation, SDGs 6, 
7, 8, 12, 14, 15 on the sustainable use of natural resources and the protection of the environment, and 
SDGs 2 and 11, concerning food security and sustainable communities. For more details on SDGs 
see ANNEX 3: section 3. 

4.1.  General objectives 

Under Article 113 of the TFEU, the Directive aims to harmonise the excise duty regimes of tobacco 
products in Member States to ensure the proper functioning of the internal market and, at the same 
time, a high level of health protection. The public health approach is also supported by Article 168 of 
the TFEU bearing in mind that tobacco products can cause serious harm to health and that the Union 
is Party to the WHO Framework Convention on Tobacco Control. Although not explicitly mentioned, 
the Directive has also the overarching objective of ensuring an efficient excise administration.  

The general objectives of the initiative are:  

▪  ensure the proper functioning of the internal market; 
▪  ensure high level of health protection; 
▪  fight against fraud and safeguard Member States’ revenues.  

4.2. 

Specific objectives 

The specific objectives of the initiative are: 

21 

 
 
▪  approximate Member States tax rates and regimes over the medium term;71   
▪  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; 

▪  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 the movement and 
control provisions. 

The revision of the Directive aims at striking the right balance between these different objectives, 
which  are  equally  important.  Trade-offs  exist  between  certain  of  these  objectives:  for  instance, 
increasing EU minima will necessarily magnify the economic incentive behind illicit manufacturing 
and  trade.  Similarly,  proposing  EU  minima  based  on  relative  income  prices  in  different  Member 
States may hamper upward convergence. These trade-off and related choices are further detailed in 
the following sections. 

The problems, their drivers, objectives and corresponding options are illustrated in Figure 3 below. 
The  baseline  scenarios  have  not  been  included  in  this  figure  although  they  are  systematically 
described  under  each  policy  area  and  constitute  the  framework  against  which  all  options  will  be 
assessed. 

Figure 3. Overview of the intervention logic 

71  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 are those measurable up to 15 years after the implementation of the revised Directive. 

22 

 
 
 
 
Source: Commission analysis 

5.  What are the available policy options? 

As  shown  in  Figure  3,  the  policy  areas  examined  further  through  the  impact  analysis  are  (1)  the 
revision of the minimum excise rates and of certain categories for traditional products; (2) enlarging 
the scope of the Directive to new products and (3) enlarging the scope of the Directive to raw tobacco. 
A wide range of options under each policy area were explored through the stakeholder consultation. 
The report considers all possible policy options but focuses its analysis on the ones which have been 
retained. The reasons for discarding some options early on are presented under each revision area. 
But  first,  an  important  element  for  review  is  the  metric  according  to  which  excise  duty  rates  are 
expressed. 

5.1.  Moving from nominal rates to an approach partially based on purchasing power 

parities 

Under the current Directive, EU minima for each product category are expressed in nominal terms, 
i.e. as a fixed monetary amount applicable in all Member States. This is in line with the approach 
traditionally used for harmonising indirect taxes. However, as discussed in the problem section, from 
a tobacco control perspective this approach cannot provide a durable solution, as the combination of 
inflation and income growth results, over time, in a rapid erosion of the minima. The dissuasive effect 
of the tax depends on real parameters, such as the inflation-adjusted price and the percentage of one’s 
personal income needed to sustain the habit, rather than simply its nominal value.  

Furthermore, due to the substantial and persistent diversity in economic conditions in Member States 
(not only in income, but also in the general price level), any nominal minimum rate set at EU level is 
generally too low to have an impact in higher-income countries. This concern was highlighted in the 
Commission’s evaluation of the Directive, and indeed the Council insisted that any future revision 

23 

Relative low average price levels of productsIncreasing illicit manufacturing within EUUnfit EU minimaSmoking prevalence not declining quickly enough to meet Europe’s Beating Cancer Plan objectivesIncoherent fiscal treatment between and across productsDivergent approaches to taxation between products and MSDRIVERSPROBLEMSGENERAL OBJECTIVESOPTIONSIneffective control of tobacco supply chainEnsure the proper functioning of the internal marketFight against fraud and safeguard Member States’ revenuesEnsure high level of health protectionApproximate Member States tax rates and regimes Increase relative price levels to influence consumption behaviourswith a view to reducing smoking prevalenceDiscourage tax induced substitution their substitutes Revising EU minima and certain categories for traditional productsEnlarging the scope to raw tobaccoEnlarging the scope to new productsEnsure legal certainty in terms of product definition and fiscal classification Ensure effective excise administrationEnsure effective excise administrationSPECIFIC OBJECTIVES 
 
should  take  into  account  the  ‘specific  economic  situations’  of  Member  States72,  which  is  also 
supported by stakeholders73. Thus, in the current context where health objectives are a key driving 
factor behind the revision of the Directive (see section 2), moving away from an approach purely 
based on nominal rates is essential to ensure the effectiveness of the Directive in durably curbing 
tobacco consumption among individuals. What is needed is a mechanism that goes beyond a simple 
nominal value for the minima and can take into account the different economic growth trends for each 
Member State. 
After  examining  various  alternatives,  the  External  study  supporting  this  impact  assessment74 
concluded that the approach that best achieves this objective requires abandoning the idea of a fixed 
nominal minimum in favour of an index whereby the minimum would be periodically adjusted for 
each individual Member State as a function of the purchasing power of its residents (see Box 1 and 
ANNEX 11: for details). In practice, when strong economic growth boosts the purchasing power of 
a  given  Member  State,  the  minimum  excise  duty  for  that  Member  State  would  be  automatically 
increased (or, conversely, cut, should purchasing power decrease).  This approach would ensure that 
affordability of these products at national level is better reflected in the rates to have a more targeted 
impact on consumption.75 At the same time, to ensure the durability of the policy stance over time, 
the minimum rate of excise duty should take into account the EU average inflation trends, based on 
the Harmonised Index of Consumer Prices (HICP). This periodic adaptation thus partially removes 
the two main sources of obsolescence of the minima discussed in the problem section. 

All in all, the proposed policy option is clearly more future-proof than the current system. This is 
because the main weakness of the current fixed nominal minima, as shown by the External study, is 
their inability to remain relevant in case of changes in the general price level, within each Member 
State as well as between Member States. 

Box 1. What is the Purchasing Power Parity adjustment? 
It  is  common  knowledge  that  directly  comparing  the  value  of  a  salary  across  countries  using  the 
going  exchange  rate  is  not  a  meaningful  exercise  because  of  large  differences  in  price  levels. 
Typically,  in  higher-income  countries,  prices  are  higher,  eroding  part  of  the  benefit  from  higher 
salaries.  The  Purchasing  Power  Parity  or  PPP  adjustment  allows  a  meaningful  comparison 
between salaries or GDP per capita by correcting for the differences in the price level. For example, 
if in country A GDP per capita is 20% higher than in country B, but the price level too is 20% higher, 

72 Council conclusions concerning the structure and rates of excise duty applied to manufactured tobacco. 
As  regards  purchasing  power  parity  the  majority  of  tax  authorities  did  not  anticipate  any  major  impact.  Some  of  tax 
authorities  anticipates  that  it  could  have  a  negative  impact  on  tax  convergence  and  some  public  health  experts  even 
anticipate a possible negative impact on reducing tobacco affordability where most needed. 
73 There appears to be also substantial agreement among public consultation respondents (80%) that taxation levels be 
adjusted to income differences between Member States, and this was broadly shared by tobacco industry representatives 
(69%). This is particular so among respondents in Southern and Western Europe and among those who also deem tobacco 
products more affordable. Some experts would support a tax that reflects affordability, but expressed doubts about using 
purchasing power parity index. The possibility of introducing alternative approaches for EU minima was tested among 
Member States tax authorities through the targeted survey. The initial feedback was cautious (half of respondents did not 
provide  feedback),  which  also  indicates  that  there  is  a  need  for  an  in-depth,  technical  discussion  on  the  benefits  and 
constraints of this approach.         
74 ‘Impact analysis of the review of tobacco excise duty rules’ (‘EA 2021 study’) and ‘Study on the impact analysis of a 
review  of  tobacco  taxation  rules:  update  with  recent  market  and  regulatory  developments’  (‘EA  2025  study’)  (both 
hereinafter - External study).  
75  Member  States  have  specifically  asked  in  the  Council  conclusions  to  take  into  account  their  social  and  economic 
conditions. 

24 

 
 
 
in PPP terms the two countries would be shown to have the same GDP per capita. The adjustment is 
calculated utilising a comparable basket of goods and services in each country. Eurostat publishes 
and updates regularly PPP coefficients.     

Despite the advantages of this approach, a changeover to a full purchasing power adjustment would 
not be advisable. This is because purchasing power differs so much across Member States that the 
method would create very large price swings at introduction, destabilising the market. Price Level 
Index (PLI) differences between Member States are significant (the PLI of Luxembourg is almost 
three times higher than the PLI of Bulgaria). Hence, a 100% conversion of minima into PPP may lead 
to (1) huge and potentially disrupting tax hikes for a few high-income countries (e.g., Luxembourg, 
Denmark,  Austria,  and  Sweden)  and,  conversely,  (2)  keeping  or  even  increasing  the  price  gap 
between  Member  States.  In  this  sense,  overarching  objectives  of  the  Directive  would  be  poorly 
supported. Therefore, the solution proposed is to adopt a partial PPP system where 2/3 of the tax is 
expressed in nominal terms and 1/3 in PPP terms.  

This proportion between nominal and PPP components has been derived from the increase scenario 
for  the  EU  minima  on  cigarettes.  It  strikes  a  good  balance  between  increasing  convergence  and 
distributing the impact across Member States (see  

25 

 
 
 
Figure 4). 

26 

 
 
 
 
Figure 4. Comparison of nominal versus partial PPP approach in the case of cigarettes weighted 
average price, according to options 

Source: Commission analysis based on the External study 

A fixed reference year for the PPP and HICP adjustment would be established and periodic revisions 
of the PLI and HICP (e.g. every 3 years) would be scheduled to ensure that rates remain up to date 
(with  changes  in  prices  and  income)  while  providing  sufficient  perspective  for  Member  States  to 
prepare their multi-annual tax increase plans. The calculation of the minima for each Member State 
is made slightly more complex as a result of the partial PPP approach as it entails introducing the PLI 
in  the  formula.  Nevertheless,  the  periodicity  of  the  adjustment  would  be  such  as  to  give  ample 
preparation time for stakeholders. 

For the sake of readability and conciseness, all the policy options envisaged are expressed in partial 
PPP. The impact of the different options expressed in nominal terms was however assessed and is 
broadly the same for most criteria. It is available in ANNEX 19:. 

5.2.  Revising the EU minima and certain categories for traditional tobacco products 

The  proposed  options  aim  to  foster  the  convergence  of  tax  levels  applied  in  Member  States,  to 
minimise cross-border flows, to contribute to fair competition between different types of products, 
preventing or mitigating tax-induced substitution and to support public health protection objectives, 
by triggering tax rise able to curb smoking prevalence and achieve Europe’s Beating Cancer Plan 
objectives.  

Despite citizens and industry respondents to the public consultation resisting the idea of increased 
taxation for a number of products, a majority conceded that further action to close excise rate gaps 
between  cigarettes,  fine-cut  tobacco  and  cigarillos  could  be  justified.  Academics,  NGOs,  public 
health  experts  and  other  respondents  categories  almost  universally  agreed  that  taxation  had  to  be 
increased and existing gap levels closed (see ANNEX 2: for details). 

27 

 
 
 
5.2.1.  What is the baseline from which options are assessed? 

The baseline for the revision of the EU minima for traditional tobacco products (cigarettes, fine-cut 
tobacco,  cigars  and  cigarillos  and  other  smoking  tobacco)  assumes  no  change  in  EU  policy.  This 
means that the EU minima remain the same, expressed in nominal terms. Their structure is shown in 
Table 1 below (see also ANNEX 16:). 

Cigarettes are currently subject to a mixed structure of excise, comprising both a duty calculated with 
reference to the retail selling price (the ad valorem) and a duty calculated per unit of the product (the 
specific). The Directive requires that the overall excise duty levied by Member States must represent 
60%  of  the  weighted  average  retail  selling  price  (WAP)  of  all  cigarettes  made  available  for 
consumption in that Member State (the relative minimum condition) and be no less than EUR 90 per 
1 000 cigarettes (the fixed minimum). However, the 60% requirement needs not be met where an 
excise duty of at least EUR 115 per 1 000 cigarettes is levied. Member States may also establish a 
minimum excise duty.  

All other manufactured tobacco products may be subject to an ad valorem duty based on the retail 
selling price, a specific duty per kg or per unit, as appropriate, or a mixture of both. In respect of 
cigars and cigarillos the overall excise duty must represent at least 5% of the retail selling price or 
EUR 12 per 1 000 items or kg. In respect of fine-cut tobacco intended for the rolling of cigarettes, the 
overall excise duty must represent at least 50% of WAP or EUR 60 per kg. In respect of other smoking 
tobacco, the overall excise duty must represent at least 20% of the retail selling price or EUR 22 per 
kg. 

Table 1. EU minima for traditional tobacco products 
Product category 

Cigarettes  

Cigars and cigarillos 

Fixed minimum rate 
EUR  90  per  1  000  units 
(irrespective of the average 
price) 
EUR 12 per 1 000 units or 
per kg 

Relative minimum condition 

60% of the WAP  unless 
EUR 115 per 1 000 cigarettes at WAP level 
(so-called ‘escape clause’) 
5% of the retail selling price (irrespective of 
the WAP ) 

Fine-cut tobacco  

EUR 60 per kg 

50% of the WAP 

Other smoking tobacco 

EUR 22 per kg 

20% of the retail selling price  

Example of the calculation of the tax for a pack of 20 cigarettes 

Retail Selling Price (excluding taxes): EUR 1.56 
+ Excise duty - specific: EUR 1.27 
+ Excise duty - ad valorem: EUR 5.5 (55% of RSP) 
Total excise duty: EUR 6.77 (68% of WAP) 
= Price (excluding VAT): EUR 8.33 
+ VAT 20%: EUR 1.67 
= Retail Selling Price (including all taxes): EUR 10 

Notes 

Both 
conditions  

Alternative 
conditions 
Alternative 
conditions 
Alternative 
conditions 

 The products covered by the Directive automatically fall into the category of harmonised products. 
As  a  result,  EU  procedures  for  handling  excise  goods  apply:  they  involve  specific  authorisation, 
control and movement rules as per the Horizontal Directive. They are supported by two pan European 
IT  systems:  the  Excise  Movement  and  Control  System  (EMCS)  and  the  System  for  Exchange  of 
Excise Data (SEED). 

28 

 
 
 
5.2.2.  Description of the policy options 

The options considered  differ  across products  based on both  the starting  conditions  (how low  are 
current EU minima compared to actual excise duty levels) and the targeted minima condition (i.e. 
fixed or relative). 

Three  increase  options  have  been  considered.  For  fine-cut  tobacco  (FCT)  EU  minima  should  be 
equivalent to those for cigarettes to better prevent and mitigate tax-induced substitution.76 For other 
traditional  tobacco  products,  the  EU  minima  have  remained  so  far  very  low  and  have  become 
irrelevant. Given the lower baseline for OST and notably for cigars and cigarillos where current levels 
are well below the actual excise duty levels applied in Member States77, substantial increases have 
been considered to partly bridge the gap with cigarettes while also bringing minima closer to actual 
practices by Member States. The average excise duty for OST currently applied in Member States is 
EUR 132 per kilogram of the product while for cigarillos, it is 137 per 1 000 units. The current EU 
minimum rate is EUR 12 per 1 000 units or kg in the case of cigarillos and EUR 22 per kilogram of 
the product in the case of OST. It is proposed to bring current fixed minimum to 107 EUR in option 
1, and a more ambitions and progressive increase to EUR 143 over 8 years in option 2 and over 4 
years in option 3. The gradual increase approach follows the model used in the current Directive to 
progressively raise the tax level of FCT.  

Introduction of separate categories better tailored for cigarillos and waterpipe tobacco (WPT) 
All  three  options  envisage  the  introduction  of  separate  categories  for  cigarillos  and  WPT.78  This 
would imply the revision of current definitions. As regards cigarillos, the distinction already exists in 
the excise legislation79 and thus could be based on physical characteristics of cigarillos (e.g. weight 
and  other  related  criteria)80  and,  for  consistency  with  the  existing  criterion  used  in  the  excise 
legislation, encompass all products that weigh less than 3 g. For WPT, the definition would be based 
on the one used in the Tobacco Products Directive81. The same minimum excise duty rates as for 
other smoking tobacco (OST) are proposed for cigars and cigarillos to avoid tax-induced substitution. 
WPT  is  a  very  specific  product82,  with  around  half  its  market  estimated  to  be  illicit.83  To  avoid 

76 If it is assumed that there are 1 333 cigarettes in a kg of tobacco (the weight of one roll your own cigarette taken to be 
0.75 g), the current minimum rate of excise in respect of 1 000 RYO cigarettes is EUR 45.01. By way of contrast, the 
minimum rate of excise in respect of 1 000 cigarettes is EUR 90. 
Gallus, Silvano; Lugo, Alessandra; Ghislandi, Simone; La Vecchia, Carlo; Gilmore, Anna B.  Roll-your-own cigarettes 
in Europe, European Journal of Cancer Prevention: May 2014 - Volume 23 - Issue 3 – p. 186-192. 
77 See ANNEX 7: section 4 for details on applicable excise duty levels Member States. 
78  Establishing  a  separate  tax  category  for  cigarillos  has  not  elicited  the  support  of  the  majority  of  tax  authorities’ 
respondents (50% were against), while it has for waterpipe tobacco (63% were in favour). 
79 Article 8 (cigarillos are cigars of a maximum weight of 3 grams each) of Council Directive 2007/74/EC and Article 32 
(‘cigarillos (cigars weighing not more than 3 g each)’) of the Horizontal Directive. 
80 In line with the opinion of Member States tax authorities. A distinction based on weight would be in line with standard 
market segmentation, as well as with the split regimes for cigars and cigarillos that already exist in the EU, namely in 
Portugal and Italy. 
81 Article 2 of the Tobacco Products Directive.  
82 WPT is to a large extent made of molasses, which significantly increases the specific weight of WPT compared to any 
other tobacco product. This translates into high profit margins for illicit traders. Given the prevailing informality of this 
market segment, collecting accurate market figures is unfeasible. 
83 The  illicit market  could account for 50% of total consumption (exceeding 80% in  a few  Member States) (External 
study). 

29 

 
 
 
unintentionally incentivising the illegal trade, a lower increase of the EU minimum rate is proposed84 
when compared to OST. A gradual increase approach is also adopted for option 2 and 3. 

Option 1: Limited increase of EU minima 

Minima rates 

Cigarettes 

FCT 

Fixed minimum 

EUR 155/ 
1 000 units 

EUR 155/kg 

Cigars  
EUR 107/1 
000 units or 
kg 

Cigarillos 
EUR 107/1 
000 units or 
kg 

OST 

WPT 

EUR 107/kg  EUR 72/kg 

Relative  minimum 
(%  of 
WAP  for  cigarettes;  %  of 
RSP for other)  
Comparison with the current 
average  excise  duty  rate  in 
Member States  
Escape  clause  (EUR/  1  000 
units) 

61% 

56% 

30% 

30% 

40% 

 40% 

-17% 

1% 

-85% 

-22% 

-19% 

-45% 

203 

Option 2: Moderate increase of EU minima 

Minima rates 

Cigarettes 

FCT 

Cigars 

Cigarillos 

OST 

WPT 

143/ 1 000 
units or kg 
(gradual 
increase 
over 8 years) 
40% 
(gradual 
increase 
over 8 years) 

143/ 1 000 
units or kg 
(gradual 
increase 
over 8 years) 
40% 
(gradual 
increase 
over 8 years) 

EUR 143/kg 
(gradual 
increase 
over 8 years) 

EUR 107/kg 
(gradual 
increase 
over 8 years) 

50% 
(gradual 
increase 
over 8 years) 

50% 
(gradual 
increase 
over 8 years) 

Fixed minimum  

EUR 179/ 
1 000 units 

EUR 179/kg 

62% 

58% 

Relative  minimum 
(%  of 
WAP  for  cigarettes;  %  of 
RSP for other)  

Comparison with the current 
average  excise  duty  rate  in 
Member States 
Escape clause (EUR/ 1 000) 

17% 

-80% 

4% 

8% 

-19% 

-4% 

232 

Option 3: High increase of EU minima 

Minima rates 

Cigarettes 

FCT 

Fixed minimum  

EUR 215/   
1 000 units 

EUR 215/kg 

Relative  minimum 
(%  of 
WAP  for  cigarettes;  %  of 
RSP for other)  

63% 

62% 

Cigars  
143/1 000 
units or kg 
(gradual 
increase 
over 4 years) 
40% 
(gradual 
increase 
over 4 years) 

Cigarillos 
143/1 000 
units or kg 
(gradual 
increase 
over 4 years) 
40% 
(gradual 
increase 
over 4 years) 

OST 

WPT 

EUR 143/kg 
(gradual 
increase 
over 4 years) 

EUR 107/kg 
(gradual 
increase 
over 4 years) 

50% 
(gradual 
increase 
over 4 years) 

50% 
(gradual 
increase 
over 4 years) 

84 A relative majority of Member States authorities (44%) would be in favour of a separate tax regime for WPT. One-
third is not in favour, and the remainder expressed a cautiously open attitude. Only one-fifth of respondents expressly 
supported lower minima for WPT, while the majority agreed the EU minima should be the same as OST (regardless of 
their position on split regimes). The proposed options are more ambitious than the average view emerging from Member 
States authorities’ suggestions through the survey. As regards EU minima they roughly fall between the option 1 and 2 - 
EUR 78 for the fixed minimum and 36% for the relative minimum. 

30 

 
 
  
  
 
  
 
 
 
 
 
 
 
Comparison with  the current 
average  excise  duty  rate  in 
Member States 
Escape clause (EUR/ 1 000) 

15% 

41% 

-80% 

4% 

8% 

-19% 

274 

5.3.  Enlarging the scope to new products 

The harmonisation of new products is important for the proper functioning of the internal  market, 
collection of fiscal revenues, prevention of tax-induced substitution, fraud and tax evasion and a high 
level of health protection. 

5.3.1.  What is the baseline from which options are assessed? 

The baseline  for the harmonisation of the tax regime for  new products  assumes  no change in  EU 
policy. The new products - liquids for e-cigarettes, other manufactured tobacco and related products 
-  continue  not  being  covered  by  the  Directive  and  hence  would  not  be  harmonised  at  EU  level. 
Member States would continue to apply their national tax regimes, if any. As regards heated tobacco 
products (HTP), which are not explicitly defined in the Directive (however falling in the scope of the 
Directive due to the lack of clear harmonised taxation rules), the legal uncertainty remains. 

5.3.2.  Description of the policy options 

Harmonising new products requires clarifying the application of excise duty rules for HTP, extending 
the Directive’s scope to include e-cigarette consumables (liquids including other refill containers), 
other  manufactured  tobacco  (for  example,  chewing  and  nasal  tobacco)  and  related  products,  in 
particular alternative products containing nicotine which can be considered as substitutes to tobacco 
products  from  a  fiscal  perspective  (for  instance,  nicotine  pouches);  and  adopting  a  ‘catch-all’ 
approach, to ensure that future market developments are covered.85 The approach is technologically 
neutral86 and can encompass  current  and prospective new products,  mitigating the risk of product 
engineering for the purpose of circumventing tax definitions.  

The extension of the scope of the Directive entails an appropriate definition and tax regime for new 
products. As a result of this extension, new products would be covered by the holding, movement and 
control requirements from the Horizontal Directive (see ANNEX 17: section 2 for details). 

5.3.2.1.  Heated tobacco products 

There  is  a  broad  consensus  among  stakeholders  on  the  need  to  establish  a  separate  excise  duty 
category for HTP at EU level.87 

The options are based on wide but objective definitions to capture current and future formats. The 
HTP excise category would  be based on the following characterising elements: (1) the heating or 
activation of products without combustion; (2) the delivery of an aerosol for inhalation; and (3) a 
substrate which may or may not consist of tobacco (for analogy with cigarettes and smoking tobacco, 

85 Future developments are difficult to predict, but market developments, notably in Asia, indicate that a new generation 
of products is being developed (e.g. a hybrid product heating a liquid for e-cigarette, to create a vapour that is passed 
through a tobacco pod). 
86 The technological neutrality refers to the way the product is designed, packaged and offered to consumers.  
87 The EU harmonisation of HTP was generally deemed necessary by all stakeholders, based on targeted consultations 
with Member States’ tax authorities and in-depth interviews; it was then confirmed by a majority (more than 60%) of 
public consultation respondents. As regards HTP minimum excise duty rates, the prevailing view is they should be lower 
than those of FCT. 

31 

 
 
 
 
 
 
 
 
substitute products partly or entirely made of substances other than tobacco would be included in the 
excise category). For instance, this category should also include heated products partly or entirely 
made  of  substances  other  than  tobacco.  These  elements,  to  a  greater  or  lesser  extent,  reflect  the 
definitions applicable in Member States88.  

Given  the  heterogeneity  of  this  class  of  products,  the  tax  base  would  reflect  how  the  product  is 
marketed: (i) HTP sold in sticks (minimum rates would be set ‘per stick’ as in the case of cigarettes, 
i.e. per 1 000 units); (ii)  other HTP, to  ensure a common denominator applicable to  all different 
product formats89, by setting a ‘per weight’ (in kg) tax base. 

Two options for the minimum rates are proposed taking into account preferences of Member States 
for HTP taxation90 (per weight, or per stick approach). To avoid major market distortion or regulatory 
loopholes an equivalent taxation level was designed.  

Options for EU minima for heated tobacco products 

Options 

Option 1: 
Moderate  level  of  EU 
minimum 
Option 2: 
Higher 
minimum  

level  of  EU 

HTP stick 

Fixed minimum  
EUR 88/1 000 units 

Relative minimum (% of the retail selling price) 
45% 

Other HTP 

EUR 125/kg 

HTP stick 

EUR 108/1 000 units 

Other HTP 

EUR 155/kg 

45% 

55% 

55% 

As for traditional tobacco products, this option includes the possibility to apply specific or ad valorem 
taxation, or a combination thereof and the minimum excise duty91. 

5.3.2.2.  Liquids for e-cigarettes 

EU-level  harmonisation  of liquids for e-cigarettes  excise duty  is  welcomed by tax authorities  and 
most  industry  players  (including  57%  of  companies  declaring  themselves  as  SMEs  in  the  public 
consultation), while it remains debatable among consumers.92 

The options propose creating a new excise category for liquids based on two key elements, in line 
with  the Tobacco Products  Directive and  customs  classification (Combined Nomenclature93). The 

88 See ANNEX 12:2 for details. 
89 The HTP market in the EU is currently dominated by stick-shaped products containing a mixture of specially prepared 
reconstituted tobacco. However, HTP could be available also in other formats, i.e. pods, hybrid capsules and even in loose 
format.   
90 See  

Figure A12-8 for details. 
91 In the case of application of fully ad valorem or mixed tax structure, Member States may establish a minimum amount 
of excise duty to apply (i.e. a fixed monetary amount per quantity applicable if the amount of the excise duty falls below 
a minimum floor). 
92 Opinions of public consultation respondents, particularly among citizens (e-cigarette consumers were overrepresented), 
were divided on the fiscal harmonisation of e-cigarettes in general (46% in favour and 46% against), and a slim majority 
appears against liquids without nicotine being harmonised (52%).  
93 The Combined Nomenclature (CN) is a tool for classifying goods, set up to meet the requirements both of the Common 
Customs Tariff and of the EU's external trade statistics.  

32 

 
 
  
 
 
 
first element refers to the intended use in an ‘electronic cigarette’ device. The second element is the 
reference  to  the  acts  characterizing  consumption  of  liquids,  as  implicitly  opposed  to  smoke  and 
smoking. These elements, to a greater or lesser extent, reflect the definitions currently applicable in 
Member States. Liquids used exclusively for medical purposes are excluded from the scope.  

E-cigarettes are viewed as substitutes, from a fiscal perspective to traditional tobacco products and in 
particular to cigarettes. Alongside the similarity in the use and consumption behaviour, e-cigarettes 
filled with nicotine containing liquids also offer an alternative means for nicotine intake. The nicotine, 
which is highly addictive and toxic, is the trigger for substitution. 

Regarding the tax base, all the options follow a ‘per volume’ approach (i.e. taxation proportional to 
the volume). This is in line with the practice of Member States. This is confirmed by the results of 
the stakeholder consultation.94 

Option 1: Zero rate for the EU minimum 

Under this option a fixed minimum of EUR 0/ml of liquid applies. This option would allow Member 
States without excise duty in place to maintain the status quo, but at the same time to monitor the 
movement of liquids for e-cigarettes through the EMCS.  

This level of taxation corresponds to the approach adopted in Croatia. 

Option 2: Higher level for the EU minimum 

Under this option, a fixed minimum of EUR 0.36/ml of liquid applies with a relative minimum of 
40% of the retail selling price, as an alternative condition. 

Option  3:  Moderate  level  for  the  EU  minimum  with  a  higher  rate  for  high  nicotine 
concentrations in liquids for e-cigarettes 

This  option  offers  the  possibility  of  applying  a  higher  level  of  excise  duty  to  liquids  with  a  high 
concentration of nicotine95, for example nicotine ‘boosters’ that are added to ‘shortfill’ nicotine-free 
liquids (underfilled bottles of flavoured liquids).  
Under this option, a fixed minimum of EUR 0.12/ml of liquid applies for products96 with up to 15 mg 
of nicotine per ml, including nicotine-free liquids, with a relative minimum of 20% of the retail selling 
price as an alternative condition. The minimum rate for products with any concentration higher than 
15 mg/ml is set at EUR 0.36/ml, with a relative minimum of 40% of the retail selling price as an 
alternative condition. 

94 The prevailing view on EU minima for liquids for e-cigarettes among Member State’s tax authorities converged around 
the minimum common denominator of some EUR 0.10 per ml, while both higher EUR 0.30 per ml rates and the zero rate 
option  elicited  less  support.  However,  in  the  public  consultation  where  e-cigarette  consumers  were,  overrepresented, 
respondents preferred the zero EU minimum option (48%), closely followed by the EUR 0.10 per ml option (43%), while 
the EUR 0.30/ml value was preferred by a very small subset of stakeholders (6%). Respondents, excluding citizens were 
all in favour of a positive EU minimum (69%). 
95 In Sweden, liquids with a nicotine concentration exceeding 15 mg/ml are subject to a higher rate (EUR 0.40/ml instead 
of EUR 0.20/ml). In Denmark, the threshold is 12mg of nicotine per ml.  
96 In 2023 nicotine-containing products accounted for 87% of the total consumables market vs. just 13% for nicotine-free 
products.  Among  nicotine-containing  products,  consumers  tend  to  prefer  low  strength  liquids  (with  1  to  9  mg/ml), 
although medium strength products (10 to 19 mg/ml) hold more than 50% of the market in half a dozen Member States 
(Austria, Denmark, Italy, the Netherlands and Romania) (External study).  
Under Article 20 of the Tobacco Products Directive it is not allowed to place on the market nicotine-containing liquid 
where the nicotine concentration exceeds 20 mg/ml. 

33 

 
 
 
5.3.2.3.  Other manufactured tobacco and related products 

The options propose creating an excise category for other manufactured tobacco and related products. 
There is consensus among tax authorities for including them in the scope of the Directive, although 
opinions then differ on how best this could be implemented. The public consultation confirms that, 
for this category of product, there is no prevailing view on implementing an EU minimum rate among 
stakeholders, except for citizens that were against.97 To this end, two main catch-all categories with 
a broad, flexible definition are proposed: 

▪  Other  manufactured  tobacco.  This  is  a  residual  excise  category  designed  to  capture  any 
manufactured tobacco product which does not belong to the smoking tobacco or heated tobacco 
products categories. To deal with the heterogeneity of the products concerned, it is proposed to 
established a catch all regime covering all hypothetical other manufactured tobacco products 
that  cannot  be  classified  otherwise,  and  a  special  regime,  for  traditional  ‘non-harmonised’ 
smokeless products, like chewing tobacco and nasal tobacco, but not including snus which is 
only allowed for sales in Sweden.98 

▪  Related products. The second category proposed concerns related products, such as smokeless 
products for final consumption that contain nicotine but not tobacco and which are intended for 
the intake of nicotine by the human body. Two regimes are also proposed: a catch all regime 
to  capture  a multitude of products  for nicotine intake through chewing, dissolving, sniffing, 
etc., and a special regime for nicotine pouches, which is the main emerging product in this 
area. However, some nicotine-containing products should be explicitly excluded from the scope 
of these categories, such as approved nicotine replacement therapies99, industrial nicotine100, 
and products containing a minimal amount of nicotine.101 

Regarding the EU minima for other manufactured tobacco, three options are proposed.  

The rationale for option 1 is to introduce these products in the scope of the Directive with a basic EU 
minimum rate, reflecting the marginal and declining consumption of smokeless tobacco products. 102 
The proposed rate is EUR 26/kg (or 10% of retail selling price (RSP). 

Under option 2 a limited EU minima of EUR 107/kg (or 40% of RSP) is proposed, to align with the 
minimum rate proposed for other smoking tobacco (OST) under this scenario. This approach aims at 
preventing tax-induced substitution and risks of abuse of this new category. 

97 Member States tax authorities expressed a clear consensus for harmonising and introducing new oral products within 
the scope of the Directive. The consensus varies across products from almost unanimous for nicotine pouches and other 
oral products containing nicotine but not tobacco. Respondents to the public consultation were not against harmonising 
and creating EU minima on these goods (53%) and 57% of respondents other than citizens were clearly in favour. 
98 Placing on the market of tobacco for oral use (|without prejudice to Article 151 of the Act of Accession of Austria, 
Finland and Sweden) is prohibited under Article 17 of the Tobacco Products Directive. 
99 As it is under current provisions of Article 2 of the Directive ‘products containing no tobacco and used exclusively for 
medical purposes shall not be treated as manufactured tobacco’. 
100 Both extracted from tobacco and obtained by synthesis - which is produced and traded B2B in a concentration higher 
than the 20 mg/ml limit established for liquids for intended uses other than intake into the human body. This is a chemical 
substance which is covered by the hazardous substances legislation.  
101 A hypothetical threshold of 0.01 mg/ml is put forward.  
102According to available market data, chewing tobacco sales have decreased by 13% since 2020, and in 2023 were below 
19 tonnes EU-wide. Moist snuff sales (except snus) amounted to 128 tonnes in 2023 and were rather stable since 2020 
(External study). 

34 

 
 
 
Under option 3, following the same approach as for OST under the high increase option, a gradual 
increase of the fixed minimum over 4 years to EUR 143/kg of the product is proposed. The gradual 
phase-in of the tax increase is justified by the considerable evolution from the current situation where 
no EU minimum is applicable. 

Regarding the EU minima for related products, the same rates are proposed for simplicity and 
considering the similarity in consumption patterns between nicotine pouches and chewing tobacco 
103.  Regarding  the  structure,  only  an  ad  valorem  excise  rate  (based  on  the  retail  selling  price)  is 
proposed  as  it  is  unrelated  to  the  product’s  substrate  or  how  it  is  prepared  for  sale.  Indeed,  as  a 
heterogeneous  category,  the  excise  structure  should  be  sufficiently  flexible  to  adjust  to  different 
product characteristics.  

Options for EU minima for other manufactured tobacco and related products 

Products 

EU minima 

(basic 
amount) 

Option 1        

Option 2 
(limited 
amount) 

Option 3 (high 
amount) gradual 
increase over 4 years 

Other 
manufactured 
tobacco 

Smokeless 
tobacco  products 
(nasal, 
chewing 
tobacco) 

Related 
products 

Catch all regime 

Nicotine pouches 

Catch all regime 

Fixed minimum 
(EUR/kg) 
Relative minimum (% of 
the retail selling price) 
Fixed minimum 
(EUR/kg) 
Relative minimum (% of 
the retail selling price) 
Fixed minimum 
(EUR/kg) 
Relative minimum (% of 
the retail selling price) 
Relative minimum (% of 
the retail selling price) 

26 

107 

10% 

40% 

26 

107 

10% 

40% 

26 

10% 

10% 

107 

40% 

40% 

143  

50% 

143  

50% 

143 

50% 

50% 

5.3.3.  Options discarded at an early stage 

Minimum rates set per nicotine content 

The ‘per nicotine’ approach (i.e. taxation proportional to the concentration of nicotine contained in 
the liquid) is endorsed by some public health stakeholders on the hypothesis that it would discourage 
users  to  consume  liquids  with  a  higher  concentration  of  nicotine,  a  highly  toxic  and  addictive 
substance.  However,  the  current  market  price  of  liquids  is  not  linked  to  nicotine  concentration, 
consequently, setting EU minima to be proportional to nicotine concentration could be too disruptive 
of the current market practice. Finally, an entirely ‘per nicotine’ approach would exclude nicotine-
free liquids from taxation, would require more burdensome procedures for economic operators and 
tax authorities to verify tax declarations, and would magnify the incentives behind the illicit trade of 
pure nicotine, which is a risk frequently highlighted by Member States. None of the Member States 
has adopted a ‘per nicotine’ approach to the taxation of liquids for e-cigarettes. 

Excluding nicotine free liquids from taxation  

103 Smokeless tobacco product available loose or portioned (in pouches resembling tiny tea bags) and consumed by placing 
the pouch or a pinch between the gum and upper lip for a period of time. 

35 

 
 
 
Excluding nicotine-free liquids would fail to address ‘do it yourself’ practices, especially in the case 
of  positive  excise  duty  rate  for  nicotine  containing  liquids104.  Liquids  still have  a  negative  health 
impact  (e.g.  leading  to  cancer,  pulmonary  and  cardiovascular  diseases)  because  of  the  harmful 
products  (e.g.  formaldehyde,  heavy  metals)  they  contain.  Among  other  things,  SCHEER  found  a 
moderate to strong risk of adverse health effects for heavy users of e-cigarettes, while adding that 
more  research  and  data  are  needed  to  estimate  long-term  effects,  as  these  products  are  relatively 
new105. While the relative health risks of e-cigarettes are still debated, excluding nicotine free liquids 
from taxation would hamper the pursuit of the public health goals in Member States as there is strong 
evidence  that  e-cigarettes  play  a  role  in  the  initiation  of  smoking,  especially  for  young  people106. 
Finally, the need to include into the scope of the Directive nicotine free liquids is supported by an 
overwhelming majority of tax authorities. 

5.4.  Enlarging the scope to raw tobacco 

Harmonising  excise  duty  rules  for  raw  tobacco  would  resolve  disparities  in  interpretation  of  the 
demarcation between manufactured tobacco products and raw tobacco for excise purposes and would 
imply the application of movement and control requirements under the Horizontal Directive. This is 
supported by most tax authorities surveyed (75%). Also, more than two thirds of the respondents to 
the public consultation expressed support for monitoring raw tobacco movements through the Excise 
Movement and Control System (EMCS), to curb illicit manufacturing. 

5.4.1.  What is the baseline from which options are assessed? 

The baseline for the harmonisation of the tax regime for raw tobacco assumes no change in EU policy. 
Raw tobacco would not be covered by the Directive, hence would not be harmonised at EU level and 
would be free to move unsupervised by national authorities throughout the EU. Member States would 
continue applying their own tax regimes and control measures. 

5.4.2.  Description of the policy options 

The options propose creating a new excise category for raw tobacco. Taking into account Member 
States’ practices107, raw tobacco would be defined in contrast with the existing manufactured tobacco 
categories, i.e. the definition of raw tobacco would include any form of tobacco that is neither a live 
plant  nor  a  manufactured  tobacco  product.  In  practice  it  would  include  tobacco  leaves  and 
intermediate products.  

As a result of harmonisation, the same as for new products as already presented in section 5.3.2, the 
excise movement and control requirements established in the Horizontal Directive108 would apply to 
raw tobacco, but with an exemption for the movements from cultivation areas (where the tobacco is 

104 In the majority of Member States with excise duty in place, all liquids are taxed with a positive rate. 
105 Opinion on electronic cigarettes. Scientific Committee on Health, Environmental and Emerging Risks SCHEER. 
106 WHO, ‘WHO report on the global tobacco epidemic 2021: addressing new and emerging products’. July 2021.  
107 See ANNEX 15: section 2 for details. 
108 See ANNEX 17: section 2 for details.  

36 

 
 
 
grown) to the first processing109 facility, as at this stage the risk of fraud is limited110. The EMCS 
would therefore start applying when raw tobacco is eventually  received by the first processor. As 
most of the imported raw tobacco is first processed, this option would ensure equality of treatment as 
the EMCS obligation would apply at the same stage to both EU and non-EU grown raw tobacco.  

As regards to EU minima, two options are proposed. 

Option 1: Zero EU minimum  
Under this option a fixed minima of EUR 0/kg of the product is proposed111. This option is supported 
by almost all tax authorities.  

Option 2: Positive EU minimum 

Under this option a fixed minima, the same rate as for other smoking tobacco (OST), is proposed, 
with a gradual increase of the fixed minimum over 4 years to EUR 143 per kg. It should be noted that 
this  option  would  be  in  line  with  the  current  practices  of  Member  States  which  use  taxation  as  a 
deterrent for trading raw tobacco outside of the recognised supply chain. In these countries, the tax 
rate applied to raw tobacco is typically the rate of OST112. 

5.4.3.  Options discarded at an early stage 

Application of excise movement and control requirements at the initial stage of the supply chain 

This option would include applying the control requirements established in the Horizontal Directive 
at  the  initial  stage  supply  chain  stage113,  i.e.  to  tobacco  growers  and  their  organisations.  It  would 
imply  high  administrative  burden  for  economic  operators,  typically  SMEs,  who  are  not  generally 
involved with  the manufacture of tobacco products  and their placing  on the market.  Furthermore, 
national  agricultural  legislation  already  imposes  registering  obligations  to  tobacco  growers.  This 
option has been discarded as disproportionate. 

109 First processing of tobacco includes a variety of activities that transform ‘leaf’ tobacco into ‘processed’ tobacco which 
manufacturers can use to produce tobacco products (cigarettes, FCT, cigars etc). The first processing includes inter alia: 
(a) threshing (separation of tobacco laminas from stems and veins); (b) cutting; (c) stabilisation; and (d) sorting into lots 
(i.e. grading of the products by quality). ‘Second processing’ designates a range of activities that transform tobacco by-
products, originating from processing/manufacturing activities into reconstituted tobacco or other intermediate products 
(such  as ‘expanded  stems’), which  can  be  used  for  the  manufacturing of  final  products.  By-products  include  tobacco 
stems, lamina scraps, dust and fines etc., which are typically classified as ‘refuse tobacco.’ (External study). 
110 Movements of harvested tobacco from field to farm or collection centres, and then to first processing facilities, would 
not occur under EMCS. Collection centres are collective warehouses, where curing is often also performed, located nearby 
the cultivation areas and typically managed by producers’ organisations. When administrative arrangements are in place, 
to make farming of tobacco conditional upon the existence of contracts with first processors, these collection centres are 
usually not allowed to directly sell their members’ products, but the situation can vary from Member State to Member 
State and possible cases of collection centres operating in their private capacity have also been reported (External study).  
111 0 is not the same as exemption. In practical terms, the exemption would mean that raw tobacco would continue to fall 
outside the scope of the Directive and excise movement and control requirements established in the Horizontal Directive 
would not apply.  
112 E.g., Lithuania, Sweden.   
113 In this early stage, tobacco is moved from field to farm or collection centres and/or curing facilities in bulk. 

37 

 
 
 
6.  What are the impacts of the policy options? 

This section gives an overview of the main impacts of the options considered under the revision of 
the Directive by comparing them to the baseline. The impacts of the policy options for three revision 
areas have been assessed mainly on the basis of the External study. 

The ‘no EU policy change’ scenario is based on a dynamic baseline. In this analysis, external factors 
e.g. fiscal  developments  at  national  level,  other EU initiatives (e.g. in the context of anti-fraud or 
tobacco control policy) and broader economic and socio-cultural trends were considered. The baseline 
analysis focused on these specific aspects that are relevant to each of the three areas of intervention. 
For instance, in the area of new products, the External study looked at market value and price of e-
cigarettes, heated tobacco products, other tobacco and related products, the number, type of consumer 
and consumption patterns, existing legal frameworks, estimated tax revenues in countries where taxes 
have  been  introduced,  issues  related  to  ad  hoc  regimes  and  disparities  of  treatment,  related 
administrative burden for businesses and administrations.  

The significant impacts considered in detail for each policy option relate to: (1) impacts on excise 
duties  and  on  the  market  (including  tax  revenues  and  the  impact  on  fraud  and  tax  evasion);  (2) 
administrative costs and savings (including the impact on SMEs and on competitiveness) taking into 
account digital aspects; (3) public health effects (smoking prevalence and related social costs); (4) 
impacts on employment. 

The  quantification  of  the  impact  of  each  policy  option  on  the  prices,  quantities  sold,  and  excise 
revenue was carried out following a partial equilibrium approach augmented with a module for intra-
EU movements. The first step of the estimate was to identify, for each policy option, which Member 
States would have to increase their excise duties, for each market segment; this is because, in almost 
all  cases,  Member  States  currently  levy  higher  excises  than  mandated  by  the  Directive.  Once 
determined  which  excises  would  have  to  be  increased  in  each  Member  State,  the  resulting  price 
increase was calculated taking into account that producers of tobacco and related products typically 
absorb part of the tax increase within their profit margin, adapting the price less than proportionately. 
On the basis of historical patterns, the expected degree of tax shifting to the consumer was determined 
by the External study at 0.7. The resulting impact on the demand for the various tobacco products 
was finally determined based on estimates for the price elasticity of demand calculated by the External 
study.  The  methodology  also  involved  estimating  how  much  consumption  would  shift  from  one 
product to another (notably from cigarettes to FCT, but also between higher- and lower-priced market 
segments of the same product), following a price increase. For new products, the pass-through rate 
was  modulated  to  account  for  segment-specific  price  and  demand  dynamics,  based  on  empirical 
evidence (see ANNEX 4: for details). The impact on revenue was finally calculated by adjusting the 
increase in unit tax revenue for the expected reduction in volume. Additionally, the analysis of market 
impacts has included a specific assessment of the expected variations in cross-border flows and of 
tax-driven substitution between cigarettes and FCT. 

The External study assumed, conservatively, that only directly affected Member States would raise 
excise duties, ignoring the possibility that other Member States would ‘follow the example’ and hike 
their excise duties voluntarily.   

This assumption was needed to disentangle the expected effects of the proposed revisions from other 
changes that would occur as a result of Member States’ internal excise policies. In this sense, these 

38 

 
 
scenarios should not be seen as a prediction of future evolution in excise and price levels across the 
EU.114Details of the analytical methods are provided in ANNEX 4:. 

Regarding impact on SMEs, the relevant impacts based on the SME check are presented in ANNEX 
6:.  

General impacts are expected in other areas. However, they are not assessed in detail because they 
are similar in all policy options and are less direct and significant. These are: 

▪   Environmental  impacts.    Tobacco  products  are  characterised  by  a  peculiar  environmental 
footprint in the various phases of their lifecycle. In particular, tobacco is characterised by being 
a crop with very high water demand, whose manufacturing can be seen as relatively energy-
intensive,  both  because  of  curing  requirements  and  because  its  complex  logistics  and 
distribution  require  a  notable  number  of  km  be  travelled.  According  to  the  WHO,  tobacco 
growing  is  significantly  more  water-intensive  than  food  crops  such  as  tomatoes,  rice  or 
potatoes.115  Tobacco  production  requires  substantial  amounts  of  energy  (oil),  with 
consequential adverse environmental effects in terms of CO2 emissions. Discarded cigarette 
butts present a danger to the environment, as filters do not biodegrade and can remain in the 
environment  for  very  long  periods  of  time  in  the  form  of  microplastics.  The  European 
Commission  has  identified  tobacco  filters  among  the  top  five  most  common  pieces  of  litter 
found on beaches.116 Any reduction in tobacco consumption triggered by taxation would, in 
theory, reduce such impact. This in line with the goals of the European Climate Law117 and 
other  EU  environmental  legislation.  As  regards  e-cigarettes,  heated  tobacco  and  smokeless 
tobacco products, there is a notable paucity of information on environmental impacts. However, 
it  is  reasonable  to  assume  that  e-cigarette  emissions  and  waste  are  a  significant  source  of 
environmental pollution.118 All the options and the baseline scenario considered the principle 
of ‘do no significant harm’ to the environment.  For more details see ANNEX 17: section 5. 

The right to a high level of human health protection is enshrined in the EU Charter of Fundamental 
Rights and already addressed under public health impacts. The interaction of the Directive and the 
potential impact of the policy options on other fundamental rights was not considered significant, in 
light  of the fact  that the scope of the Directive is  limited to setting  minimum taxation levels,  and 
therefore is not assessed in detail. 

114 According to the feedback received, 10 out of 19 the Member States which responded reported planned increases of 
national rates in the coming years. 
115 Maria Zafeiridou, Nicholas S Hopkinson, Nikolaos Voulvoulis, ‘Cigarette smoking: an assessment of tobacco’s global 
environmental footprint across its entire supply chain, and policy strategies to reduce it’, 2018  
116 Joana Mira Veiga, David Fleet, Susan Kinsey, Per Nilsson, Thomais Vlachogianni, Stefanie Werner, François Galgani, 
Richard C. Thompson, Jeroen Dagevos, Jesús Gago, Paula Sobral and Richard Cronin,  Identifying Sources of Marine 
Litter, p. 18. 
117 Set the long-term direction of travel for meeting the 2050 climate neutrality objective through all policies, in a socially 
fair and cost-efficient manner. European climate law sets a binding Union climate target of a reduction of net greenhouse 
gas emissions by at least 55% by 2030 compared to 1990. 
118 Ngambo G, Hanna EG, Gannon J, Marcus H, Lomazzi M, Azari R. A scoping review on e-cigarette environmental 
impacts. Tob Prev Cessat. 2023 Oct 2;9:30. doi: 10.18332/tpc/172079. PMID: 37789930; PMCID: PMC10542855. 

39 

 
 
 
6.1.  Revising the EU minima and certain categories for traditional tobacco products 

6.1.1.  Baseline 

In 2023, smoking prevalence in the EU amounted to 24%, i.e. one percentage point less than 2020 
and  four  points  down  compared  to  2012  levels.  Tobacco  related  healthcare  costs  attributable  to 
tobacco are close to EUR 48 billion annually. In terms of years of life lost, the burden of tobacco is 
close to 11.3 million annually, which in economic terms may translate in EUR 587 billion for the EU 
overall (see Table 2). 119 

Under the baseline, smoking prevalence is likely to decrease by 1.7% a year, due to Member States 
spontaneous tax increases and the impact of other factors like tobacco control policies, and broader 
change in cultural attitude. The EA 2021 study estimated that such factors would reduce the social 
costs of tobacco consumption by roughly EUR 37 billion by 2025. 

Table 2. Smoking prevalence and health costs  

Smoking prevalence 

Health impacts 

Consumpti
on (items 
bn) 

No. of 
smokers* 
(population 
mil) 

Smoking 
prevalence
* (%) 

Tobacco-
related 
deaths 
(thousand) 

Tobacco-
related 
DALYs 
(thousand) 

Value of 
years of 
life lost 
(EUR bn) 

Health-
care costs 
(EUR bn) 

Productivit
y losses 
(EUR bn) 

Total 
monetised 
burden 
(EUR bn) 

Baseline 

502 

92.1 

24% 

498 

13 200 

587 

48 

13 

650 

Source: External study based on TEDB / Euromonitor (unit consumption) and Eurobarometer (smoking prevalence and 
smokers’ population). Baseline values refer to 2023. Health impacts are based on Global Burden of Disease data and 
Eurostat.  
Legend: DALY=Disability adjusted life years.  
Notes: FCT and OST have been converted into sticks applying a 0.75g=1 stick equivalence. (*) The estimates for these 
variables are presented with a higher degree of granularity for the sole purpose of showing the possible different impact.  

Excise duty revenue from tobacco products in the EU for 2022 was estimated at approximately EUR 
79 billion.120 Table 3 shows how the market is expected to evolve under the baseline (current EU 
minima unchanged). 

Table 3. Traditional tobacco products under the baseline 

EU average excise duty at WAP 
level (EU average) (2023) 

EU average WAP  (2023) 

Annual market sales (2023) 

Source: External study 

Cigarettes 
EUR 187/1 000 
units 
EUR 301/1 000 
units 
393 billion 
units 

FCT 

EUR 153/kg 

EUR 264/kg 

70 million 
kg 

Cigarillos 
EUR 137/1 000 
units 
EUR 497/1 000 
units 

Cigars 
EUR 727/1 000 
units 

OST 

EUR 132/kg 

n/a* 

EUR 263/kg 

8.7 billion units  1.0 billion units  4.8 million kg 

119 External study. 
120  Over the 2020 – 2022 period excise duty revenues continued increasing in nominal terms, moving from EUR 77.3 
billion to over EUR 78.9 billion. However, the rate of increase (2.1%) has been much smaller than inflation rate for the 
same period (19.5%) so, in real terms the total amount of receipts actually declined (by around 14%). As actual excise 
rates applied in Member States have generally increased faster than the inflation rate, this downturn is mostly attributable 
to a decline in recorded consumption (External study).  

40 

 
 
 
 
 
 
Notes: * Given the inherent heterogeneity of cigars, it is impossible to compute a meaningful overall representative price, 
i.e. a WAP. 

Under the baseline, the substitution between FCT and cigarettes is expected to decrease progressively 
in  line  with  current  trend,  as  the  tax  gap  has  been  bridged  progressively  over  time,  through  both 
scheduled increase in the EU minimum for FCT and Member States tax policies.121 However, the last 
increase  mandated  by  the  Directive  entered  into  force  in  2020  and  there  are  no  further  required 
increases.  Sales  of  FCT  increased  while  COVID  –  19  restrictions  were  in  place,  suggesting 
substitution  increased  during  that  time,  possibly  due  to  reduced  access  to  (cheaper)  cross-border 
products, however, FCT sales have since declined between 2020 and 2023. 

6.1.2.  Impacts on excise duties and the market 

Table 4 presents  the economic impacts  of the three options presented for each traditional tobacco 
product (see section 5). For cigars, cigarillos and OST, a gradual increase of the fixed minimum from 
EUR 107 to EUR 143 over 8 years is proposed in option 2 and over 4 years in option 3. The impacts 
presented are those relevant to the EU minima at EUR 107 (for option 1) and EUR 143 level (for 
option 2 and 3). Disparities between Member States are greater for cigars and cigarillos, compared to 
cigarettes,  so  the  proposed  increases  will  inevitably  have  different  impacts,  with  very  low  taxing 
Member States required to significantly increase rates, while others remaining unaffected. In absolute 
terms, the proposed increase would increase the average excise duty from EUR 137 (per 1 000 units) 
to between EUR 143 and EUR 150 for cigarillos, and from EUR 727 (per 1 000 units) to between 
EUR 732 and EUR 740 for cigars. 

The impact on the price of traditional tobacco products would depend not only on the extent of excise 
duty increases prompted in Member States, but also on how much of the increase is passed on to 
consumers or, conversely, absorbed by manufacturers by reducing profit margins or implementing 
portfolio  optimisation  strategies.  Price  level  increases  would  in  turn  reduce  demand  and  sales  of 
tobacco products. The EU average price (WAP) for 1 000 cigarettes is estimated at EUR 319 in option 
1, at EUR 336 in option 2 and at EUR 368 in option 3. For 1 kg of FCT, it is estimated at EUR 277 
under option 1, at EUR 282 under option 2 and at EUR 294 under option 3.  

Table 4. Estimated impacts on excise duties, revenues and market 

Cigarettes 

FCT 

Cigars 

Cigarillos 

OST 

Total 

Option 1: Limited increase of EU minima 

Average increase 
of excise duty for 
Member states in 
% 
Member States 
affected 
Market sales (%) 
Impact on 
revenues (EUR 
million) 

11% 

11% 

14% 

23% 

12% 

19 

- 5% 

9 

-6% 

5 

-2% 

6 

-10% 

6 

-9% 

+ 4 090 

+ 661 

+ 55 

+ 46 

+ 4 900 

Option 2: moderate increase of EU minima 

121 Over the past decade, excise duty levels for FCT have been increasing at an average annual rate of over 7%.  More 
specifically, compared to the tax levels in 2020, the increase was, 27% in 2023, i.e. more than in the case of cigarettes 
(22%). Over the 2020 – 2023 period, excise duty levels remained unchanged in four Member States and increased in all 
remaining countries (External study).  

41 

 
 
  
 
 
 
 
Average increase 
of excise  duty for 
Member states in 
% 
Member States 
affected 
Market sales (%) 
Impact on 
revenues (EUR 
million) 

22% 

15% 

26% 

42% 

26% 

21 

-9% 

11 

-6% 

9 

-5% 

8 

-13% 

12 

-12% 

+ 7 992 

+ 806 

+ 91 

+ 77 

+ 9 000 

Option 3: high increase of EU minima 

26% 

24% 

41% 

Average increase 
of excise  duty for 
Member states in 
% 
Member States 
affected 
Market sales (%) 
Impact on 
revenues (EUR 
million) 
Source: External study 
Notes: Estimates refer to the EU-wide aggregated market. For tax-driven price increases, a pass-through rate of 0.7 is 
assumed. The impact on demand is calculated assuming an elasticity coefficient of -0.54. Figures are rounded.  

+ 14 000 

+ 12 582 

+ 1 185 

-13% 

-12% 

-14% 

42% 

26% 

+ 91 

+ 77 

-5% 

-9% 

12 

21 

17 

9 

8 

Traditional tobacco products consumed in the EU are mostly manufactured within the Union and, 
obviously, manufacturers could be affected by reduced demand, even if some losses could be offset 
through exporting. The impact of increased EU minima on market sales would affect primarily large 
companies, which dominate the cigarettes segment, whereas SMEs, which are more present in the 
FCT, cigars, and cigarillos segments, would be comparatively less affected. Certainly, the degree of 
market power that the four large transnational tobacco companies are capable of exercising may allow 
for  raising  prices,  even  beyond  that  required  by  higher  taxes,  in  order  to  minimise  reduced 
profitability.122 The impact on general retail is expected to be negligible, as retailers rarely sell only 
tobacco products. The impact may be more felt by first and second processors who depend directly 
on sales volumes and are typically bound to local markets. 

Regarding the impact on fraud, while price levels may act to incentivise the illicit trade of tobacco 
products (ITTP) the main driver is not the relative levels of price or taxation123, instead other drivers 
are at play such as the permeability of borders; the severity of sanctions for offenders; the geographic 
proximity to illegal production and/or distribution sites.124 The World Health Organisation contends 
that  weak  governance  has  a  greater  influence  on  the  scale  of  the  illicit  tobacco  trade  than  price 
differentials.125  By contrast, within the EU, tobacco is subject to strong fiscal and regulatory controls, 
overseen by Member States with effective administrative frameworks.  

122 R. Branston, Industry profits continue to drive the tobacco epidemic: A new endgame for tobacco control?, Tobacco 
Prevention & Cessation, 2021; Z.D. Sheikh, J.R. Branston, A.B Gilmore, Tobacco industry pricing strategies in response 
to excise tax policies: a systematic review, Tobacco Control, 2021. 
123 World Bank, Tobacco Tax at the Crossroads of Health and Development: A Multisectoral Perspective. 2017, p. 18. 
124 Member States that are more exposed to smuggling from external borders are generally more concerned about the 
unintended consequences of increasing EU minimums. 
125 WHO technical manual on tobacco tax policy and administration. Geneva: World Health Organization; 2021. Licence: 
CC BY-NC-SA 3.0 IGO, p 176 

42 

 
 
 
 
 
 
 
 
 
Evidence from Ireland, which is the Member State with the highest tobacco taxes and prices in the 
EU, has shown that sustained tax and price increases can coexist with a general downward trend in 
the use of illicit tobacco products126.   

In other words, there is no direct proportionality between tax levels and the level of illicit trade (also 
see ANNEX 17: section 1.1.).  

The traceability and security features system for monitoring distribution of tobacco products in the 
EU under the Tobacco Products Directive is now well in place127 in Member States for cigarettes and 
FCT. Since May 2024 it has been expanded to cigars, cigarillos and smokeless tobacco products.  

Finally, the risk of ITTP should also be addressed by appropriate enforcement actions. 

Impact on the consumer price index. The increase in the price of tobacco products, consequent to 
increased taxation, would impact inflation rates in the Member States, somehow proportionally to the 
extent of the increase and of the weight of products on consumer’s basket - as measured by Eurostat’s 
Harmonised Index of Consumer Price (HICP). Overall, EU aggregate HICP would increase by 0.18 
percentage points in the case of option 1, 0.34 in the case of option 2  and 0.55 in the case of option 
3 (see ANNEX 17: section 1.2).  

Overall, the projected impact contributes in a limited way to inflation dynamics. However, it should 
be noted that price increases deriving directly from consumption tax increases usually fall outside the 
definition of inflation relevant for monetary policy purposes.128 Moreover, it should be understood 
that the consumer price impact calculated is a purely arithmetic average between a zero impact for 
non-smokers and a higher (but intentional) impact for smokers, assuming other things being equal. 

Separate categories for cigarillos and waterpipe tobacco (WPT) would allow Member States to 
adopt a more tailored taxation regime for these products according to their consumption patterns and 
risk analysis for these specific products.129 

A separate sub-category for WPT with a modest EU minima increase would improve legal certainty, 
allow tax authorities to monitor the WPT market more effectively, which could reduce illicit trade 
and tax evasion and give Member States more flexibility to adapt the WPT rate to discourage the 
illicit trade. According to the External study, while a lack of robust market data hampers a quantitative 
estimation, a decline in illicit sales is expected, especially under option 1. As regards the impact on 
annual tax revenue, an increase of EUR 10 million for option 1 and EUR 20 million for options 2 and 
3 are expected. 

6.1.3.  Impact on substitution between products 

Increase in the demand of FCT caused by substitution is likely to exceed the decline in sales caused 
by  FCT  own  price  increase.  Regarding  other  products,  the  options  proposed  would  mitigate  tax-

126  Dutta,  S.,  Confronting  Illicit  Tobacco  Trade:  a  Global  Review  of  Country  Experiences  (English).  WBG  Global 
Tobacco Control Program Washington, D.C. World Bank Group, p 124. 
127 Commission Report on the application of Directive 2014/40/EU, COM(2021) 249 final. 
128 Firstly, monetary policy is concerned about a ‘core inflation’ that excludes some volatile items from the HICP inflation, 
usually including tobacco products. Secondly, changes in the indirect taxation belong to the list of exemptions that allow 
central banks to “look through” such changes when interpreting inflation developments. 
129 For WPT, market operators claim that the current homogenisation of taxation levels with ‘other smoking tobacco’ 
causes the prices for these products to become disproportionate. 

43 

 
 
 
induced substitution across products130 because current levels are well below the new EU minima 
proposed. 

6.1.4.  Impact on cross-border flows of cigarettes and FCT 

Although the increase of the EU minima will foster price convergence among EU Member States to 
some extent, it will not eliminate the incentive for cross-border shopping131. However, the results, 
summarised in Table 5, show that the increase of EU minima would be associated with a reduction 
of  cross-border  flows132.  Cross-border  purchases  of  cigarettes  are  expected  to  reduce  by 
approximately 1.8 to 5.8 billion cigarettes (equivalent to 6.4 % and 20.5% respectively) depending 
on the option.  

Table 5. Impact on cross-border flows of cigarettes and FCT  

Volumes 

Changes in volumes with respect 
to baseline 

Baseline  Option 1 

Option 2   Option 3   Option 1  Option 2  Option 3 

Cigarettes (mln sticks) 

28 400 

26 600 

25 000 

22 600 

-6.4% 

-11.9% 

-20.5% 

FCT (t, lb) 

8 300 

8 100 

8 050 

7 800 

-2.1% 

-2.9% 

-6.2% 

FCT (t, ub) 

14 000 

13 700 

13 600 

13 150 

Source: External study  
Note: lb and up stand for the lower and upper bound, respectively. Numbers were rounded with different precision applied 
to different products 

6.1.5.  Public health impacts 

According to WHO estimates, an increase of tobacco prices by 10% decreases tobacco consumption 
by about 4% in high-income countries and about 5% in low- and middle-income countries.133 Any 
reduction  in  tobacco  consumption  triggers  health  benefits  (defined  as  reduced  health  costs).  The 
number of smokers would reduce between 5 and 12 million approximately, depending on the option. 
The smoking prevalence (aged 15+) would drop from a minimum of 1.2 percentage points up to 3.2 
depending  on  the  option,  and  under  the  most  ambitious  option  it  would  drop  to  20.8%  (from  the 
current 24%) (see Table A17-1 in ANNEX 17:). This corresponds to the opinion of public health 
experts and NGOs who consider that increasing taxation of conventional tobacco products and closing 
tax differentials between cigarettes and other tobacco products were high priority for achieving the 
objectives of Europe’s Beating Cancer Plan. 

As presented in  

130 However, during public consultation some businesses claimed that increasing the minima for cigars and cigarillos, 
would have hardly any effect on product substitution trends with cigarettes, as prices are already well above cigarettes 
and consumption habits are different. 
131 Stakeholders of public consultation also have doubts that EU excise harmonisation mechanism based on common EU 
minima will harmonise taxation levels soon and therefore will not reduce abuse of cross-border trade flows motivated by 
tax opportunities. 
132 Changes in the volume of flows was estimated using the econometric model developed in the External study. For more 
details see ANNEX 8: section 2.1   
133 WHO, Factsheet on Tobacco, accessed 18 April 2025 

44 

 
 
 
 
 
 
 
Table 6, in line with the above projections of smoking prevalence, the proposed options would lead 
to possible savings in terms of social costs of between EUR 32 and 55 billion for option 1 and 2 and 
EUR 85 billion for option 3 by 2025 compared with the baseline.134 

Table 6. Impacts on public health costs 
Tobacco-
related 
deaths 
(thousand) 

Tobacco-
related 
DALYs 
(thousand) 

Options 

Value of 
years of life 
lost (EUR 
bn) 

Health-care 
costs (EUR 
bn) 

Productivity 
losses  
(EUR bn) 

Option 1 

Option 2 

Option 3 

-25 

-42 

-66 

-700 

-1 100 

-1 700 

-29 

-50 

-77 

-2 

-4 

-6 

-1 

-1 

-2 

Source: External study 
Notes: Estimates based on Global Burden of Disease data and Eurostat. Figures are rounded.   
Legend: DALY=Disability adjusted life years. 

6.1.6.  Impacts on administrative costs and savings and on SMEs 

Total 
monetised 
burden 
(EUR bn) 

-32 

-55 

-85 

The increase of EU minima would negatively affect consumers’ ability to buy the products (and hence 
lead  to  reduced  sales  for  economic  operators)  but  would  not  per-se  entail  relevant  increase  of 
administrative costs for business and Member States. 

6.1.7.  Impacts on employment 

The employment impact is likely to depend on the market segment. There are no official statistics on 
jobs  linked to  tobacco because these  fall across  three different  sectors:  growing  of tobacco in  the 
primary sector, tobacco manufacturing, and retail. These sectors differ considerably in terms of their 
production  function,  labour  intensity  and  market  structure;  as  such  the  impacts  will  be 
correspondingly diverse. Even within the sectors, the impact on each individual business will vary 
depending  on  its  product  mix.135  In  overall  it  can  be  concluded  that  impacts  on  economy-wide 
employment  would  be  marginal  and  concentrated  in  a  handful  of  Member  States.136  Tobacco 
manufacturing employment has tended to decline for years as growing automation and mechanisation 
has  made  the  tobacco  product  industry  capital  intensive.  It  should  be  mentioned  that  to  minimise 
possible negative impact it is at Member State (or regional) level that initiatives must be taken to 
organise retraining courses for tobacco sector workers, which is supported at EU level through policy 
frameworks  (such  as  the  European  Pillar  of  Social  Rights  Action  Plan,  the  2020  European  Skills 
Agenda137) and funding (such as the European Social Fund, Recovery and Resilience Facility, Just 
Transition Fund, Erasmus+). One particular action that the sector could take is to set up a partnership 

135 Employment directly dependent from tobacco in the retail sector is marginal as in most cases tobacco products are 
only sold as a part of the product mix. 
136 Bulgaria is the most exposed Member States with a relatively high concentration of tobacco growers. Manufacturing 
is concentrated in Germany. 
137  The  2020  European  Skills  Agenda  aims  to  empower  individuals  to  learn  and  make  sure  their  skills  are  fit for  the 
changing  labour  markets.  The  European  Pillar  of  Social  Rights  Action  Plan  further  supports  these  labour  market 
adjustments and sets an EU target of at least 60% of adults aged 25 -64 to participate in training annually by 2030, from 
some 37% today. 

45 

 
 
  
 
 
within  the  Pact  for  Skills138,  bringing  together  actors  (authorities,  companies,  unions,  training 
providers etc.) to analyse and respond to the skills challenges of the sector. 

6.2.  Enlarging the scope to new products 

6.2.1.  Baseline 

Under the baseline scenario, Member States would continue to apply various national regimes for 
new products. 

Regarding heated tobacco products, excise duty levels vary greatly, from EUR 55 to EUR  1 000 
per kg (EUR 226 on average), which translates into EUR  73 per 1 000 units on average for the most 
popular product on the market and taking into account the different rates applied in some Member 
States139.  

Regarding  liquids  for  e-cigarettes,  Member  States  have  adopted  heterogeneous  tax  regimes  as 
regards the tax base (per volume of liquid or per nicotine concentration) and scope (whether nicotine-
free products are within scope or not). Whereas the average rate applied by those Member States who 
tax liquids for e-cigarettes is 0.20 per ml, positive rates vary significantly, from EUR 0 .09 to EUR 
0.70 per ml.  

Certain traditional ‘other manufactured tobacco’ markets are broadly in decline, whereas related 
products, such as nicotine pouches are becoming  increasingly popular, particularly among youth, 
and  their  market  share  is  expected  to  grow  substantially  in  the  next  five  years.  Not  considering 
markets where nicotine pouches are banned or not taxed, the EU average rate applied is around EUR 
88 per kg. 

6.2.2.  Impacts on excise duties and market 

6.2.2.1.  Heated tobacco products (HTP) 

The impacts of proposed options 1 and 2 are based on the application of the excise duty ‘per unit’, as 
the near totality of HTP currently on the market would fall under this regime.  

The main estimated impacts of harmonised excise duty minima for HTP are presented in  Table 7. 
The average excise duty level at EU level would increase by EUR 32 (option 1) and EUR 39 (option 
2) per 1 000 units compared to the baseline. Under option 1 the average excise rate would be EUR 
105 per 1 000 items, and EUR 122 under option 2. Under these options, 17 and 18 Member States 
respectively would be affected, with an increase exceeding 100% in some Member States. 

Table 7. Impacts of proposed EU minima on excise duty, market, price levels, sales and excise 
duty revenues for heated tobacco products   

EU minima 

Fixed 
minimum 
(EUR/1 
000 units 
88 

Option 1 

Average 
excise duty 
(EUR / 
1000 units) 

Relative 
(% of 
RSP) 

45% 

105 

Average 
price 
increase 
(%, 1 
000 
units) 
8% 

Average 
price level 
(EUR/1 000 
units) 

Impact 
on sales 
(%)  

Impact 
on sales 
(billion 
units) 

Number 
of 
MS 
affected 

Impact 
on 
revenues 
(EUR 
billion) 

271 

-16% 

-8 

17 

+4 

138 Pact for Skills promotes joint action to maximise the impact of investing in improving existing skills (upskilling) and 
training in new skills (reskilling). 
139 France, Estonia, Denmark and Sweden. 

46 

 
 
 
 
108 

Option 2 
Source: External study 
Notes: Relative=relative minimum condition. The impact on demand is calculated assuming an elasticity coefficient of -
1.36. For more details on methodology and assumptions see ANNEX 4: and ANNEX 17: section 3.1. Figures are rounded. 

-27% 

17% 

55% 

+4.1 

 122 

293 

-13 

18 

The new excise duty levels are expected to influence the selling price, and consequently the sales of 
HTP products as shown in  

Table 7. The retail price (WAP) would potentially increase by 8% under option 1 and 17% under 
option 2 on average with great variation across Member States (from 0% up to possibly 36% under 
option 1 and 55% under option 2). The impact on demand would be magnified by the price-sensitive 
nature  of  these  products.  Considering  that  over  the  past  few  years  the  HTP  market  has  been 
growing140, the anticipated impacts would translate into a growth deceleration rather than a decline 
of this market. Excise duty revenues collected would increase by 40 % in option 1, by 55% in option 
2. 

6.2.2.2.  Liquids for e-cigarettes 

Under option 1 (zero EU minimum rate for all liquids), no significant impact on excise duty and price 
levels is expected. The main impact would be a harmonisation of EU rules and placing these products 
under the excise movement and control system. For options 2 and 3, the main estimated impacts are 
shown in Table 8.  

Table 8. Impacts of proposed EU minima on excise duty, market, price levels and revenues of 
liquids for e-cigarettes 

Options 

Average 
excise duty 
(in EUR/ml) 

Price 
increase (%) 

Average 
price levels, 
EUR/ml 

Impact on 
sales (%) 

Impact on 
sales 
(million ml) 

Affected 
Member 
States 

Impact on 
revenues 
(EUR 
million) 

1: 

23 

1.60 

21% 

- 1.4 

0.37  

+370 

-40% 

Option 
EUR 0/ml 
Option 
2:  
EUR 0.36/ml 
(or  40%  of 
retail price) 
Option 3: 
-  above  15 
mg/ml 
- 
EUR 0.36/ml 
(or  40%  of 
RSP) 
-  up  to  15 
mg/ml 
- 
EUR 0.12/ml 
(or  20%  of 
the RSP) 
Source: External study 
Notes: Average price for all products is EUR 1.32/ml (2023). For the tax-driven price increase a pass-through rate of 0.25 
is assumed. The impact on demand is calculated assuming an elasticity coefficient of - 1.36. Figures are rounded. 

-17% 

5.3% 

+750 

+530 

-0.6  

0.23 

1.39 

22 

140 In 2023 the value of total sales exceeded EUR 12 billion, i.e. more than doubling the value recorded in 2020 (50 billion 
HTP sticks were sold in the EU in 2023).  

47 

 
 
 
 
 
 
 
 
 
 
 
 
Option 2. The impact of option 2 would be more substantial and would require 23 Member States to 
raise their tax levels. The average price of standard liquids would increase possibly by 21% Overall, 
consumption is expected to go down 40 %, which would markedly affect the sector. Nicotine-free 
liquids could be more affected, as in the baseline scenario they are less or not taxed in some Member 
States. 

Option 3. The EU minima envisaged under option 3 would lead to  a moderate price increase.  22 
Member States would need to adapt their tax regime. Sales would possibly decline by 17% over 2023 
levels.  

The new tax regimes are expected to have positive effects on tax avoidance by limiting the incentives 
for ‘do-it-yourself’ behaviours.141 More importantly, a reduction in tax evasion could be expected, 
since all transactions would be subject to movement and control rules. Cross-border movements for 
commercial purposes would be subject to the EMCS and, therefore, bulk movements of e-cigarettes 
would be tracked. However, controls on business-to-consumer duty-paid distance sales would remain 
complex and burdensome to enforce.  Furthermore, as products would be subject to excise duty in 
countries where they are not currently taxed, the incentive for cross-border shopping would reduce.  

6.2.2.3.  Other manufactured tobacco and related products 

In Member States where nicotine pouches are taxed the average rate applicable is EUR 88 per kg, 
although there are substantial variations, from EUR 19 to EUR 429. For smokeless tobacco products, 
the average rate is EUR 103, varying from EUR 32 to EUR 211. 

Depending on the scenario adopted, average prices for nicotine pouches would be expected to rise 
from EUR 293 per kg, to be between EUR 311 and EUR 406. For smokeless tobacco products, the 
average price is expected to increase from EUR 307 per kg to between EUR 368 and EUR 472. 

Smokeless tobacco products and nicotine pouches. The market impact of option 1 would be very 
limited, with an indicative decline in smokeless tobacco products consumption of 1%. Under options 
2 and 3, the decline could reach 38% and 44% respectively. As regards nicotine pouches the market 
impact of option 1 would be limited while under option 2 and 3 consumption could go down by 38% 
and 52% respectively (see Table 9).  

The  overall  impact  on  excise  revenues  would  be  positive  from  nicotine  pouches  and  smokeless 
tobacco products. The expected excise revenue would be EUR 150 million under option 1, EUR 280 
million under option 2 and EUR 290 million under option 3.  

Table 9. Impact on price, market and revenues of smokeless tobacco products 

Options 

Average 
increase (%) 

price 

Impact  on 
sales (%) 

Impact on sales 
(tonnes) 

Option 1: EUR 26/kg or 10% of RSP 

Smokeless tobacco products 
20% 

Option 2: EUR 107/kg or 40% of RSP 

44% 

- 1% 

- 38% 

- 2 

- 56 

Option 3: EUR 143/kg or 50% of RSP                                                                                                                                                                                                            

- 44% 

- 65  

54% 
Nicotine pouches 

Option 1: EUR 26/kg or 10% of RSP 

6% 

- 5% 

- 300 

141 Consumers would be discouraged to buy separately  ‘nicotine boosters’ and the basic ingredients of liquids including 
propylene glycol, vegetable glycerine and flavourings for self mixing . 

48 

 
 
 
 
Option 2: EUR 107/kg or 40% of RSP 

Option 3: EUR 143/kg or 50% of RSP 

26% 

38% 

- 38% 

- 52% 

- 1 700 

- 2 300 

Source:  External study 
Notes: Estimates for these products are presented with a higher degree of granularity for the sole purpose of showing the 
possible different impact of scenarios, but they have to be considered as indicative142. The impact on demand is calculated 
assuming an elasticity coefficient of -1.36. Figures are rounded.  

The  introduction  of  excise  movement  and  control  provisions  on  other  manufactured  tobacco  and 
related  products  may  contribute  to  the  reduction  of  irregular  flows,143  and  induce  consumers  of 
smokeless products to purchase products taxed in their country of residence, thus increasing the total 
excise revenues collected. 

6.2.3.  Impacts on administrative costs and savings144 and on SMEs 

Introducing  new  harmonised  tax  categories  would  generate  compliance  costs  for  economic 
operators. These costs include: 

- administrative costs which are primarily related to general excise arrangement obligations such as 
to obtain authorisation, adopt record-keeping tools and procedures, fill-in tax declarations.  

- adjustment costs to establish and operate a tax warehouse (where required), to install and operate IT 
software  for  excise  control  and  movement  system  management,  and  to  issue  financial  guarantees 
(where required) by the Member States of operation.145 

Overall, estimated costs for the whole new product sector would amount to EUR 9.6 million of one-
off costs and EUR 6.3 million of recurrent costs in each subsequent year depending on the option. 
The  bulk  of  additional  costs  would  be  incurred  by  SMEs  operating  in  the  e-cigarette  liquids 
segment146, especially those based in countries where no national tax regimes are currently in place. 
Indeed, operators in the HTP and other manufactured tobacco sector (especially the nicotine pouch 
segment) are likely already compliant with the majority of obligations as both segments are largely 
controlled by transnational tobacco companies.147  

Focusing on SME’s and on competitiveness, the following impacts can be expected:  

142 Nicotine pouches: in Belgium, Germany, Lithuania and the Netherlands nicotine pouches are currently prohibited. 
For Bulgaria, Cyprus, Greece, Spain, Luxembourg, Latvia, Portugal and Slovenia no market data are available. The EU 
average excise duty includes all countries, including those where these products are not marketed (and possibly banned). 
Smokeless tobacco products: estimates refer to the EU aggregated market, including chewing tobacco and moist snuff 
(but not including Swedish snus). The analysis is based on the 6 markets for which data are available (Bulgaria, Czechia, 
Denmark,  Spain,  Hungary,  and  Slovakia),  but  the  EU  average  excise  duty  includes  all  countries  (except  Sweden  as 
Euromonitor’s market data do not allow to distinguish between snus and chewing tobacco). 
For Member States where the products concerned were not in the market in the baseline year, the tax revenue impact is 
assumed to be nil. 
143  Irregular  online  sales  of  oral  tobacco  products  can  involve  operators  based  in  various  extra-EU  countries  like 
Switzerland, Norway and Russia.   
144 See ANNEX 17: section 3.2 for details on costs for economic operators and public authorities. 
145 The costs of financial guarantees can be considered as being an indirect burden, given that these depend on Member 
States-level implementation. 
146 An estimated 3 400 companies in the EU, with a market share of about 30% of the e-cigarette liquids segment (External 
study). 
147 transnational tobacco companies (Philip Morris International, British American Tobacco, Japan Tobacco International 
and Imperial Brands). 

49 

 
 
 
▪  The  expected  reduction  of  sales  that  would  follow  tax  increases  would  especially  affect  the 
SME  component  of  the  e-cigarette  sector,  with  consolidation  leading  to  a  reduction  in  the 
number of SMEs, from the current 3 100 to between 1 600 and 2 400, depending on the option 
adopted.  However,  this  impact  must  be  put  in  perspective,  considering  the  number  of  total 
SMEs  in  the  EU  (23  million)  as  well  as  the  dynamics  in  the  e-cigarettes  market,  which  is 
evolving rapidly and where concentration is already underway. Similar consolidation processes 
have been registered and reported at Member State level (e.g. in Romania, Portugal, and Italy) 
after  the  introduction  of  national  ad  hoc  tax  regimes.  In  turn,  this  may  push  a  number  of 
operators out of the market and accelerate the expansion of large companies, which are better 
equipped to face more challenging competitive conditions. Market shares of large companies 
has already increased significantly in the past 3 years and would likely continue to rise. With 
the new regulation requirements (including the tobacco products regulation at EU level, and in 
all but four of the Member States ad hoc taxation), the withdrawal from the market or expected 
consolidation is part of the evolution of the market. The additional costs incurred would amount 
on  average  to  EUR  1  800  annually.  The  impact  on  the  costs  of  the  final  product  would  be 
minimal, less than 0.2 cent per ml of liquid.  

Single market improvements and cost savings. The proposed excise harmonisation of new products 
would remove the market barriers caused by the fragmentation of Member State rules and regimes, 
improving the overall coherence of the  regulatory framework, thus  facilitating intra-EU trade and 
ensuring  a  level  playing  field  across  the  single  market  for  economic  operators,  and  especially 
SMEs.148 

Setting  an  EU-wide  regulatory  framework  by  adopting  a  uniform,  regulated  approach  across  the 
single  market  would  put  economic  operators  on  an  equal  footing  to  compete,  giving  them  the 
necessary legal certainty to further their projects and develop their commercial strategies. By acting 
at the EU level, operators get the assurance of an equal treatment across the single market. 

The  harmonisation  would  contribute  to  removing  disparities  in  taxation  levels,  which  are  behind 
unfair  competition  practices  like  direct  business-to-consumers  sales  online  from  excise-free 
countries, and cross-border shopping. This issue affects primarily the liquids for e-cigarettes sector, 
which mostly consists of SMEs. There is a substantial degree of consensus among all categories of 
stakeholders that a clarified and harmonised EU-wide approach to new products will reduce trade 
uncertainties and increase legal  certainty by reducing the divergent interpretations around product 
definition, administrative difficulties and associated costs for Member States and economic operators. 
The  application  of  holding,  movement  and  control  requirements  from  the  Horizontal  Directive 
(including computerised movement supervision through EMCS149) will ensure the secure movement 
of excise goods, simplified procedures for traders while contributing to the fight against tax evasion 
with real-time information and checks on goods. 

As regards the administrative impact for public authorities, the introduction of harmonised regimes 
for the new products would require some adjustments in the legal and administrative frameworks for 
national excise duty. They would incur administrative costs due to extending the scope of excise duty, 
including  IT  systems,  to  products  not  previously  covered  and  enforcement  costs  and  savings 

148 HTP is entirely dominated by large companies. The share of transnational tobacco companies is growing in the e-
cigarette  liquids  sector.  The  other  manufactured  tobacco/related  products  sector  composition  appears  mixed,  with  the 
traditional smokeless segment (chewing and nasal tobacco) largely made of small operators, while large companies are 
increasingly venturing in the nicotine pouches segment.  
149See ANNEX 17: section 2 for details on movement and control requirements from the Horizontal Directive. 

50 

 
 
 
connected to control and prosecution of abuses. Where national tax regimes are already in place for 
new products, it is assumed that additional regulatory costs would be negligible. Regulatory costs 
incurred by Member States with the extension of certain movement and control rules to operators and 
products which are not currently subject to those provisions would amount to EUR 10 million of one 
-off and around EUR 0.5 million for each subsequent year. According to Member States authorities, 
the benefits of harmonisation would clearly outweigh the costs.150  

6.2.4.  Public health impacts 

Whereas the public health debate is still ongoing regarding the health effects of these relatively new 
products, none of these products have been deemed to be safe or risk free.151 The debate on the health 
risks  of  these  products  continues  to  advance  and  it  is  currently  not  possible  to  provide  a  detailed 
picture. However, there is strong evidence that e-cigarettes play a role in the initiation of smoking, 
especially for young people152. Based on the same assumption used for traditional tobacco products, 
that an increase in price decreases consumption, the introduction of taxation will reduce the incentive 
to initiate smoking and contribute to a reduction in consumption. 

6.3.  Enlarging the scope to raw tobacco 

6.3.1.  Baseline 

As possible obligations and control measures only apply at national level, cross-border movements 
of raw tobacco would remain poorly controlled. The diversion of raw tobacco to illicit manufacturing 
will  continue.  This  could  further  prompt  illicit  manufacturing  and  trade  activities.  Consequently, 
Member States would continue to lose revenue. 

6.3.2.  Reduction of fraud and tax evasion 

Irrespective of the excise duty rate levied (zero or positive rate), the establishment of a harmonised 
category  for  raw  tobacco  in  EU  excise  legislation  would  trigger  the  application  of  EU  rules  and 
procedures related to excise goods. Member States authorities would therefore have access to readily 
available IT tools (e.g. EMCS) that allow punctual monitoring of supply-chain operations, and could 
more easily detect irregularities and potential diversion routes. The output of the illicit manufacturing 
in  the  EU  can  amount  to  roughly  13  billion  cigarettes,  annually  (i.e.  around  30%  of  the  total 
consumption of illicit cigarettes in the EU). According to the simulation153, an improved monitoring 
system could potentially detect up to 20% of illicit raw tobacco movements (i.e. twice the current 
estimated detection levels) and up to an estimated 20% to 30% of the volume of illicitly manufactured 

150 It would improve administration and enforcement of the excise system. The perceived benefits regard aspects that are 
directly connected with the excise system administration and enforcement, particularly: the reduction of uncertainties 
with product definition and – to a lesser extent – the disparities of interpretations in cross-border movements, as well as 
improved monitoring, and facilitating detecting and tackling irregularities and fraud. 
151  New  products  not  containing  nicotine  still  have  a  negative  health  impact  (e.g.  leading  to  cancer,  pulmonary  and 
cardiovascular diseases) because of the various chemicals (e.g. formaldehyde) they contain. 
152  WHO,  ‘WHO  report  on  the  global  tobacco  epidemic  2021:  addressing  new  and  emerging  products’.  July  2021. 
https://www.who.int/publications/i/item/9789240032095 
153 The simulations developed in the External study are purely speculative, since there is neither research nor empirical 
data allow for a more robust assessment. Therefore, numerical results have to be considered as rough orders of magnitude 
of expected impacts. The assumptions proposed are based on qualitative discussions with informed stakeholders and the 
review of law enforcement reports and studies. See ANNEX 15:. 

51 

 
 
 
cigarettes.  Besides  national  regulations  in  place154  the  application  of  a  coordinated  and  effective 
mechanism at EU level to monitor cross-border movements will create clear and significant EU added 
value.  Improved coordination at EU level and better prevention tools will contribute to the measures 
already in place155 to fight against the illicit manufacture and sale of tobacco products. 

The proposed measure would affect raw tobacco diverted from the legitimate supply chain in the EU, 
but would not address irregularly imported (or cultivated) raw tobacco.  

However, the reduction of EU-manufactured illicit products would not necessarily entail a reduction 
in the overall availability of illegal tobacco products, given that the former can be compensated - to 
varying degrees  - by an  increase in  smuggling flows from  non-EU  countries, the  extent of which 
cannot be predicted.156 

6.3.3.  Impacts on tax revenues 

The reduction of illicit manufactured tobacco would have direct positive effects on Member States 
tax revenues, as the losses caused by tax fraud will be partially recovered. Based on the estimated 
decline in illicit product volumes a reduction in foregone tax revenues of approximately EUR 1.3 
billion under option 1 (i.e. with the zero rate applied) and of nearly EUR 2.6 billion under option 2 
(i.e. with a positive excise duty applied) is anticipated157. Considering that the total excise duty loss 
associated with illicit trade of tobacco products is estimated to exceed EUR 12.5 billion (including 
illicit products not manufactured in the EU), the impact of the proposed measures, in relative terms, 
would translate into recovering about 10% to 20% of current tax fraud.158 

6.3.4.  Impact on administrative and adjustment costs and savings 

Economic operators. Compliance costs for economic operators triggered by the proposed reform 
would amount to EUR 0.1 million for one off costs and EUR 2 million for annual, recurrent costs 
under option 1 and to EUR 40 million for one off costs and EUR 4 million for annual recurrent costs 
(under option 2).159 These include both the administrative costs primarily related to general excise 
arrangement obligations such as the need to obtain authorisation, to adopt record-keeping tools and 
procedures,  to  fill-in  tax  declarations  and  the  adjustment  costs  to  establish  and  operate  a  tax 
warehouse,  to  install  and  operate  IT  software  for  EMCS  management,  and  to  issue  financial 
guarantees  (where  required)  by  the  Member  States.  The  costs  of  financial  guarantees  can  be 
considered  as  being  an  indirect  burden,  given  that  these  depend  on  Member  States-level 
implementation.160 The most substantial cost component relates to the setting up and operation of tax 
warehouses for the storage and control of raw tobacco. The burden could be comparatively greater 

154 For example, the obligation to notify competent authorities of any movements (including transit) with very short notice 
(e.g.  2  days),  and  the  obligation  to  sell/buy  tobacco  only  to/from  recognised  supply  chain  operators,  with  penalising 
conditions applied to other types of traders (External study). 
155 The FCTC Protocol on illicit trade aims to eliminate any form of illicit trade in tobacco products. Among other things, 
the Protocol requires the Parties to establish tracking and tracing systems and a global information sharing focal point 
(Art. 8 of the Protocol, with a view to secure the supply chain of tobacco products). Additionally, the Protocol prescribes 
a series of measures to be adopted by governments including e.g. licensing of operators, record-keeping requirements, 
regulation  of  online  sales,  prosecution  measures,  international  cooperation  (information  sharing,  law  enforcement 
cooperation, administrative cooperation), control of the raw tobacco supply chain etc. 
156 See ANNEX 17: section 4.1 for details on the impact on illicit manufacturing and trade. 
157 External study. 
158 Due to methodological limitations, these figures have to be considered as indicative. 
159 External study. 
160 Member States can abate these costs by lowering the guarantee required or even waiving it. 

52 

 
 
 
for those operators who engage in very frequent cross-border movements, due to the specificities of 
their business.  

Impact  on  competitiveness.  Introduction  of  control  requirements  at  EU  level  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 compensate for 
some of these extra costs. Furthermore, some manufacturers are already willing to pay a premium for 
tobacco sourced from verified suppliers, mitigating the cost of implementing EMCS. 

The additional costs of compliance, estimated above, will affect economic operators’ competitiveness 
differently, depending inter alia on their size (due to economies of scale) and position in the supply 
chain.  The estimated additional costs are primarily of a transactional  nature, the impact  would be 
largely proportional to the volume of activities. Option 2 would affect the competitiveness of EU-
grown tobacco more than imported tobacco  while under Option  1  only  negligible effects  on  their 
competitiveness are expected. Nevertheless, sectoral rearrangements could take place. The possible 
impacts  on  the  sector  would  need  to  be  monitored  to  address  any  unintended  or  disproportionate 
adverse effects. 

Public authorities. The introduction of a harmonised excise category for raw tobacco would require 
Member States to revise their national administrative and legal framework, with a possible moderate 
increase  in  overall  costs.  They  would  incur  administrative  costs  due  to  including  new  economic 
operators in excise system (registration and authorisation), and related IT systems and movements 
control  under EMCS, and enforcement costs and savings connected to  control.  Overall, estimated 
costs161 are as follow: 

▪  One-off costs would be around EUR 9.7 million. The bulk of the estimated additional costs 

relates to the adjustment of the IT system and related training costs.  

▪  Recurrent  costs  would  amount  to  EUR  0.7  million  per  year,  mostly  in  relation  to  EMCS 

transactions. 

As regards cost savings, EMCS and other control measures are expected to facilitate cross-border 
investigations  and  the  prosecution  of  fraud.  Moreover,  harmonised  movement  and  control 
requirements  could  make  at  least  some  national  control  measures  (e.g.  registration,  authorisation) 
redundant, which would mitigate the administrative burden for both economic operators and public 
authorities. Finally, the definition of raw tobacco in the Directive would increase legal certainty162. 

6.3.5.  Public health impacts 

The proposed options would have a direct and positive impact on tobacco control: the increased price 
of  illicit  products  and  diminished  availability  of  raw  tobacco  would  increase  the  effectiveness  of 
taxation policies in curbing consumption. The options would also have a positive but more indirect 
impact,  due  to  the  reduced  availability  of  low-price  illegal  products.  Health  inequalities  in 
implementing tobacco control policies would also be reduced as a result. However, the impact would 
be different across Member States, because the composition of illicit trade and, specifically, the share 
of products originating from outside of the EU, vary greatly. 

161 The costs do not include costs already incurred in Member States where a fiscal regime for raw tobacco is already in 
place. 
162 See ANNEX 17: section 4.3 for details on regulatory cost for business and public authorities. 

53 

 
 
 
6.3.6.  Impacts on employment 

As for tobacco growing, while worldwide this is the greatest employment creator in the sector, less 
than 4% of the worldwide annual tobacco crop is grown in the EU. The number of EU growers in 
2024  can  be  estimated  at  about  14  500-15  000.  Their  number  has  constantly  declined  in  the  past 
decade from an estimated 60 000 in 2010 (including for comparability Bulgaria and Croatia). The 
largest number is found in Bulgaria (approximately 6 200), followed by Greece (4 600) and Poland 
(3 500)163; in the other Member States tobacco growing is practised in two thousand farms or less. It 
is reasonable to assume that a reduction in demand for tobacco will have an impact on EU tobacco 
growers, but  its size is  not  straightforward and not  necessarily proportional.  First,  the agricultural 
market is highly dependent on policy decisions on subsidies, tariffs and quotas on imports; this is 
particularly the case for tobacco, as the vast majority of it is imported.164 Indeed, the decline in EU 
production of tobacco165 was particularly steep after the discontinuation of decoupled EU aid in 2014, 
with some 32% reduction in output. Second, the final impact on employment may be dampened by 
switching to other crops, which is frequent in agriculture. 

7.  How do the options compare? 

This section compares the various options’ impacts. The options are assessed against the criteria of 
effectiveness in reaching policy objectives, efficiency, as well as coherence with other EU policies. 
The comparison of options has been performed for each thematic area separately.  

The baseline is used as point of comparison against which the other options are assessed, and is thus 
scored zero. 

7.1.  Revising the EU minima and certain categories for traditional tobacco products 

Table 10 provides a comparison of the policy options for increasing the minimum rates for cigarettes, 
fine-cut tobacco, cigars, cigarillos and other smoking tobacco, as well as the introduction of separate 
categories for cigarillos and waterpipe tobacco (WPT).  

Table 10. Comparison of the options 

Options 

Baseline  Option 1: 
limited 
increase of 
EU minima 

Option 2: 
moderate 
increase of 
EU minima 

Option 3:  
high 
increase of 
EU minima 

Introduction of separate 
categories for cigarillos and 
WPT 

Increased relative price levels 
Reduced substitution 
Legal certainty 
Harmonisation  of  tax  rates  and 
regimes 
Effective excise administration 

0 
0 
0 
0 

0 

EFFECTIVENESS 
+ 
0/+ 
0 
0/+ 

+ 
+ 
0 
0/+ 

0 

0 

++ 
0/- 
0 
+ 

0 

0 
+ 
++ 
0/+ 

++ 

163 Differences between Member States can relate to the variety of tobacco cultivated. The main varieties cultivated in 
Bulgaria  and  Greece  are  entirely  hand-grown,  extremely  labour  intensive  and  require  small  mountain  fields  where 
extensive mechanised cultivation is not possible – External study. 
164 Raw tobacco available for manufacturing in the EU amounted about 440 thousand tonnes in 2020 whereas only roughly 
140 thousand tonnes were grown in the EU in 2019. 
165 This reduction is in line with the drop in cultivated surface, which nearly halved in ten years, from an estimated 112 
000 ha to less than 60 000 ha in 2019. Information collected indicates that this trend has continued in recent years. Tobacco 
leaf growing employed, according to the International Labour Organisation, close to 38 000 people in Bulgaria.   

54 

 
 
 
 
Tax revenue 
Impact on economic operators 
Administrative costs 

Europe’s Beating Cancer Plan 
Internal market 
EU policy on illicit trade  
Legend: 

0 
0 
0 

0 
0 
0 

EFFICIENCY 
+ 
+ 
- 
0/- 
0 
0 
COHERENCE 
+ 
0/+ 
0 

++ 
+ 
0 

++ 
- 
0 

++ 
+ 
0/- 

+ 
0/+ 
0/- 

0/+ 
+ 
+ 

Negative impact  Somewhat negative 

Negligible impact  Somewhat positive 

Positive impact 

impact 

impact 

Very positive 
impact 

Effectiveness.  Overall,  all  the  proposed  options  would  help  reduce  the  relative  affordability  of 
tobacco products,  to  a high  or very high  extent depending  on the options. Option  3 could  lead to 
significant excise duty increase in 8 to 21 Member States depending on products, with unpredictable 
market effects.166 However, the PPP-adjusted approach would mitigate most extreme effects, and the 
transitional  period  envisaged  would  partly  absorb  market  shocks.  Regarding  substitution,  all  the 
scenarios would reduce the tax gap between different products. On the other hand, option 3 is more 
likely to encourage consumers to switch from cigarettes to fine-cut tobacco. 

Efficiency. The proposed measures display a positive cost/benefit ratio for Member States. Efficiency 
would be even greater if the impacts on the social costs of smoking are considered. Member States 
would raise additional revenue under all options, proportional to the extent of the EU minima increase 
under the different options. Economic operators in the tobacco sector would face reduced sales of 
between 5% and 14%, depending on products and options. Minor administrative costs would stem 
from the introduction of separate categories for cigarillos and waterpipe tobacco, possibly mitigated 
by savings brought by increased legal certainty.  

Coherence.  All  the  proposed  options  are  conducive  to  meeting  Europe’s  Beating  Cancer  Plan 
target.167 Option 3 would allow a higher reduction of smoking prevalence, i.e. a one-off decrease of 
smoking prevalence from the current 24% to an estimated 20.8%, and related social costs. All the 
proposed  options  risk  incentivising  illicit  trade  by  increasing  the  price  of  tobacco  products.  This 
would be particularly salient under option 3, as it would entail unprecedented tax increases in certain 
countries. 

Enlarging  the  scope  to  new  productsTable  11  provides  a  comparison  of  the  policy  options  for 
harmonising the excise duty for HTP, e-cigarette liquids and other manufactured tobacco and related 
products respectively.  

Table 11. Comparison of the options for enlarging the scope to new products  

Options 

Baseline 

Heated Tobacco 
Products 

Liquids for E-Cigarettes  Other manufactured tobacco 

Option 1 
moderate 

Option 2 
higher 

Option 1 
zero 

Option 2 
higher 

Option 3 
mixed 

Option 1 
basic 

Option 
2 
limited 

Option 3 
high 

166  For cigars and cigarillos, the increase could be of up to more than 400% and be associated with ‘negative demand’ in 
some Member States. 
167 In Europe’s Beating Cancer Plan, the EU has endorsed the WHO’s long-term objective of creating a ‘Tobacco-Free 
Generation’, where less than 5% of the population will use tobacco by 2040 

55 

 
 
 
 
 
 
 
Increased  relative  price 
levels 
Reduced substitution 
Legal certainty 
Harmonisation of tax rates 
and regimes 
Effective 
administration 

excise 

Tax revenue 
Impact 
on 
operators 
Administrative costs 

economic 

Europe’s  Beating  Cancer 
Plan 
Internal market  
EU policy on illicit trade  
Legend: 

0 

0 
0 

0 

0 

0 

0 

0 

0 

0 
0 

+ 

0/+ 
++ 

++ 

+ 

+ 

0/- 

0 

+ 

++ 
0 

EFFECTIVENESS 

0 

0 
+ 

++ 

+ 
+ 

0/+ 

++ 

++ 

+ 
++ 

++ 

+ 

+ 

EFFICIENCY 
++ 

0 

- 

- 

0 
COHERENCE 

- 

++ 

++ 
0 

0 

+ 
0 

+ 

+ 

- 

- 

++ 

++ 
0 

++ 

++ 
+ 

+ 

+ 

+ 

- 

- 

++ 

++ 
0 

0 

0/+ 
+ 

+ 

+ 

0 

0/- 

0/- 

0 

+ 
0 

+ 

+ 
+ 

+ 

+ 

+ 

- 

0/- 

+ 

+ 
0 

++ 

+ 
+ 

+ 

+ 

++ 

- 

0/- 

+ 

+ 
0 

Negative impact  Somewhat negative 

Negligible impact 

impact 

Somewhat positive 
impact 

Positive impact 

Very positive 
impact 

Effectiveness. For heated tobacco products, option 2 would be more effective in raising relative price 
levels and also reducing tax-induced substitution from traditional tobacco products. For e-cigarettes 
liquids,  option  1,  in  addition  to  not  reducing  consumption,  would  be  less  effective  in  terms  of 
harmonisation  and  reducing  substitution.  Option  3  would  possibly  generate  more  variety  among 
Member States tax regimes. 

EU  wide  harmonisation  of  excise  duty  rates  for  liquids  for  e-cigarettes  and  other  manufactured 
tobacco  and  related  products  would  remove  the  market  barriers  caused  by  the  fragmentation  of 
Member State rules and regimes, creating new opportunities for operators, and especially SMEs, to 
expand their activities to other markets. On the other hand, their competitiveness may be affected 
because of their limited capacity to absorb cost increases compared to large companies. 

Efficiency.  All  the  proposed  options  would  generate  a  moderate  increase  in  compliance  costs  for 
economic operators, which can occasionally be more significant for SMEs (mainly in the e-cigarettes 
segment) due to the need to implement movement and control requirements applying to excise goods. 
Transnational tobacco companies active in the segment of new products are already equipped to deal 
with these rules.  

Additional administrative burden for tax authorities would also be moderate. Member States that have 
introduced excise duties for HTP and liquids for e-cigarettes already apply similar rules and control 
measures as for conventional tobacco products. Although option 3 for e-cigarette liquids could appear 
to bring additional complexity for competent authorities, according to Article 20 of Tobacco Products 
Directive,  Member  States  are  already  responsible  for  controlling  appropriate  levels  of  nicotine 
content, as well as ensuring that unit packets and any outside packaging of electronic cigarettes and 
refill containers include an indication of the nicotine content and the delivery per dose. 

High increases of EU minima (option 2 for HTP and e-cigarettes, option 3 for other manufactured 
tobacco  and  related  products)  can  lead  to  additional  tax  revenue. While  the  proposed  minima  for 

56 

 
 
liquids are smaller than for option 2, option 3 would also better address the ‘do-it-yourself’ practices 
and related tax avoidance.   

Coherence. All options are coherent with the goals of Europe’s Beating Cancer Plan, targeting the 
youth in particular, except option 1 for e-cigarette liquids, other manufactured tobacco and related 
products which would send a signal that appear in contradiction with public health objectives. Option 
3  for  e-cigarettes  liquids,  by  placing  an  additional  tax  burden  on  high-nicotine  strength  products, 
would offer a good level of public health protection in spite of not proposing the highest increases. 

7.2.  Enlarging the scope to raw tobacco 

Table 12 provides a comparison of the policy options for the introduction of raw tobacco in the scope 
of the Directive. 

Table 12. Comparison of options of the introduction of raw tobacco in the scope of the Directive 

Options 

Baseline 

Option  1:  create  an  excise 
category  for  raw 
tobacco 
with a zero EU minimum 

Option  2:  create  an  excise 
category for raw tobacco with a 
positive EU minimum 

EFFECTIVENESS 

Increased relative price levels 
Reduced substitution 
Legal certainty 
Harmonisation of tax rates and regimes 
Effective excise administration 

Tax revenue 
Impact on economic operators 
Administrative costs 

0 
0 
0 
0 
0 

0 
0 
0 

EU policy on illicit trade of tobacco products  0 
0 
Europe’s Beating Cancer Plan 
Internal market 
0 
Legend: 

EFFICIENCY 

COHERENCE 

0 
0 
+ 
+ 
++ 

0/+ 
0 
- 

++ 
+ 
+ 

0 
0 
+ 
+ 
++ 

+ 
0/- 
- 

++ 
+ 
+ 

Negative impact 

Somewhat negative 
impact 

Negligible impact  Somewhat positive 

Positive impact 

impact 

Very positive 
impact 

Effectiveness.  Under  both  options,  enlarging  the  scope  of  the  Directive  to  raw  tobacco  would 
automatically trigger the application of movement and control measures set out in the EU excise duty 
legislation. Together with effective tax administration and control, this would lead to a reduction in 
tax  fraud.  Option  2  would  enhance  the  deterrent  effect  against  diversion  to  illicit  manufacturing, 
because fraudulent movements would become liable to duty payment (in addition to the sanctions 
envisaged in the country’s legislation). That being said, option 1 would still give flexibility to Member 
States to adopt positive excise duty rates according to the level of tax evasion they face. 

Efficiency.  The  anticipated  reduction  in  sales  of  illicit  manufactured  tobacco  would  have  direct 
positive effects on Member States tax revenue under both options 1 and 2, as the losses caused by tax 
fraud would be partially recovered. However, while generating more revenue, option 2 would trigger 
substantial  compliance  costs  for  economic  operators,  although  the  amount  ultimately  depends  on 
Member State level implementation.168 

168 E.g. actual excise duty rate, guarantees required, which is usually linked to the amount of excise duty due. 

57 

 
 
 
Coherence.  Both  options  are  coherent  with  and  would  contribute  to  EU  policy  on  illicit  trade  of 
tobacco products, mainly the 2nd Action Plan to fight the illicit tobacco trade 2018-2022169, setting 
up  operational  tools  to  better  monitor  and  control  cross-border  movements  of  raw  tobacco.  Both 
options are also coherent with the FCTC Protocol on illicit trade. All the proposed options would 
have  moderate  benefits  on  public  health  induced  by  the  reduced  availability  of  low-price  illegal 
products. 

8.  Preferred option 

This section provides an overview of the preferred options in each thematic area through which the 
revision of the Tobacco Taxation Directive could effectively and efficiently contribute to the delivery 
of the policy objectives. 

8.1.  Revising the EU minima and certain categories for traditional tobacco products 

Based on the analysis carried out in this impact assessment, the preferred option for cigarettes, fine-
cut  tobacco,  cigars,  cigarillos  and  other  smoking  tobacco  is  option  3  -  high  increase  of  the  EU 
minima with transitional period of 4 years for cigars, cigarillos, waterpipe tobacco and other 
smoking tobacco (with minima partially expressed in Purchasing Power Parities).  

This option would be the most effective in curbing tobacco consumption. It would reduce smoking 
prevalence from current 24% to 20.8%, putting the EU firmly on the path to meet Europe’s Beating 
Cancer Plan target. The contribution is therefore tangible, although further steps, including the use of 
complementary non-fiscal policy, will evidently be necessary at a later stage. Associated savings in 
terms of social costs would potentially be significant (in the range of EUR 85 billion overall). 

This option would generate EUR 14 billion of tax revenue for EU-27. It would nonetheless have a 
strong impact on consumers and economic operators in a number of Member States (notably Bulgaria, 
Cyprus,  Luxembourg,  Poland).  The  average  increase  of  excise  duty  rates  would  be  substantial 
(estimated at 41%) and reach up to 94% in the case of cigarettes, 24% in the case of fine-cut tobacco, 
while  for  cigars  and  cigarillos  a  few  Member  States  would  face  an  increase  of  national  levels 
exceeding 300%. 

The impact would be softened by the proposed ‘partial PPP approach’ because it would mitigate the 
risk of disproportionate impacts on Member States where, in nominal terms, excise duty levels are 
the lowest but where the price of tobacco products, relative to income levels, is high. Furthermore, 
this approach would extend the EU minima effects  to  Member States that have traditionally  been 
unaffected,  despite  the  relative  affordability  of  tobacco  there.  In  this  sense,  this  approach  would 
introduce  more  equity  in  EU  minima  implementation.  The  increase  of  EU  minima  for  fine-cut 
tobacco, cigars, cigarillos and other smoking tobacco are designed to progressively bridge the gap 
with the rate for cigarettes to achieve a progressive convergence between products, to minimise the 
risk of cross-product substitution. 

Importantly, option 3 could incentivise the illicit trade of tobacco products, although other factors are 
also at play. For example, the permeability of borders, the severity of sanctions against offenders and 
in general the capacity of local authorities to detect and prosecute illicit activities.  

169  ANNEX  to  the  Communication  from  the  Commission  to the  European  Parliament,  the  Council  and  the  European 
Economic and Social Committee (europa.eu) 

58 

 
 
 
Option 3 would provide a strong signal. The significant public health benefits of option 3, as well as 
the excise duty revenue generated, would largely compensate the expected impact on consumers and 
economic operators as well as the risks of rising illicit trade.  

The  proposed  revision  of  the  minimum  EU  tax  rates  for  tobacco  products  does  not  imply  any 
discrimination  between  domestic/imported  products  as  excises  duties  are  charged  in  the  place  of 
consumption (i.e. it is not linked to the place of origin of the excisable goods). Minima are already in 
place for manufactured tobacco products.  

With respect to the cross-border shopping effect, it is important to note that increasing minima would 
mitigate,  albeit  moderately,  price-level  differences  among  Member  States.  Hence  the  economic 
incentive behind cross-border flows, particularly as regards irregular cross-border flows will remain.  

In parallel, the introduction of a separate sub-category for cigarillos would allow Member States to 
adopt a more tailored taxation regime. Similarly, a separate sub-category for waterpipe tobacco within 
the larger ‘smoking tobacco’ category would improve legal certainty and help Member States fight 
illicit trade. 

8.2.  Enlarging the scope to new products 

The preferred option is to introduce new excise categories for each of these product categories 
with high amount of excise duty (partial PPP): option 2 for heated tobacco products; for liquids 
for  e-cigarettes  option  3  is  preferred,  combining  two  flat  rates  for  low  and  high-nicotine  content 
products; option 3 for other manufactured tobacco and related products with a gradual increase of the 
fixed minimum over 4 years to EUR 143. 

First,  establishing  new  excise  categories  for  HTPs,  liquids  for  e-cigarettes,  other  manufactured 
tobacco  and  related  products  would  close  a  regulatory  gap  and  remove  substantial  fragmentation 
caused by different national regimes. It would also be coherent with the orientation of the FCTC and 
WHO recommendations on the taxation of these products.  

Establishing harmonised definitions, tax treatment and movement and control requirements, would 
enhance the functioning of the market for these products. The preferred option relies on the extension 
of already proven IT systems for handling excise goods. Related administrative obligations follow 
the ‘digital by default’ principle. In line with the regimes currently in place in most Member States, 
the simple tax structures proposed would be straightforward and efficient to implement. 

The increased legal clarity of the regulatory framework at EU level would support businesses acting 
across  borders  and  ultimately  improve  their  competitiveness.  Also,  it  would  guarantee  the  fair 
treatment of all products across business sectors. On the other hand, SMEs, present in particular in 
the e-cigarettes sector, would be less capable overall to deal with new administrative requirements 
and absorb cost increase than large companies, and therefore would be disproportionally affected. 

Regarding the proposed excise duty rates, the introduction of high EU minima would decrease the 
tax gap between new products and traditional tobacco products and so reduce tax induced substitution. 
The proposed introduction of minimum excise duty rates would not imply any discrimination between 
domestic/imported products as excises duties are charged in the place of consumption (i.e. it is not 
linked to the place of origin of the excisable goods).  On the other hand, it would trigger an increase 
in  consumer  prices  in  most  EU  countries,  leading  to  marked  drops  in  sales,  affecting  companies 
operating in the new products sector.  

For HTP, option 2 would set the minimum excise rates closer to the taxation of cigarettes. For e-
cigarette liquids, option 3 would better address the variety and peculiarities of the products and related 

59 

 
 
consumption  patterns.  Indeed,  this  approach  introduces  a  modulation  of  rates  based  on  health 
considerations (low- and nicotine-free products are taxed less) and to some extent discourages ‘do-
it-yourself’ practices (by taxing nicotine boosters more). For other manufactured tobacco and related 
products, option 3 would prevent the risk of regulatory loopholes.  

The introduction of a high amount of excise duty for a range of new products, which are particularly 
appealing to young people, who are at risk of developing addiction, would contribute to achieving 
the long-term goal of Europe’s Beating Cancer Plan of a tobacco-free generation. 

8.3.  Enlarging the scope to raw tobacco 

The specific analysis carried out in this impact assessment suggests option 1 - new excise category 
for raw tobacco with a zero minimum rate as the best option to tackle the problems specified in 
section 2.  

The establishment of a harmonised category for raw tobacco in the EU excise legislation, even with 
a zero rate, would extend the movement and control measures set out in the EU excise duty legislation 
to raw tobacco. This option envisages applying the EMCS system to cross-border movements. In this 
sense, Member States authorities would have access to a readily available tool that allows monitoring 
of  supply-chain  operations,  and  therefore  assists  in  detecting  irregularities  and  potential  diversion 
routes. Related administrative obligations follow the ‘digital by default’ principle. 

The implementation of this option would generate additional costs for Member States authorities and 
supply-chain operators. In the case of authorities, such costs would be offset, and possibly overcome, 
by  the  benefits  of  a  reduction  in  tax  fraud.  Regarding  economic  operators,  the  costs  would  be 
mitigated through the exemption of the first steps of the raw tobacco supply chain. 

By introducing a zero rate, the mechanism remains proportionate with the objective of addressing tax 
evasion, fraud and avoids double taxation. At the same time, it will give flexibility to Member States 
in setting positive rates according to the level of tax evasion they face. 

8.4.  REFIT (simplification and improved efficiency) 

The administrative and adjustment costs and savings related the revision of the Directive is different 
for each area of intervention. The increase in excise duty for traditional tobacco will affect demand 
and thus lead to reduced sales but will not increase administrative costs for economic operators and 
public authorities.  

Enlarging  the  scope  to  new  products,  the  bulk  of  additional  costs  (estimated  for  the  whole  new-
product sector of EUR 9.6 million of one-off costs and EUR 6.3 million annually would be incurred 
by SMEs operating in the e-cigarette liquids segment, especially those based in countries where no 
national tax regimes are currently in place. Operators in the HTP and other manufactured tobacco 
sector (especially the nicotine pouch segment) are considered already compliant with the majority of 
obligations as both segments are largely controlled by transnational tobacco companies. Regulatory 
costs incurred by Member States would amount to EUR 10 million of one -off and around EUR 0.5 
million for each subsequent year. 

Including raw tobacco in the scope of the EMCS and making it subject to other control measures set 
out  in  the  Horizontal  Directive  would  lead  to  additional  regulatory  costs.  Compliance  costs  for 
economic operators would amount to EUR 0.1 million for one off costs and EUR 2 million for annual, 
recurrent costs while for public authorities it would amount to EUR 9.7 million of one -off and around 
EUR 0.7 million for each subsequent year. However, doing so is expected to facilitate cross-border 

60 

 
 
investigations and the prosecution of cases of fraud. Moreover, harmonised movement and control 
requirements could lead to the abandonment of at least some national control measures (registration, 
authorisation and additional control measures). This could in turn mitigate the administrative burden 
for both economic operators (as presented in ANNEX 3: on ‘one in, one out’ approach) and public 
authorities.  

Additional administrative and adjustment costs incurred by economic operators because harmonising 
new products and raw tobacco of would amount to 9.7 million of one-off costs and to EUR 8.3 million 
of recurrent costs. 

Finally, Member States authorities consider that the benefits of harmonising new products and raw 
tobacco and application of movement and control requirements would be expected to outweigh the 
costs (in total it would amount to EUR 19.7 million of of one -off costs and to EUR 1.2 million of 
recurrent costs).  

9.  How will actual impacts be monitored and evaluated? 

9.1. 

Indicators for monitoring and evaluation 

The table below provides an overview of the objectives, the indicators to measure whether they will 
be achieved, and the tool for monitoring them.  

Objectives 
Approximate 
regimes   

tax 

rates  and 

Indicators 
Excise duty rates in Member States 

Data sources 
Commission excise statistics  

Prevent  tax  induced  substitution 
between 
tobacco 
different 
products and their substitutes 

Market  structure,  prices  of  and  demand  for 
different tobacco products and their substitutes 
More equal tax burden 

Increase  relative  price  levels  to 
influence 
consumption 
behaviours 

Ensure  legal  certainty  for  all 
stakeholders 

Smoking prevalence 

Prices  of  and  demand  for  different  tobacco 
products and their substitutes 

Number of disputes (including CJEU cases) 

Strengthen the fight against fraud 
and tax evasion 

effective 

excise 
Ensure 
administration  by 
expanding 
application of the movement and 
control provisions 
Legend: E: evaluation study. 

Excise fraud: 
- number of audits 
- number of controls 
- reported fraud 
- suspected fraud 
Enforcement  costs  for  excise  and  customs 
authorities 
Impact on revenues (collected and foregone) 
Administrative  costs  and  gains  for  excise 
administrations 

Market analysis (E)  
Questionnaires to/interviews with 
industry (E) 
Statistics (E) 

Market analysis (E)  
Questionnaires to/interviews with 
excise administrations  (E) 
Statistics (E) 

the 

Work of the Committee on Excise 
Duty/ 
Indirect  Taxation 
Expert Group 
Questionnaires to/interviews with 
excise administrations  (E) 
Questionnaires to/interviews with 
excise  administrations    and  with 
industry (E) 

Questionnaires to/interviews with 
excise administrations  (E) 

61 

 
 
 
 
 
 
9.2.  Monitoring structures 

Tobacco taxation is regularly monitored, at least once a year by collecting information from Member 
States on the basis of the Commission Implementing Decision of 28 July 2011 concerning the list of 
statistical  data  on  the  structure  and  rates  of  excise  duty  applied  on  manufactured  tobacco  to  be 
provided  by  the  Member  States  pursuant  to  Council  Directives  92/79/EEC  and  92/80/EEC.170 
Moreover, DG TAXUD and Member States update the information database on the applicable tax 
rates twice a year (Taxes in Europe Database). The Commission’s traceability and security features 
system, established by the Tobacco Products Directive, allows for real-time monitoring of the tobacco 
supply chain.171 

The Committee on Excise Duty, an advisory committee on excise issues chaired by the Commission 
in  which  representatives  of  all  Member  States  participate,  will  monitor  the  implementation  and 
functioning of the revised rules. The Committee on Excise Duty will report on implementation issues 
and the evolution of problems identified in this impact assessment. It will discuss and clarify possible 
interpretation issues between Member States. In case new legislative developments are required, the 
Indirect Taxation Expert Group might be further consulted.  

Finally, in view of the fast evolution of the market for heated tobacco, liquids for electronic cigarettes, 
nicotine pouches and other nicotine products the Commission will review minimum levels of excise 
duties for those products after 2 years after the application date of the new legislation taking into 
account regulatory and market developments. 

9.3.  Evaluation 

Member States shall communicate to the Commission relevant information to jointly examine and 
evaluate the functioning and evolutions of the new legislation, including in respect of legal certainty, 
market and economic distortions, excise fraud, the application of the new provisions on raw tobacco, 
etc. It will be used to evaluate the effectiveness, efficiency, coherence with other interventions with 
similar objectives, and continued relevance and EU added value of the new legislation. The evaluation 
should also collect input from all relevant stakeholders as regards the level and the evolution of their 
administrative  burden  and  compliance  costs.  The  Commission  will  prepare  the  evaluation  at  the 
earliest 5 years after the application date of the new legislation, allowing the markets to adjust and 
the results and impacts to materialise. 

170 Commission Implementing Decision of 28 July 2011 concerning the list of statistical data on the structure and rates of 
excise  duty  applied  on  manufactured  tobacco  to  be  provided  by  the  Member  States  pursuant  to  Council  Directives 
92/79/EEC and 92/80/EEC, OJ L 197, 29.7.2011, p. 17–19.  
171 In respect of cigarettes and roll-your-own tobacco since 20 May 2019 and for all other tobacco products from 20 May 
2024. 

62 

 
 
 
 
ANNEX 1: PROCEDURAL INFORMATION 

1.  Lead DG, Decide Planning/CWP references 

The lead Commission service for this file is DG TAXUD. The Decide reference for this initiative is 
PLAN/2020/8656. 

In  June  2020,  following  publication  of  the  Commission  evaluation  of  the  Directive,  the  Council 
invited the Commission to submit a legislative proposal for the revision of the Directive on the basis 
of an impact assessment. 

This initiative is part of Europe’s Beating Cancer plan, which notes the pivotal role of taxation in 
reducing tobacco consumption. It is also included in the Commission work programme 2021. 

2.  Organisation and timing 

The following DG were invited to the Inter-Service Steering Group (ISSG): AGRI, OLAF, SANTE, 
SG, LS, GROW, TAXUD and JRC.  

Between 2020 and 2021 a consortium led by Economisti Associati s.r.l. (EA) and commissioned by 
DG TAXUD undertook the assignment titled ‘Impact analysis of the review of tobacco excise duty 
rules’ (‘EA 2021 study’). The EA study 2021 study relies on the findings of the previous external 
studies carried out by EA in 2017 (‘EA 2017’172) and in 2019 (‘EA 2019’173).  In particular, the study 
expands  and  updates  the  previous  works  in  the  light  of  market  developments  and  new  emerging 
issues. 

The study carried out an accurate analysis of existing policy issues and consistently with other EU 
policies  on  tobacco  (in  particular  tobacco  control  policies  and  the  policies  against  illicit  trade  of 
tobacco products and related tax fraud) in order to elaborate policy options which could be introduced 
to  address  these  issues.  It  also  assessed  and  compared  the  expected  impacts  of  different  possible 
options and reviewed their feasibility. 

Additionally, EA assisted the Commission  in  conducting a  public  consultation  to  collect  citizens’ 
comments and feedback on the initiative and the possible options envisaged for the revision of the 
Directive. 

The ISSG reviewed and approved the following documents: 

▪  all ISSG meetings' minutes; 

▪  questionnaires (public consultation, Member States, economic operators) for the stakeholders' 

consultation; 

▪  inception and interim reports174 of the External study; 

▪  final report of the External study; 

▪  Commission's Impact Assessment Report (this document). 

172 Study on Council Directive 2011/64/EU on the structure and rates of excise duty applied to manufactured tobacco, 
2017. 
173 Study on Council Directive 2011/64/EU on the structure and rates of excise duty applied to manufactured tobacco, 
2019. 
174 Intermediate deliverables, describing the problems, options, methodology and approach of the study. 

63 

 
 
 
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 update study (‘EA 2025 study’) provided a comprehensive update of EA 2021 study 
addressing market and fiscal changes and conducted a focused consultation to collect feedback from 
stakeholders. 

Throughout, DG TAXUD engaged directly with stakeholders, organising a stakeholder event on the 
revision of the Tobacco Taxation Directive in  May 2022 and participating  in  a Fiscalis workshop 
concerning new tobacco products, hosted by Poland, in October 2024. 

The chronology of the main events is as follow: 

16/11/2020 

First ISSG meeting on the draft inception impact assessment. 

12/01/2021 

Kick-off meeting of the EA 2021 study. 

26/02/2021 

Approval of the public consultation questionnaire by the ISSG. 

30/03/2021 

to 

Public consultation in all EU languages. 

26/06/2021 

28/05/2021 

ISSG meeting on the External study interim report and on the available 
policy options. 

24/09/2021 

ISSG meeting on final report of the ISSG meeting on the External study. 

05/05/2022 

1st ISSG meeting on the draft Impact Assessment Report 

18/05/2022 

Tobacco taxation stakeholder event (online) 

02/06/2022 

2nd ISSG meeting on the draft Impact Assessment Report 

03/10/2024 

Fiscalis workshop  ‘Exchange of information and practises on 
implementation of excise duty for new products (heated tobacco, liquids 
for electronic cigarettes and other)’, Warsaw 

09/01/2025 

Kick-off meeting of the EA 2025 study. 

19/12/2024 

to 

Focussed stakeholder consultation. 

12/02/2025 

04/04/2025 

ISSG meeting on the draft final report of the EA 2025 study. 

64 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.  Consultation of the RSB 

On 22 June 2022, DG TAXUD submitted the draft Impact Assessment to the Regulatory Scrutiny 
Board and the Board meeting took place on 19 July 2022. The opinion of the Board, as issued on 22 
July 2022, was positive with reservations.  

The Board’s recommendations have been addressed as presented in the table below. 

Board recommendation  
(1) The report should make better use 
of  the  available  evidence  to  better 
demonstrate  how  taxation  can  be  an 
policy 
and 
effective 
tobacco 
to 
instrument 
consumption on health grounds.  

critical 
reduce 

The  problem  section  should  more 
clearly  link  the  problems  and  their 
drivers with the scope and objectives 
of the revision. The report should add 
a  visual  setting  out  the  intervention 
logic underpinning the revision of the 
Directive. 

(2)  The  report  should  further  assess 
how  economic  operators  will  be 

What has been done? 
The  recommendation  was  addressed 
by  making  clearer  the  evidence 
from  different  sources 
(WHO, 
academic 
World  Bank 
the 
evaluations) 
essential role of taxation in reducing 
tobacco use. At the same time it was 
emphasised  that  tobacco  taxation 
policies  and  other  tobacco  control 
policies work synergistically.  

supporting 

and 

the 

goals 

The recommendation was addressed 
by  adding  the  intervention  logic 
diagram  underpinning  the  revision 
the  Directive  and  clarifying 
of 
drivers, 
between 
connections 
problems  and  specific  objectives.  
The report elaborated on the origin 
of  the  three  general  objectives  in 
and 
the 
line  with 
responsibilities  set  by 
the  EU 
Treaty.  Based  on  the  evaluation  of 
the Directive it was clarified that in 
general 
regulatory  burden 
(including  current  excise  duty 
structure  for  tobacco  products)  is 
neither an issue for Member  States 
economic 
authorities  nor 
operators. 
certain 
provisions  of  the  Directive  related 
to tobacco products (definitions, EU 
minima, 
market 
recent 
developments  of new products,  the 
lack  of  proper  control  system  for 
raw tobacco) need to be revised. 
Finally, the synergies with relevant 
Sustainable  Development  Goals 
(SDG) were clarified. 
The recommendation was addressed 
the  analysis  of 
by  expanding 

However, 

for 

Where? 
Section 2 

Sections 
1, 2 and 4 

ANNEX  3:  section 
3 

Section  6 
specifically, 

(more 

65 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
impacted.  The  impacts  should  be 
presented  in  a  more  detailed  and 
systematic 
whenever 
way 
disaggregated  data  is  available.  This 
should include the assessment of the 
impacts on SMEs on the basis of the 
SME  test.  The  mitigation  measures 
should  be  made  more  explicit.  The 
include  a 
analysis 
impact  analysis,  since 
territorial 
tobacco  producers 
to  be 
seem 
concentrated  in  a  limited  number  of 
this 
geographic  clusters.  Given 
concentration, 
report  should 
the 
assess  potential  labour  and  social 
impacts for the regions concerned. 

should  also 

(3)  The  report  should  better  explain 
the  risk  of  potential  unintended 
consequences.  In  particular,  the  risk 
of  the  increase  in  the  illicit  trade  of 
tobacco  products  caused  by  higher 
prices should be assessed, taking into 
account the importance of other, non- 
tax specific, factors. 

in 

(4)  The  report  should  better  explain 
the  econometric  modelling  of  the 
tobacco 
reduction 
expected 
consumption  and  additional 
tax 
revenue, integrating it with the recent 
available  evidence  of  consumers’ 
the  COVID-19 
behaviour  during 
emergency. It should explain how the 
expected  reduced  sales  and  reduced 
the 
demand  were 
estimates  of  additional  tax  revenues. 
It  should  clarify  how  the  potential 
increase  in  illicit  trade  was  included 
in the modelling. 

factored 

into 

sections 
6.1.2; 
6.1.6; 6.2.3; 6.3.6.) 

ANNEX 6: 

Section 6.1.2 

Section 6  

ANNEX 4: 

as 

a  very 

impacts for economic operators and 
inclusion of new sections (6.1.6 and 
6.3.6)  on  impacts  on  employment 
taking into account the concentrated 
nature of the tobacco sector.   
Impact on SMEs was clarified based 
on the SME test.  Moreover impacts 
on  SMEs  (most  relevant  for  the  e-
liquids  sector,  highly 
cigarette 
dominated  by  SMEs)  is  put  into 
perspective 
small 
proportion  of  the  total  number  of 
SMEs  in  the  EU.  Additionally,  the 
dynamics of the e-cigarettes market 
are considered, with the withdrawal 
of  some  operators  and  increased 
consolidation,  an  expected  part  of 
market evolution. 
The recommendation was addressed 
by explaining in a more transparent 
manner the impact of the increase of 
EU minima on illicit trade. Based on 
WHO estimates and the experience 
of  the  Member  State  with  the 
highest tobacco taxes and prices in 
the  EU,  explanations  are  given  on 
the role of governance. 

The recommendation was addressed 
by  further  clarifying  the  methods, 
key assumptions, and baseline of the 
econometric  modelling. 
It  was 
clarified  that  the  quantification  of 
the impact of each policy option on 
the  prices,  quantities  sold,  and 
excise  revenue  was  carried  out 
following  a  partial  equilibrium 
approach augmented with a module 
intra-EU  movements.  The 
for 
methodology 
involved 
also 
estimating  how  much  consumption 
would  shift  from  one  product  to 
another.  Finally,  it  was  explained 
that 
not 
specifically include the effects from 
the recent COVID-19 epidemic as it 
would 
derive 
risky 
be 
to 
inferences  from  an 
quantitative 

the  modelling 

did 

66 

 
 
 
 
 
abnormal situation. Similarly, illicit 
trade was not specifically modelled 
owing 
to  data  unavailability. 
Furthermore, it was highlighted the 
lack  of  a  strong  direct  relationship 
between tax levels and illicit trade. 

(5)  The  report  should  improve  the 
cost  benefit  analysis  with  a  more 
systematic and comparable approach 
and  clearer  presentation.  It  should 
provide the assessment of all types of 
relevant impacts for all options.  

All  relevant  impacts  have  been 
presented in a more structured way. 
Environmental 
are 
presented, bearing in mind that the 
Directive  is  not  motivated  by  any 
environmental rationale. 

impacts 

Section 6 

ANNEX 17:  

It  should  be  clearer  about  the  health 
benefits  and  explain  why  they  were 
not  estimated  for  the  options  related 
to  enlarging 
to  new 
the  scope 
products and raw tobacco.  

The  report  should  provide  overview 
tables of costs and benefits under each 
policy  area  and  for  the  preferred 
option, 
including  costs  and  cost 
savings in  scope of the  One  In, One 
Out approach. 

products 

continues 

The  report  does  not  include  more 
accurate and precise impacts of the 
proposed  options  for  new  products 
as the debate on the health risks of 
these 
to 
advance. The  excise harmonisation 
proposal in respect of new products 
is assessed in the report in terms of 
the risks  to  fiscal  revenues and the 
internal market. 
As regards raw tobacco the impacts 
of 
the  proposed  options  are 
presented  through  possible  indirect 
effects:  the  diminished  availability 
of raw tobacco and increased prices 
of illicit products would increase the 
effectiveness of taxation policies in 
curbing consumption. 

The recommendation was addressed 
by  presenting  in  a  more  structured 
way  the  costs  and  benefits  under 
each policy area in overview tables, 
including clarifications of costs and 
cost savings in scope of the One In, 
One Out approach. 
However for the sake of clarity, the 
combined  impact  analysis  is  not 
presented  as  the  three  areas  of 
different 
intervention 
objectives  (as  presented 
the 
overview of the intervention logic), 
and  therefore  a  different  costs  and 
a 
benefit 

impacting 

analysis 

have 

in 

67 

ANNEX  3:  section 
2 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
on 

different set of economic operators 
and markets.  
Finally, annexes (mainly annexes 4, 
6,  7  and  12)  were  revised  and 
shortened, 
the 
focusing 
specifically 
information  more 
relevant  to  the  impact  analysis.   
Cross-references  were  revised  to 
facilitate  access  to  more  detailed 
information  provided  in  relevant 
annexes.  
The  choice  of  PPP  approach  was 
described  upfront  as  it  would  be 
applicable to  all the products  to  be 
covered by the Directive (traditional 
and new ones). It was clarified that 
the  main  weakness  of  the  current 
fixed  nominal  minima,  is  their 
inability  to  remain relevant  in  case 
of changes in the general price level, 
within each Member State as well as 
between Member States. Given that 
inflation 
is  a  normal  monetary 
phenomenon, the effect of any fixed 
nominal minimum is doomed to be 
eroded  over  time.    Also  it  was 
explained that this approach would 
ensure that affordability of tobacco 
and  related  products  at  national 
level  is  better reflected in  the rates 
to  have  a  more  targeted  impact  on 
consumption  (as  Member  States 
have  specifically  asked 
the 
Council conclusions of 2020 to take 
their  social  and 
into  account 
economic conditions).  
Finally, the role of two IT systems 
related to excise goods (System for 
Exchange of Excise Data 
Excise  Movement  and  Control 
System) were clarified in relation to 
the inclusion of new products listed 
in the initiative. 
The recommendation was addressed 
by including references and further 
insight  from  the feedback obtained 
from  different  stakeholder  during 
the  public  consultation.  Views  of 

and 

in 

68 

Section 5.1.  

ANNEX 
section 2  

17: 

Sections 2.1.3; 5.1; 
5.4.2; 
5.3.2.3; 
6.1.4;  6.1.5;  and 
6.2.3.  

(6) The report should indicate in more 
detail  to  what  extent  the  preferred 
option is futureproof. It should better 
explain the  effect  of inflation on the 
success  of  a  PPP-based  EU  excise 
duty  system.  It  should  clarify  which 
other variants or combinations of the 
proposed  partial  PPP  system  have 
been  assessed  and  better  justify  the 
one included in the preferred option. 

report 

(7)  The 
should  more 
systematically  present  the  views  of 
different 
categories 
stakeholder 
throughout  the  text,  in  particular  on 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
the  problems,  options  and 
impacts. 

their 

stakeholders  on 

different 
the 
problems,  different  policy  options, 
as  well  as  on  anticipated  impacts 
have been integrated in the body of 
the report.  

4.  Evidence, sources and quality 

The  evidence  for  the  impact  assessment  report  was  gathered  through  various  activities  and  from 
different sources: 

▪  Evaluation of the Council Directive 2011/64/EU of 21 June 2011 on the structure and rates of 

excise duty applied to manufactured tobacco, SWD(2020) 33 final; 

▪  Council conclusions concerning the structure and rates of excise duty applied to manufactured 

tobacco; 

▪  Europe's Beating Cancer Plan, SWD (2021) 13 final; 
▪  PwC PricewaterhouseCoopers LLP, ‘Study assessing articles 32 and 36 of Council Directive 

2008/118/EC concerning the general arrangements for excise duty’, 2020; 

▪  Economisti Associati, ‘Study on Council Directive 2011/64/EU on the structure and rates of 
excise duty applied to manufactured tobacco’, 2019 and 2021 (EA 2019 and EA 2021 study); 
▪  Economisti  Associati,  ‘Study  on  the  impact  analysis  of  a  review  of  tobacco  taxation  rules: 

update with recent market and regulatory developments’, 2025 (EA 2025 study); 

▪  Feedback on the published Inception Impact Assessment and from the public consultation; 
▪  Results of the seminar organised by DG TAXUD with participation with experts from Members 

States on raw tobacco; 

▪  Desk research. 

69 

 
 
 
ANNEX 2: STAKEHOLDER CONSULTATION (SYNOPSIS REPORT) 

1.  Consultation strategy 

The  consultation  strategy  incorporated  a  range  of  different  activities  to  comprehensively  gather 
stakeholder opinions through interviews and various, general and specific surveys. In particular, the 
following activities were carried out: 

A.  Feedback  on  the  Inception  Impact  Assessment.  The  consultation  on  the  Inception  Impact 
Assessment was launched on 8 December 2020, and closed on 5 January 2021, and it obtained 
134 feedbacks mainly from Italy (52) and France (23). The majority of the replies came from EU 
citizens (94). There were also several replies from industry representatives (20) and NGOs (8). 
B.  An online Public Consultation (30 March 2021 - 22 June 2021 ), to which economic operators 
(businesses),  business  associations,  professionals,  public  health  and  consumers  NGOs, 
academicians, researchers, local authorities and EU and third country citizens, responded. The 
consultation,  though  not  statistically  representative,  elicited  7262  responses,  covering  all  EU 
Member  States  but  also  third  countries  (including  UK),  with  235  position  papers.  The  vast 
majority of contributions came from EU citizens (88%). The presence of repeated open comments 
with  identical  wording  suggested  that  some  feedback  could  have  been  coordinated.  Open 
comments  also  suggested  that  respondents  were  consumers  of  e-cigarettes  concerned  with  the 
possible taxation of these products. 

C.  A virtual tobacco event was organised on 18 May 2022. This small-scale event was opened to 
any stakeholder interested in tobacco taxation and the upcoming proposal. It gave the opportunity 
for all interested parties to express their views on the latest developments in the area. Participants 
appeared  to  support  the  increase  of  EU  minima,  the  regulation  of  novel  products  (although 
opinions on taxation of nicotine free products diverged) and the control of raw tobacco to address 
illicit manufacturing. 

D.  Targeted consultations with Member States’ public authorities. It consisted of a questionnaire 

survey sent to: 

a)  tax  and  customs  authorities  competent  for  tobacco  excise  duty  legislation  and 

administrative implementation: 25 respondents from 27 Member States; 

b) public health authorities that are members of the Commission Expert Group on Tobacco 

Policy: 18 respondents from 27 Member States. 

E.  In-depth interviews with Member States authorities, Commission staff, industry representatives, 
public health experts and NGOs, professionals, research institutions and other stakeholders for a 
total  of  97  interviewees.  Most  of  interviews  were  ‘deep-dives’  from  a  sample  of  selected 
countries, namely: France, Italy, Sweden, Poland, Bulgaria, Croatia, Ireland, Denmark, Czechia 
and  Finland.  Regarding  economic  operators,  interviews  addressed  companies  operating  at 
different  stages  of  the  tobacco  value  chain,  i.e.  growers,  first  and  second  processors,  storage 
companies,  manufacturers,  and  retailers  organisations.  In  terms  of  products,  consultations 
included  manufacturers  from  all  ‘traditional’  tobacco  products  (cigarettes,  fine-cut  tobacco 
(FCT), pipe tobacco, cigars and cigarillos, waterpipe tobacco (WPT), traditional chewing tobacco 
and  snus)  and  from  new  products  like  e-cigarettes,  heated  tobacco  products  (HTP),  nicotine 
pouches and the Cannabidiol industry.      

F.  A call for data (19 December 2024 - 12 February 2025) was conducted to collect factual evidence 
(e.g. data, reports, studies, legal acts etc.) in the context of the update of the External study. 53 
responses  were  received,  of  which  19  from  Member  States  authorities  and  34  from  industry 
representatives  operating  in  various  segments.  Despite  the  call  addressed  also  public  health 

70 

 
 
NGOs,  no  feedback  was  received  from  this  group.    Eight  interviews  have  been  carried  out, 
involving  European  Commission  relevant  staff,  national  tax  authority  and  law  enforcement 
authorities, mostly revolving around unrecorded tobacco. 

G.  A Fiscalis workshop ‘Exchange of information and practises on implementation of excise duty 
for new products (heated tobacco, liquids for electronic cigarettes and other)’ (3 October 2024) 
allowed to collect up-to-date information from experts from the Member States on tax policies 
and measures in place for the monitoring of new products (heated tobacco, liquids for e-cigarettes 
and others). 

The stakeholder consultation gathered views and evidence in four broad areas namely on: 

▪  Member States’ legal and operating frameworks, as well as the situation and dynamics of the 

corresponding national markets;  

▪  opinions  on  the  perceived  performance  of  the  current  EU  legislation  and  key  issues  to  be 

redressed;  

▪  hypothetical statements about the possible evolution of legal frameworks and markets in the 

absence of EU intervention;  

▪  stakeholders’  expectations  and  stated  preferences  on  the  diverse  possible  policy  scenarios 

outlined. 

2.  Feedback on the policy problems 

➢  Product substitution 

The public consultation confirmed the importance of tackling the increasing substitution of factory-
manufactured cigarettes with existing harmonised products and even more so, for new unregulated 
ones. It risks eventually eroding tobacco excises tax base and undermining tobacco control policy 
efforts.  The  importance  of  product  substitution  varies  for  the  different  forms  used.  Substituting 
cigarette-mimicking cigarillos is of growing concern in a small subset of Member States. Nonetheless, 
no  Member  State  sees  this  as  declining  and  can  be  therefore,  a  potential  threat.  It  is  substituting 
cigarettes  and  HTP  and,  to  a  lesser  extent,  e-cigarettes  and  FCT  that  has  attracted  considerable 
attention  over  the  past  three  years.  Despite  citizens  and  industry  respondents  resisting  the idea  of 
increased taxation for a number of products, a majority conceded that further action to close excise 
rate gaps between cigarettes, FCT and cigarillos could be justified. Academics, NGOs, Public Health 
Experts and other respondent categories almost universally agreed that taxation had to be increased 
and existing gap levels, closed. 

Among the latest developments, many Member States reported increasing consumption of FCT at the 
expense  of  traditional  cigarettes  as  a  consequence  of  the  COVID-19  epidemic.  This  has  been 
empirically confirmed through other sources. The increase is attributed to income-related factors with 
substantially increasing cigarette prices and availability constraints of cheaper illicit and cross-border 
products due to lockdown restrictions.  

While the above trend is likely to reverse once the situation is back to normal, substituting cigarettes 
with HTP is deemed a structural market phenomenon not driven by income-related factors, as prices 
are similar to traditional cigarettes in many Member States. Similarly to previous evaluation study 
findings,  it  appears  that  substantial  consensus  has  been  reached  among  public  health  experts  that 
taxation should be equivalent at a ‘single act of consumption’. This implies that cigarette and FCT 
excise rates be substantially equalised and HTP taxed on a stick basis equivalent to cigarettes excise 
duties.     

71 

 
 
So  far  sudden  and  major  increases  of  cigarette  substitute’s,  market  shares  were  short-lived  and  
plateau quickly, as seen for instance with e-cigarettes in some national markets. However, there is 
growing concern among public health experts that an increasing variety of substitute products with 
poorly harmonised fiscal treatment would eventually decrease the effectiveness of current tobacco 
control policies, particularly in taxation. Of particular concern is nicotine-based products other than 
e-cigarettes, particularly nicotine-pouches that are gaining market share in some Member States, at 
the expense of both traditional tobacco including ‘old’ smokeless products, such as snus, and chewing 
tobacco. This is supported by public health authorities survey results citing nicotine pouches, as a 
more serious tobacco control problem faced by Member States over the last few years. Some public 
health experts were particularly concerned about consequences of these trends in the long-term, as 
new  nicotine  products  can  induce  addiction  that  could  lead  to  consuming  other  tobacco  products, 
including  traditional  smoking  ones.  This  concern  is  also  shared  by  public  health  authorities  that 
consider alternative products appearing as a more serious threat to the future effectiveness of tobacco 
control policies than cross-border flows or illicit trade. 

Conversely  and  similar  to  previous  consultations,  new  product  users  and  economic  operators 
(especially  of  e-cigarettes)  considered  that  tobacco  products  and  their  substitutes  should  be  taxed 
according  to  the  concept  of  harm  reduction.  They  expressed  strong  concerns  about  taxation 
discouraging smokers switching from conventional tobacco to new products, which in their view are 
less harmful. 

➢  Affordability of tobacco products and excise duties 

Overwhelming  consensus  remains  in  favour  of  taxation  as  the  single  most  effective  tool  to  curb 
smoking  prevalence,  and  for  factoring  affordability  into  taxation  levels.  Taxation  is  especially 
important for fast growing Eastern Europe countries that should capitalise on its deterrent effect on 
consumption before income-related factors over compensate taxation increases. 

Individual respondents to the public consultation from one third of the Member States and particularly 
from  Southern  and  Eastern  Europe  acknowledged  that  traditional  tobacco  products  including 
cigarettes  and  FCT  remain  affordable.  It  appears  therefore  that  statistical  affordability  based  on  a 
population’s  ‘average  income’  can  be  biased  by  broader  urban/rural  disparities  and  pensioners  or 
income-dependent  individuals’  weight  on  the  population’s  structure  and  not  necessarily  reflect 
consumers’ perceptions.  Perceived affordability of tobacco products vary from product to product 
and tend to  increase as  one moves  from  cigarettes to  FCT and to  cigars  and cigarillos. These are 
deemed affordable by around half of respondents across Europe overall.  

Moreover, slightly less than half of public authorities in questionnaire replies were able to confirm 
that  tobacco’s  overall  affordability  decreased  in  their  countries  in  the  last  three  years.  This  was 
possibly also, as a result of the COVID-19 pandemic and its impact on income levels rather than an 
explicit taxation effort raising prices. This is also in line with what public health experts reported as 
taxation  losing  its  momentum  in  controlling  consumption  in  some  Member  States  in  the  last  few 
years, while others made significant efforts to reduce affordability through taxation. 

Public health authority’s survey results confirmed this loss of traction, where a majority admitted that 
their smoking prevalence reduction objectives over the last few years could be achieved only to some 
moderate  or  limited  extent,  particularly  among  young  people  and  women.  Few  public  health 
authorities were satisfied (or very) with  observed domestic consumption trends. Moreover, public 
health authorities considered increases in excises as second in importance after national restrictions 
(bans on sales, etc.) in contributing to decrease smoking prevalence. Natural market trends and the 

72 

 
 
surge of e-cigarettes and oral products also contributed to this result, although at the price of continued 
nicotine addiction.  

Various  stakeholders  largely  agreed  that  the  EU  should  consider  income  levels  disparities  when 
setting minimum tax rates. Tax and customs authorities expressed a less positive view, which reflects 
the  need  to  carefully  assess  the  concrete  functioning  and  impact  of  this  reform  as  the  number  of 
Member States affected by EU minima would increase. Some experts would support a tax that reflects 
affordability but expressed doubts about using purchasing power parity index.   

➢  Cross-border flows  

Strong  consensus  remains  among  all  stakeholders  that  the  EU  tobacco  taxation  policy  should 
contribute  to  reduce  differences  in  taxation  between  Member  States  and  therefore  decrease  any 
incentive to irregular cross-border flows. However, it is also widely recognised as unlikely that EU 
excise harmonisation mechanism based on common minima will harmonise taxation levels soon and 
therefore  will  not  reduce  abuse  of  cross-border  trade  flows  motivated  by  tax  opportunities.  The 
awareness  of  this  structural  limitation  has  led  some  stakeholders  to  imagine  radically  new 
mechanisms for reshaping EU tobacco taxation policy from scratch. These range from introducing 
price capping for cigarettes and other tobacco products, to regional-level weighted average prices, as 
well as restricting the amount of tobacco that can be legally sold at the point of sale. 

Since  cross-border  flows  are  poorly  known  and  measured  with  a  degree  of  approximation,  a 
considerable level of uncertainty remains for Member States authorities about its evolution in the last 
three years. Most respondents concur that cross-border trade has not changed substantially, although 
this  assessment  tends  to prevail  in  countries  openly  admitting  no  change  in  tobacco  affordability. 
While those more active in increasing domestic taxation and curbing domestic affordability, also tend 
to be among those more concerned by a general worsening of cross border flows and are more vocal 
about the need to take action. 

Although many report a lack conclusive data to assess, both tax and customs authorities and public 
health  authorities’  survey  respondents  reported  a  substantially  unchanged  situation  as  to  the 
significance  of  cross-border  flows.  For  the  interviewees,  the  evidence  clearly  indicates  greatly 
increased sales of domestic duty-paid products in regions bordering countries with much lower tax 
and price levels as a result of the COVID-19 enforced travel restrictions. This further supports the 
evidence already gathered in EA 2017 and 2019 studies175, showing price differentials as a major 
driver of cross-border flows. A majority of public consultation respondents also believe this, as they 
maintain that reducing Member States price differentials as key to effectively tackling cross-border 
trade, irrespective of additional administrative measure on travel allowances to further mitigate the 
problem. 

➢  Illicit manufacturing and trade of tobacco products 

A  majority  of  public  consultation  respondents  see  the  need  to  fight  illicit  tobacco  trade  and 
manufacturing  as  a  priority.  There  is  a  notable  increased  consensus  that  the  fight  against  illicit 
manufacturing should include, as a key policy, a better regime for monitoring raw tobacco, including 

175 Economisti Associati ‘Study on Council Directive 2011/64/EU on the structure and rates of excise duty applied to 
manufactured tobacco’, 2017 
Economisti  Associati,  ‘Study  on  Council  Directive  2011/64/EU  on  the  structure  and  rates  of  excise  duty  applied  to 
manufactured tobacco’, 2019 

73 

 
 
 
 
fiscal  sanctions  for  diverting  trade  flows  at  the  origin,  although  major  differences  between 
stakeholders’ groups were noted. In particular, both survey and interviews show a sizeable share of 
industry representatives and some academics remained broadly unpersuaded - also on proportionality 
grounds - that the availability of raw tobacco for illicit production could be dealt with using fiscal 
controls.  They  suggested  the  problem  could  be  better  tackled  using  an  ad  hoc  administrative 
mechanism rather than including raw tobacco in the scope of excise goods. Conversely, enforcement 
practitioners,  tax  and  customs  authorities,  citizens  and  tobacco  control  NGOs  overwhelmingly 
favoured this as practical  and enforceable. Some proposed the  regime be extended to  the tobacco 
plant itself. For those more sceptical, of this approach, it should only be considered at the EU level 
after  a  proper  evaluation  of  Member  States  pilot  experiences.  However,  an  increasing  number  of 
Member  States  have  adopted  this  solution,  including  tobacco  producing  countries  often  over  and 
above the strengthening of their ordinary administrative controls on domestic tobacco agricultural 
production.  These  early  adopters  have  generally  reported  that  implementing  fiscal  monitoring 
measures has been successful in curbing illicit domestic manufacturing, but gaps in monitoring cross-
border trade flows remain. 

The salience of illicit domestic tobacco manufacturing as a source of illicit products in the EU has 
increased  since  the  latest  consultations.  Conversely,  fiscal  and  public  health  authorities  indicate  a 
moderate increase in the availability of illicit products. Nowadays, broad consensus between industry 
representatives and public authorities at EU and national levels could be found in estimating the share 
of  illicit  products  (8  to  11%)  in  the  overall  tobacco  market  in  the  region.  For  specific  products, 
cigarettes remain the most  smuggled and illicitly  manufactured. Member  States most affected are 
those with the highest prices and taxes, although supply factors are also at play. A number of sources 
have  also  agreed  that  illicit  factories  are  usually  close  to  countries  with  high  taxation  levels  and 
markets for which they cater. 

However, while there is broad consensus for fiscal regulation of raw tobacco in the EU and 60 % of 
Member States fiscal authorities consider the poor control of the raw tobacco supply chain as a key 
driver  of  illicit  domestic  manufacturing,  uncertainty  about  the  phenomenon’s  size  remains.  In 
particular, 30% of respondents estimated the share of EU-made (non-domestic) illicit cigarettes of 
seizures at no more than 10%. Finally, for new products (e.g. both e-cigarettes and HTPs), there is 
growing and poorly recognised illicit trade already in place, and this would also threaten to distort 
the  legal  market  and  the  competitiveness  of  the  players  without  a  degree  of  tax  and  price 
harmonisation. 

➢  Incoherent treatment of certain new non-harmonised products 

Stakeholder  consultations  also  confirm  new  products,  in  particular  HTPs  and  e-cigarettes,  while 
progressively gaining traditional tobacco products’ market shares, are not yet fiscally harmonised and 
are  increasingly  seen  as  requiring  attention.  This  is  not  only  because  divergences  in  their  fiscal 
treatment hinder their free circulation in the internal market, but also because a common and more 
stable approach to classification for fiscal reasons is warranted to avoid products expressly designed 
to exploit loopholes and constantly changing definitions to keep up with market developments. This 
would increase legal certainty among market operators and public authorities. 

Diverging  practices  were  confirmed.  A  majority  of  Member  States  tax  HTP  as  non-harmonised 
products, but a sizeable share of Member States treat them as harmonised products. Furthermore, the 
tax base for HTPs also changes with a majority of Member States opting for a per weight approach, 
other ad valorem or per unit criteria have also been reported. There are diverging e-cigarette taxation 
practices. While a vast majority of Member States tax all substances for use in these devices, others 

74 

 
 
restrict taxation to nicotine-containing liquids. Volume of the e-cigarettes liquid is by far the preferred 
tax base, but a few Member States have also introduced specific tax rates for products with a high 
concentration of nicotine.    

A majority of public consultation respondents would like harmonised tax rules and minimum rates 
for HTP. Whether e-cigarettes should be harmonised at EU level remains deeply controversial among 
consumers. However, a number of very similar replies to the public consultation survey specifically 
on this subject were received. As a result, a majority of public consultation respondents, particularly 
among citizens, appear against fiscal harmonisation of e-cigarettes in general, and particularly liquids 
without nicotine. Whether this fiscal harmonisation should be accompanied by a minimum rate at EU 
level is even more controversial. One public health authority replied that this was not its priority. 
Whether to use taxation to discourage e-cigarette uptake or to grant them a privileged tax status as a 
smoking  cessation  tool,  remains  a  hotly  debated  issue  among  public  health  experts.  Although, 
compared to previous studies, the importance attributed to discouraging youth from using e-cigarettes 
and avoiding nicotine addiction appears on the increase. The latter argument is often the rationale 
behind, specifically taxing nicotine content. 

Strongly diverging views remain also for new smokeless products. There is unanimous consensus 
among  tax  and  customs  authorities  for  including  them  in  the  scope  of  the  EU  excise  legislation. 
Although  opinions  then  differ  on  how  best  this  could  be  implemented.  The  public  consultation 
confirms  that,  for  this  category  of  product,  once  product  classification  definitions  are  agreed  and 
clarified,  there  is  no  prevailing  view  on  implementing  a  minimum  EU  tax  among  stakeholders. 
Industry representatives generally consider classification under the same smokeless category of novel 
and traditional products as either inadequate or fiscally inefficient for the wide variety of oral products 
on the market and which generally target different consumers’ groups compared to traditional ones. 

3.  Feedback on specific policy options 

This last section reviews stakeholders’ feedback on proposed policy options for change. These are 
grouped into three areas: (1) increase EU minima and articulate current excise categories; (2) review 
of modalities through which novel products can be harmonised and, finally, (3) the way raw tobacco 
can be included in the scope of the excise system for monitoring and control purposes of related flows 
and not to raise revenues.  According to the Flash Eurobarometer 562 on Citizens’ attitudes towards 
taxation, the highest share (48%) of respondents believes that taxes on tobacco and alcohol are the 
taxes to be raised first if taxes need to be increased to pay for public services.176 

➢ 

Increase of EU minima and excise duty categories 

There appears to be substantial agreement among public consultation respondents that taxation levels 
be adjusted to income differences between Member States, and this was broadly shared by tobacco 
industry  representatives.  Some  industry  stakeholders  underlined  that  attempts  to  equalise  excise 
levels  across  Member  States  in  nominal  terms  will  not  support,  but  work  against,  the  internal 
functioning of the EU single market. Hence, in revising excise duties, it would be important not only 
to adjust the minima according to indicators capable of reflecting the real level of prices and tobacco 
affordability  across  the  EU,  but  also  to  review  excise  levels  as  a  whole.  This  will  prompt  real 
harmonising  and  converging  between  Member  States.  However,  very  few  tax  and  customs 
authorities’ respondents see such a reform having positive impact. The majority do not anticipate any 
major impact. However, a third anticipate it will have a negative impact  on tax convergence with 

176  

Flash Eurobarometer 562 – Citizens’ attitudes towards taxation (2025). Unpublished. 

75 

 
 
 
neighbouring countries or reduce stability in the level of domestic prices and raise risks of market 
disruptions.  Others  even  anticipated  possible  negative  impacts  in  reducing  tobacco  affordability 
where most needed.  

Similar  concerns  voiced  by  some  public  health  experts,  for  whom  implementing  an  income 
equalisation principle could eventually risk running counter to the objective of decreasing tobacco 
affordability  in  lower  income  countries  with  high  smoking  prevalence.  Therefore,  they  called  for 
explicitly including tobacco affordability indicators in the mechanisms to calculate ‘real’ excise levels 
inclusive of local available income considerations or proposed the principle be somehow mitigated 
or weighted by other criteria such as smoking prevalence.  

Some industry interviewees expressed scepticism at the feasibility of this option, claiming that in the 
long run automatic adjustment mechanisms can have the unintended side effect of enforcing too low 
a  minima,  barely  significant  for  the  majority  of  Member  States,  or  excessively  high  ones, 
disproportionately affecting EU countries with the lowest purchasing power parity and disposable 
income, and where the bulk of growth in these parameters can be anticipated.  

Opinions did substantially vary on the proposed revised levels of excise duty minima to be applied to 
conventional tobacco products (cigarettes, fine-cut tobacco, cigars and cigarillos and other smoking 
tobacco) to ensure achieving these tobacco control objectives. In particular, for cigarettes, some tax 
and  customs  authorities’  respondents  would  like  to  see  no  change  in  current  levels  of  fixed  and 
relative  minima  respectively.  This  is  broadly  in  line  with  public  consultation  findings  where  the 
number  of  different  stakeholders  in  favour  of  increasing  the  minima  slightly  exceeds  those  who 
maintain  they  remain  unchanged  or  decrease.  Completely  diverging  opinions  were  reported  in 
interviews with public health experts and tobacco control NGOs. There, it was widely recognised that 
increasing  taxation  of  conventional  tobacco  products  and  closing  tax  differential  gaps  between 
cigarettes  and  other  tobacco  products  were  high  priority  for  achieving  the  objectives  of  Europe’s 
Beating Cancer Plan. 

There was considerable uncertainty identifying appropriate relative minimum rates as a share of the 
weighted average price (WAP), particularly as far as products other than cigarettes were concerned. 
More  than  half  of  tax  and  customs  authorities  respondents  did  not  consider  the  proposed  rates  as 
adequate, or were in no position to state which could be most appropriate to implement. 

While  there  appears  to  be  growing  consensus  among  public  health  experts  in  favour  of  making 
taxation rates equivalent for any single act of consumption irrespective of underlying products, this 
view is not shared by a majority of public consultation respondents. They see a market rationale in 
taxing traditional tobacco products differently. The prevailing view in the public consultation is that 
tobacco products should not necessarily be taxed at equivalent levels. However, there is a degree of 
consensus among all stakeholders and citizens for further bridging the tax gap between cigarettes, 
FCT and cigarillos. However, for cigars and cigarillos, some market operators claimed that increasing 
the minima would have hardly any effect on product substitution trends with cigarettes, as prices are 
already well above cigarettes and consumption habits are different. 

Establishing a separate tax category for cigarillos has not elicited the support of the majority of tax 
and customs authorities’ respondents, while it has for waterpipe tobacco. The need for the latter is 
particularly felt by market operators who claim that the current homogenisation of taxation levels 
with ‘other smoking tobacco’ causes the prices for these products to become disproportionate. This 
opens huge arbitration opportunities for illicit traders to profit. Nevertheless more than half of tax and 
customs  authorities’  respondents  are  in  favour  of  creating  one,  but  maintaining  the  same  minima 
levels as other smoking tobacco. 

76 

 
 
➢  Harmonisation  of  new  products  (liquids  for  e-cigarettes,  HTP,  other  manufactured 

tobacco and related products 

The EU harmonisation of new products, starting with HTP, was generally deemed necessary by all 
stakeholders (survey and interviews). It is expected to bring several benefits, and particularly more 
efficiency in the regulation of these products in the internal market. Inclusion in the excise movement 
and control system (EMCS) should reduce administrative and transaction costs for market operators 
and  allow  Member  States  to  implement  better  tailored  and  efficient  fiscal  policies.  The  risk 
highlighted by some industry stakeholders is that a new tax category, if not accurately defined, may 
create opportunities for ‘borderline’ products, which would exploit any definition ambiguity. Finally, 
tax and customs authorities deem related administrative adaptation costs as negligible or modest. The 
only exception might be represented by the additional costs connected to updating the underlying IT 
system. 

As regards HTP minimum rates, the prevailing view is that they be aligned with those of fine-cut-
tobacco or cigarettes. This is followed by alignment with ‘other smoking tobacco’. Very little support 
was given for aligning EU minima with rates for cigars and cigarillos. Unsurprisingly, public health 
experts unanimously supported HTP that the taxation being fully aligned with cigarettes. In the public 
consultation,  where  consumers  were  overrepresented,  the  clear  preference  was  for  taxation  to  be 
similar to the FCT rate, not cigarettes. 

A  similar  degree  of  consensus  exists  concerning  EU  level  harmonising  of  e-cigarettes  and  an 
overwhelming  majority  of  tax  and  customs  authorities  would  also  include  nicotine-free  products. 
Respondents from companies qualifying as SMEs (394) supported the harmonisation of e-cigarette 
liquids containing nicotine at 57% (64% of medium-sized companies, 65% of small-sized companies, 
54%  of  micro-sized  companies),  and  not  containing  nicotine  at  46%  (40%  of  medium-sized 
companies,  52% of small-sized companies,  44%  of micro-sized  companies). A majority of public 
consultation respondents were also in favour of including cannabidiol-based products, if they were 
expressly for smoking. The rationale behind taxing nicotine-free liquids was variously to: 1) avoid 
encouraging illicit trade of pure nicotine; 2) eliminate fiscal incentives for consumer ‘do-it-yourself’ 
behaviour  and  3)  simplify  the  classification  burden  on  national  administrations  caused  by  tax 
exemption  of  nicotine-free  products.  There  was  a  general  concern  about  fiscal  harmonisation 
encouraging  consumers to  switch to  ‘do-it-yourself’ products.  Member States tax authorities have 
generally  deemed  administrative  adaptation  costs  as  negligible,  modest  or  moderate.  These  are, 
however expected to be higher than those for HTP on average because of different underlying market 
structures that are more fragmented and complex to monitor and manage. 

The  prevailing  view  on  minima  for  e-cigarettes  converged  around  the  minimum  common 
denominator of some EUR 0.10 per ml, while both higher EUR 0.30 per ml rates and the zero rate 
option elicited less support. In the public consultation where e-cigarette consumers were, however, 
overrepresented, respondents preferred the zero minimum rate option, closely followed by the EUR 
0.10 per ml option, while the EUR 0.30/ml value was preferred by a very small subset of stakeholders. 
45% of the companies qualifying as SMEs expressed a preference for the EUR 0.10 per ml option 
(36% of medium-sized companies, 56% of small-sized companies, 43% of micro-sized companies), 
while 40% of them preferred no taxation at all (48% of medium-sized companies, 29% of small-sized 
companies,  42% of micro-sized companies). Economic operators emphasised setting  adequate tax 
levels, to ensure fair market competition, without destroying it with exceedingly high excise rates, 
which  would  enhance  cross-border  flows  from  extra-EU  countries,  smuggling  and  tax  avoidance 
practices. 

77 

 
 
Finally,  tax  and  customs  authorities  had  strong  consensus  for  harmonising  and  bringing  new  oral 
products within the scope of the EU excise legislation. The consensus varies across products from 
almost unanimous for nicotine pouches and other oral products containing nicotine but not tobacco. 
Conversely, only a few Member States deem it important to introduce other oral tobacco products 
(e.g. ‘snus’) within the EU excise legislation. Tobacco for oral use cannot be commercialised legally 
in  any  Member  State  other  than  Sweden  according  to  the  Article  17  of  the  Tobacco  Products 
Directive.  As  already  noted  with  e-cigarettes  most  consumer  respondents  replying  to  the  public 
consultation voiced their opposition to fiscally harmonising and creating EU minima on these goods. 
Finally, as mentioned, the tax and customs authorities survey also shows a lack of agreement on the 
best  method  of  including  these  products  in  a  new  EU  excise  regime,  since  neither  the  option  of 
creating a comprehensive excise category covering all relevant smokeless products containing or not 
nicotine nor that of creating a separate excise subcategory to distinguish between tobacco-containing 
and free-products had a clear consensus. 

There were a number of different opinions on adequate levels of minimum rates for other smokeless 
products. Tax and customs authorities respondents were split into three roughly equal groups: those 
who believe that  the proposed minima should be commensurate to  FCT,  those who benchmarked 
HTP  and  finally  those  who  would  set  equal  tax  levels  for  liquids  and  e-cigarettes.  The  public 
consultation  confirmed  that  respondents  either  proposed  a  minimum  rate corresponding  to  that  of 
HTP; or proposed no minimum tax at all. A sizeable share, however, admitted to having no idea of 
what should be an efficient rate. 

Many  stakeholders  reiterated  the  importance  of  defining  newly  introduced  categories  with  a  high 
degree of flexibility, to accommodate new products that could be developed and be consumed by 
means other than oral. Furthermore, for a tax base, the ‘per weight’ approach is seen as most adequate, 
and for avoiding revenue losses due to unpredictable market developments. Finally, it is worth also 
mentioning that there were dissenting voices among industry stakeholders claiming that harmonising 
smokeless products as a whole was unnecessary because: 1) its negligible market share would lead 
to higher administrative and collecting costs for Member States than revenue collected and 2) the 
category is composed of so many product varieties that including all in one will be inaccurate and 
inefficient from a normative and fiscal perspective. 

➢  Inclusion of raw tobacco among excisable goods 

Including raw tobacco in the scope of excisable goods was supported by a large majority of tax and 
customs authorities’ respondents. A definition of raw tobacco for fiscal monitoring purposes should 
be as broad  as  possible and include:  1) non-processed leaf tobacco;  2)  first-processed tobacco;  3) 
tobacco  refuse  and  4)  homogenised  /  reconstituted  tobacco.  This  is  in  line  with  reported  growing 
trends  towards  a  comprehensive  domestic  fiscal  regulation  of  these  products,  complementing  and 
supplementing  the  agricultural  regulation  in  tobacco  producing  countries.  There  are  just  a  few 
Member States where raw tobacco is not currently regulated either as an agricultural product or a 
fiscal good. One Member State reportedly regulated raw tobacco in its health legislation. 

Hence, most tax and customs authorities (75%) confirmed that they would be in favour of extending 
the same monitoring and control obligations that apply to conventional harmonised tobacco products 
to raw tobacco, but without imposing a positive rate. Almost all Member States would be in favour 
of  imposing  a  zero  rate  on  raw  tobacco.  This  is  mainly  expected  to  deter  illicit  manufacturing 
activities. Over the last three years, seizures of raw tobacco increased in 8 Member States, of which 
for 3 significantly and, no Member State reported a decrease in seizures. 

78 

 
 
Public consultation findings confirm high levels of consensus, with more than two third in favour of 
the harmonised monitoring of raw tobacco movements through EMCS, to curb illicit manufacturing. 
This is higher than those favouring other administrative approaches over EMCS. 

For  implementation,  many  support  registering  and  authorising  operators  as  the  most  stringent 
requirement. Other desired features frequently mentioned include: adding administrative sanctions, 
followed by suspending or withdrawing infringement authorisation, criminal sanctions and, lastly, 
product seizures. In terms of effectiveness, the majority of Member States believe that if obligations 
mentioned are included in the EU excise system; with adequate monitoring and control measures, 
they will prove beneficial in dealing with illicit trade. 

Harmonising raw tobacco is expected to lead to additional administrative and enforcement costs for 
tax administrations, but these were deemed moderate in magnitude. Stronger resistance was voiced 
by  industry  stakeholders  claiming  possible  significant  operational  costs  connected  to  raw  tobacco 
harmonisation, even when in favour of it. Particular concerns were voiced by logistic operators, for 
which a transaction-based system would significantly increase costs and reduce competitiveness, due 
to the huge amounts of raw tobacco currently stored and moved across the EU (including tobacco not 
destined for the EU market). Another frequently-voiced concern regards  change in weight of raw 
tobacco during processing and storage operations, which would require complicated and burdensome 
reconciling in record-keeping and excise duty liability risks. Finally, in particular for the EMCS, some 
economic operators were sceptical about the effectiveness of these measures in tackling illicit flows 
of raw tobacco, as smugglers would never comply. 

This  would  therefore  result  in  imposing  additional  administrative  costs  only  on  legal  economic 
operators,  thereby  harming  their  market  competitiveness  and  further  enhancing  illegal  players’ 
advantages. 

79 

 
 
 
ANNEX 3: WHO IS AFFECTED AND HOW? 

1.  Practical implications of the initiative 

This initiative affects national authorities. On the one hand, it would incur costs related to the update 
of  national  IT  systems.  On  the  other  hand,  they  would  benefit  from  cost  reduction  due  to 
harmonisation, legal certainty, and public health improvement in the long run. 

This  initiative  affects  a  wide  range  of  economic  operators.  It  would  incur  compliance  and 
administrative  costs  for  those  involved  in  manufacturing,  holding  and  movement  of  traditional 
tobacco products and new products, as well as raw tobacco processors and traders. 

On  the  other  hand,  this  initiative  would  reduce  the  legal  uncertainties  that  currently  exist  and 
competitive distortions between economic operators involved in cross-border trade. 

Most  of  the  economic  operators  affected  by  this  initiative  are  large  companies.  However,  the 
introduction  of  new  products  in  the  scope  of  the  Directive  is  expected  to  affect  mainly  SMEs 
(especially in liquids for e-cigarettes sector). 

Finally,  EU  citizens  are  affected  by  this  initiative,  in  terms  of  tobacco  product  price  increase  for 
consumers, while benefitting from public health improvement and related costs savings. 

2.  Summary of costs and benefits 

The tables here below summarise the costs and benefits (in million euros) of the options under each 
policy area and of the preferred option. 

First area: revision of the minimum rates for traditional tobacco products 

I. Overview of Benefits (million euros)– Preferred Option 

Description 

Amount 

Direct benefits 

Comments 

Healthcare  and 
costs savings 

social 

85 000 

Preferable option is conducive to meeting 
a  long  term  Europe’s  Beating  Cancer 
Plan’s target of creating a ‘Tobacco-Free 
Generation’,  where  less  than  5%  of  the 
population will use tobacco by 2040. The 
smoking  prevalence*  (aged  15+)  would 
drop  to  20.8%  from  the  current  24%.  In 
the  above  projections  of 
line  with 
smoking prevalence, the preferable option 
would  lead  healthcare  costs  savings  for 
national authorities which include (1) the 
expenses incurred because of the illnesses 
caused by smoking; (2) the value of lost 
production  because  of  reduced  working 
time;  (3)  early  mortality  from  smoking-
related diseases;  (4) productivity losses. 

Excise duty revenue 

14 000 

Environmental impact 

Indirect benefits 

Reduction in CO2 emissions by 4-12 Mt, water 
depletion by 1,100-3,100 Mt, and solid waste 
by 1.2-3.5 Mt.        

80 

Reduction 
associated  with 

in  environmental 
the 

reduction 

impacts  
in 

 
 
 
Note:*  One-off  impact  from  smoking  prevalence  value  24%  (2023),  i.e.  directly  attributable  to  EU  minima  revision. 
Impact on smoking prevalence calculated assuming the reduction in the demand for tobacco equal to the reduction in 
sales volume. 

First area: revision of the minimum rates for traditional tobacco products 
II. Overview of costs - Preferred option 

consumption  associated  to  increased  EU 
minima for traditional tobacco products. 

Description 

Amount 

Comments 

For citizens: 

Very low 

- impact on inflation 

For  businesses  (market 
sales) 

Decline in market sales: 

The  increase  of  price  of  tobacco  products  would 
contribute in a limited way to inflation dynamics.  

Cigarettes: - 14% 

FCT: - 9% 

Cigarillos: - 13% 

Cigars: - 5% 

OST: -12% 

First area: revision of the minimum rates for traditional tobacco products 
III. Application of the ‘one in, one out’ approach - Preferred option 

One-off 

Recurrent 

Total 

[M€] 

(annualised total net present 
value over the relevant 
period) 

(nominal values per year) 

Businesses 

New administrative 
burdens (INs) 

Removed 
administrative burdens 
(OUTs) 

0 

0 

Net administrative 
burdens* 

Adjustment costs** 

Citizens 

0 

0 

0 

0 

81 

0 

0 

0 

0 

0 

 
 
 
 
 
 
 
 
 
New administrative 
burdens (INs) 

Removed 
administrative burdens 
(OUTs) 

Net administrative 
burdens* 

Adjustment costs** 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

Total administrative 
burdens*** 

The increase of EU minima would not impact administrative costs for business and 
Member States. 

(*) Net administrative burdens = INs – OUTs;  
(**) Adjustment costs falling under the scope of the OIOO approach are the same as reported in Table 2 above. Non-
annualised values;  
(***) Total administrative burdens = Net administrative burdens for businesses + net administrative burdens for citizens. 

Second area: introduction in the scope of the Directive of e-cigarettes liquids, heated tobacco products (HTP), 
other manufactured tobacco and related products (million euros) 
I. Overview of Benefits – Preferred Option 

Description 

Amount 

Direct benefits 

Comments 

Tax  revenues 
for 
new 
products 

HTP 

Liquids 
cigarettes 

for 

e-

Other products 

4 100 

530 

290 

Introduction  excise  duty  rates  for  new 
products will lead to increase of revenue 
EUR    4  920  million  under  preferred 
option 

Reduction of tax evasion and fraud  Introduction  of  holding,  movement 
and  control  requirements  for  new 
products and will improve monitoring 
of cross-border movements. 

Less scope for tax evasion and avoidance.    

Impact  on  market,  competition 
and SMEs  

Potentially lower substitution between traditional tobacco and new products will 
lead to less market and competition distortions.  

Indirect benefits  

Harmonisation of taxation of new products will improve market integration and 
monitoring of market trends.  Economic operators who are currently compliant 
with the tax rules will benefit from ensuring their competitors also pay their fair 
share. Greater transparency and legal certainty may result in fairer competition 
the  ease  of  doing  business  cross-border.  The  proposed 
and 
harmonisation for new products would help establish a level playing field, whose 
benefits will be mostly reaped by small players. 

improve 

82 

 
 
 
 
 
Public  health,  and  healthcare 
system   

Harmonised taxation of new products 
will  reduce  affordability,  benefitting 
especially young people. 

higher 

Introduction excise duty rates for new 
for 
products, 
traditional  tobacco  product  will  lead 
to  potentially  lower  substitutability, 
cross-border flows and affordability. 

excises 

The  debate  on  the  health  risks  of  these 
products  continues  to  advance  and  it  is 
currently  not  possible  to  provide  an 
overall  detailed  picture.    The  impacts  of 
proposed harmonisation of excise duty for 
new products are coherent with the policy 
recommendations  issued  by  WHO,  and 
more  generally  by 
public  health 
authorities. 

Second area: introduction in the scope of the Directive of e-cigarettes liquids, heated tobacco products (HTP), 
other manufactured tobacco and related products (million euros) 
II. Overview of costs – Preferred option 

Citizens/Consumers 

Businesses 

Administrations 

One-off 

Recurrent 

One-off 

Recurrent 

One-off  Recurrent 

Registrati
on  in  the 
excise 
system 

Direct 
adjustment costs 

Direct 
administrative 
costs 

- 

- 

- 

- 

0.5 

0.2 

than 

Less 
0.1 

Citizens/Consumers 

Businesses 

Administrations 

One-off 

Recurrent 

One-off 

Recurrent 

One-off  Recurrent 

Set 
up/operat
e 
warehous
e 

Direct 
adjustment costs 

Direct 
administrative 
costs 

9.1 

1.0 

Citizens/Consumers 

Businesses 

Administrations 

One-off 

Recurrent 

One-off 

Recurrent 

One-off  Recurrent 

Obligatio
ns  related 
to 
the 
EMCS 

Direct 
adjustment costs 

Direct 
administrative 
costs 

- 

- 

- 

- 

4.4 

9.6 

0.92 

0.5 

Description 

Amount 

Comments 

For  businesses 
sales)  

(market 

Decline in market sales of HTP: - 27% 

Note: No direct regulatory fees and charges, no direct enforcement and no indirect costs are anticipated. 

83 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Second area: introduction in the scope of the Directive of e-cigarettes liquids, heated tobacco products (HTP), 
other manufactured tobacco and related products (million euros) 
III. Application of the ‘one in, one out’ approach – Preferred option 

One-off 

Recurrent 

Total 

[M€] 

(annualised total net present 
value over the relevant 
period) 

(nominal values per year) 

Businesses 

New administrative 
burdens (INs) 

Removed 
administrative burdens 
(OUTs) 

Net administrative 
burdens* 

0.5 

0 

0.5 

Adjustment costs** 

9.1 

Total administrative 
burdens*** 

0.5 

1.9 

0 

1.9 

4.4 

1.9 

2.4 

0 

2.4 

2.4 

(*) Net administrative burdens = INs – OUTs; 
(**) Adjustment costs falling under the scope of the OIOO approach are the same as reported in Table 2 above. Non-
annualised values; 
(***) Total administrative burdens = Net administrative burdens for businesses + net administrative burdens for citizens. 

Third area: introduction in the scope of the Directive of raw tobacco (million euros) 

I. Overview of Benefits - Preferred option 

Description 

Amount 

Comments 

Tax revenues 

Direct benefits 

1 300 

Reduction of tax evasion and fraud  The proposed measure could translate 
into recovering about 10% of current 
excise fraud. 

Reduction in foregone tax revenues due to 
new category for raw tobacco 

Introduction  of  holding,  movement  and 
control requirements for raw tobacco will 
improve  monitoring  of  cross-border 
movements of tobacco products.  

Indirect benefits  

Public  health,  and  healthcare 
system   

It  is  expected  to  decrease  health  inequalities  in  implementing  tobacco  control 
policies, as it will increase the effectiveness of tobacco control measures on the 
layers of the population more sensitive to income constraints and for which they 
risk being less effective. Also, it would reduce availability of low-price  illegal 
products. 

84 

 
 
 
 
Impact  on  market,  competition 
and SMEs 

Introduction  of  control  requirements  EU  level  for  raw  tobacco  would  increase 
their 
administrative  and  adjustment  costs  for  operators, 
competitiveness,  although  many  businesses  operating  in  these  segments  are 
already compliant with EU requirements or similar requirements at national level. 
At the same time  the availability of illicit tobacco and tobacco products in the 
market could be reduced so that legal players will experience lower competitive 
pressure from the illegal value chain. 

thus  reducing 

Third area: introduction in the scope of the Directive of raw tobacco 
II. Overview of costs – Preferred option (million euro) 

Citizens/Consumers 

Businesses 

Administrations 

One-off 

Recurrent 

One-off 

Recurrent 

One-off 

Recurrent 

Direct 
adjustment costs 

- 

Registrati
on  in  the 
excise 
system  

Direct 
administrative 
costs 

Obligatio
ns  related 
to 
the 
EMCS 

Direct 
adjustment costs 

Direct 
administrative 
costs 

- 

- 

- 

- 

- 

- 

0.1 

- 

- 

- 

- 

0.1 

 Less 
0.05 

than 

Citizens/Consumers 

Businesses 

Administrations 

One-off 

Recurrent 

One-off 

Recurrent 

One-off 

Recurrent 

- 

- 

- 

0.2 

0.07 

9.7 

- 

1.3 

0.7 

Note: No direct regulatory fees and charges, no direct enforcement and no indirect costs are anticipated. 
Under the zero-rate option, operators are assumed to opt for the duty-paid procedure instead of the duty suspension and 
would therefore not be compelled to set up a tax warehouse.  

Third area: introduction in the scope of the Directive of raw tobacco 
III. Application of the ‘one in, one out’ approach – Preferred option 

One-off 

Recurrent 

Total 

[M€] 

(annualised total net present 
value over the relevant 
period) 

(nominal values per year) 

Businesses 

New administrative 
burdens (INs) 

Removed 
administrative burdens 
(OUTs) 

0.1 

0 

1.3 

0 

85 

1.4 

0 

 
 
 
 
 
 
 
 
 
 
 
 
Net administrative 
burdens* 

0.1 

Adjustment costs** 

0 

Total administrative 
burdens*** 

0.1 

0.1 

0.7 

0.1 

1.4 

1.4 

(*) Net administrative burdens = INs – OUTs;  
(**) Adjustment costs falling under the scope of the OIOO approach are the same as reported in Table 2 above. Non-
annualised values;  
(***) Total administrative burdens = Net administrative burdens for businesses + net administrative burdens for citizens. 
Note: no administrative burdens are anticipated for citizens.  

Application  of  the  general  excise  arrangements  obligations  under  Horizontal  Directive  for  new 
products and raw tobacco will lead to not significant increase of burden for Member States authorities, 
likely  offset  by  the legal  and  administrative  benefits  of  harmonisation  and  reduction  in  tax  fraud. 
Increase of regulatory burdens it is anticipated for economic operators, which can occasionally be 
significant for smaller, EU-based operators. The bulk of additional costs would regard the e-cigarettes 
liquids  segment,  since  HTP  operators  can  be  considered  already  compliant  with  the  majority  of 
obligations  (as  this  segment  consists  exclusively  of  transnational  tobacco  companies,  and  ‘other 
manufactured  tobacco  segment  (including  related  products)’  is  small  and  largely  controlled  by 
transnational tobacco companies (especially the nicotine pouch segment). 

In the case of raw tobacco, costs are very depending on the volume of cross-border transactions and 
on Member State-level implementation rules177. 

3.  Relevant sustainable development goals 

IV. Overview of relevant Sustainable Development Goals – Preferred Option(s) 
Relevant SDG 

Expected progress towards the Goal 

Comments 

A  reduction  in  tobacco  consumption  will 
reduce  incentives  to  grow  tobacco,  allowing 
land  currently  for  tobacco  cultivation  to  be 
sustainable 
productive 
used 
agriculture,  contributing 
food 
security. 

and 
to  greater 

for 

SDG No 2. Zero hunger 

- No 2.4: By 2030, ensure 
food 
sustainable 
production  systems  and 
implement 
resilient 
agricultural  practices  that 
increase  productivity  and 
production, 
help 
maintain  ecosystems,  that 
for 
strengthen  capacity 
adaptation 
climate 
change,  extreme  weather, 
drought, 
and 
other  disasters  and  that 

flooding 

that 

to 

177 Operator’s choices would also be influenced by other factors, which could not be considered in the simulation model, 
and relate for instance to individual operator’s capacity, size and type of operations, local business environment, etc. The 
calculations of costs are based on how the EU raw tobacco sector is currently composed and structured but the simulations 
provided refer to the current situation, as it is not feasible to predict how players, practices and flows would change as a 
consequence of the reform (e.g. shift toward shorter / domestic supply chains, storage at farm level, recourse to offshore 
processing, establishment of storing facilities outside of the EU, and, possibly, reliance on non-EU raw tobacco etc.). 

86 

 
 
 
 
 
progressively 
land and soil quality. 

improve 

SDG  No  3.  Good  health 
and well-being. 

-  No  3.a:  Strengthen  the 
implementation  of 
the 
WHO 
Framework 
Convention  on  Tobacco 
Control in all countries. 

SDG  No  6.  Clean  water 
and sanitation 

-  No  6.4:  By  2030, 
substantially 
increase 
water-use efficiency across 
all  sectors  and  ensure 
sustainable  withdrawals 
and supply of freshwater to 
address water scarcity and 
the 
substantially 
number of people suffering 
from water scarcity. 

reduce 

SDG No 7. Affordable and 
clean energy 

SDG  No  8.  Decent  work 
and economic growth 

Improve 
-  No 
8.4: 
through 
progressively, 
resource 
global 
2030, 
efficiency  in  consumption 
and 
and 
production 
to  decouple 
endeavour 
economic  growth 
from 
environmental 
degradation, in accordance 
with 
10-year 
framework of programmes 
sustainable 
on 
and 
consumption 
with 
production, 

the 

Expected reduction in the smoking prevalence 
among the general population (ages 15+) from 
approximately 24% today to 20.8 %.   

Reduced  tobacco  consumption  leads  to 
benefits  for  Member  States.  Due  to  the 
reduction  in  tobacco  consumption  from 
24%  today  to  20.8%  the  public  health 
benefits  would  amount  to  approximately 
EUR    85  billion  in  social  costs  savings 
(EUR  6  billion  savings  in  healthcare 
costs; EUR 77 billion   savings related to 
value  of  years  of  life  loss  and  EUR  2 
billion  savings  related  to  productivity 
losses). 

Reduced  consumption  of  new  products 
will bring public health benefits that can 
be  considered  proportional 
the 
to 
expected reduction in consumption. 

A  reduction  in  tobacco  consumption  will 
consequentially  reduce  the  water  required  to 
grow  the  plants.  It  might  reduce  water 
depletion by 1 00-3 100 Mt.        

A  reduction  in  tobacco  consumption  will 
consequentially  reduce  tobacco  cultivation, 
manufacturing,  and  distribution,  all  of  which 
activities consume energy.   

Apart from the  negative health consequences 
arising  from  the  consumption  of  tobacco,  its 
production cycle requires the use of pesticides, 
land,  water  and  energy,  and  generates  post-
consumption  waste.  A  reduction  in  tobacco 
to  reduce 
consumption  can  be  expected 
incentives  to  produce  tobacco,  so  reducing 
environmental degradation. 

87 

 
 
 
 
 
 
 
 
 
Tobacco  smoking  results  in  high  local 
concentrations of pollution and also make 
a measurable contribution  to ambient  air 
pollution within a city. 

developed countries taking 
the lead. 

SDG  No  10.  Reduced 
inequality 

- No 10.4: Adopt policies, 
especially fiscal, wage and 
social  protection  policies, 
and  progressively  achieve 
greater equality. 

increases, 

As  low-income  groups  are  more  sensitive  to 
price 
the  health,  social  and 
economic  benefits  of  higher  taxes  –  fewer 
people starting to smoke and more quitting – 
accrue much more to these groups. 

SDG  No  11.  Sustainable 
cities and communities 

A  reduction  in  tobacco  consumption  will 
reduce the adverse impact of tobacco smoking 
on air quality. 

- No 11.6: By 2030, reduce 
the  adverse  per  capita 
environmental  impact  of 
cities, including by paying 
special  attention 
to  air 
quality  and  municipal  and 
other waste management. 

SDG  No  12.  Responsible 
production 
and 
consumption. 

SDG  No  13.  Climate 
action. 

SDG  No  14.  Life  Below 
Water. 

-  No  14.1:  By  2025, 
prevent  and  significantly 
reduce marine pollution of 
all kinds, in particular from 
land-based 
activities, 
including  marine  debris 
and nutrient pollution. 

Any reduction in tobacco consumption can be 
expected to have consequences, as incentives 
to  grow  tobacco  will  decrease.  This  reduces 
the use of pesticides, the need for surface water 
for  agriculture,  the  need  for  energy  and  the 
CO2 footprint. In terms of production, reduced 
tobacco consumption not only reduces energy 
demand and CO2 emissions, but also reduces 
the  need  for  transport,  packaging,  reduces 
paper  consumption  and  thus  deforestation, 
reduces  wastewater  emissions  and  post-
consumption  waste,  in  particular  litter  from 
cigarette  butts.  Finally,  reduced  consumption 
brings  reduced  contribution  to  outdoor  air 
pollution. 

use 

SDG  No  15.  Protect, 
promote 
restore 
and 
of 
sustainable 
ecosystems, 
terrestrial 
manage 
sustainably 
forests, 
combat 
desertification,  and  halt 
land 
and 
reverse 
degradation 
halt 
biodiversity loss. 

and 

88 

 
 
 
 
No 

17. 
SDG 
17.1. 
Partnerships. 
domestic 
Strengthen 
resource 
mobilisation 
<…> to improve domestic 
capacity  for  tax  and  other 
revenue collection. 

Due  to  improved  excise  administration  a 
reduction in fraud and tax evasion is expected.   

Due to the introduction of movement and 
control requirements under the Horizontal 
Directive: 
-  recovery  of  about  10%  of  current  tax 
fraud  in  illicit  sales  of  manufactured 
tobacco; 
- improved excise duty collection from e-
cigarettes liquids178.  

178 Only  about  one-fifth of the theoretical tax is actually collected (theoretical  – EUR 230 million, factual  – EUR 35 
million).  

89 

 
 
 
 
 
 
 
ANNEX 4: ANALYTICAL METHODS 

1. 

Introduction 

An  External  study179  was  undertaken  by  the  contractor  to  support  the  impact  assessment  for  the 
revision of the Directive.  More particularly, due to notable changes in the market – i.e. the decline 
of  traditional  products,  increasingly  replaced  by  new  products,  including  the  rapidly  emerging 
nicotine pouches market – and in the fiscal legislation applied in Member States – i.e. the adoption 
of non-harmonised taxes in a growing number of countries, the update of the EA 2021 study was 
necessary. To ensure methodological continuity and coherence the updated results as presented in the 
EA  2025  study  followed  the  same  approach  (where  feasible)  as  in  the  EA  2021  study  by  only 
extending the analysis to new evidence, i.e. market or policy evolutions occurred in the 2020-2024 
period. The stakeholder consultations and the case studies carried out in 2021 were not repeated. 

However, in the following cases the methodology used has been expanded: 

▪  In  addition  to  the  standard  methodology  used  previously,  an  alternative  approach  has  been 
introduced for impact analysis in the area of new products. This approach regards in particular 
the ‘pass-through’ factor applied in the impact simulation model – i.e. the extent of tax increase 
that  would  be  passed  on  to  retail  prices.  Indeed,  for  these  products,  the  standard  simulation 
model returned estimates indicating unrealistic market effects in some Member States, whereas 
experience from Member States where similar tax measures were introduced recently shows 
that  segment  specific  price  and  demand  dynamics  should  be  accounted  for.  Alternative 
assumptions have therefore been developed, based on the empirical  evidence – see section 8 
for  more  details.  These  estimates  are  presented  in  the  impact  analysis,  while  the  estimates 
derived from the standard methodology are presented in ANNEX 17 section 3.1. 

▪  Another area where some departure from the previous methodological setting was envisaged 
regards the estimation of cross-border flows. On this topic, issues not covered previously (new 
products) were investigated and sources not available before (e.g. national household budget 
survey data, studies on the impact of COVID-19 restrictions on cross-border flows etc.) were 
exploited. 

The methodological approach for the revised and new EU minima and the respective impacts took 
into account the evolution of the Harmonised Index of Consumer Prices (HICP) that occurred in the 
period 2021-2024, namely an increase by 19.2%. 

Regarding estimation on cross-border flows see ANNEX 8: dedicated to this topic. 

2.  Data collection 

The following Table A4-1 provides an updated overview of the main data and sources that have been 
used: (1) excise duty rates and structures; (2) tax revenues; (3) market size data; (4) price levels and 

179 The EA 2021 study involved an extensive consultation of relevant stakeholders, including Member States tax, public 
health  authorities;  economic  operators  and  their  organisations;  tobacco  control  experts;  and  the  general  public  (as 
presented in ANNEX 2:). In addition to comprehensive data from various sources, the desk work involved a substantial 
review of literature and documentary sources, market and sectoral analyses, and scientific literature on tobacco economics 
and tobacco control policies. Finally, findings of the five ‘case studies’ carried out in 2021 on specific thematic aspects 
were used where relevant. Finally, five ‘case studies’ on specific thematic aspects are presented. The purpose of the case 
studies was primarily to collect concrete evidence on the national measures in place and assess their effectiveness and 
efficiency for the design of the EU policy in the most revealing problem areas. 

90 

 
 
 
affordability; (5) unrecorded tobacco consumption; (6) raw tobacco; (7) consumption data; (8) public 
health impact data. 

Table A4-1. Data sources 
Data  
Excise 
rates 
structures 

duty 
and 

Main sources 
Data collected from the Taxes in Europe Database (TEDB)180 and complemented 
by information on tax regimes applied to non-harmonised products provided by 
Member States authorities either through the call for data or a survey of Member 
States authorities carried out in June 2024.181 
Same  sources  as  above.  To  ensure  consistency,  the  baseline  values  of  tax 
revenues used in the impact simulation model have been reconstructed (based on 
volume sales and applicable rates).  
The main sources used include: (1) RFC published on TEDB; (2) market data 
published  by  Euromonitor  International182,  and  (3)  other  specific  estimates 
gathered through the ‘call for data’.   
Price  levels  data  come  from  the  same  sources  of  the  previous  point,  with  the 
addition of TEDB for data on WAP (where available). Relative income price (i.e. 
measure of affordability) has been estimated used Eurostat’s GDP per capita data. 
Based  on  triangulation  of  sources  (since  there  are  no  official  data  available), 
including: (1) seizure data provided by the European Commission and Member 
States; (2) consumer survey data, i.e. Eurobarometer and national surveys; (3) 
third-party modelled estimates, i.e. Euromonitor International and KPMG; (4) a 
review of scientific papers published on this subject and  (5) the estimation model 
applied by the contractor.183 
Based  on 
information  collected 
complemented by inputs from the call for data. 
The main sources used were the Eurobarometer survey (various editions) and the 
Global Burden of Disease data published by IHME.184 Where relevant, this has 
been  complemented by  estimates  and data  collected from Eurostat, WHO  and 
stakeholders  (through  the  ‘call  for  data’),  as  well  as  by  relevant  scientific 
literature.185 
Various  Eurostat-sourced  indicators  and  data  on  sociodemographic  trends, 
Member States’ macroeconomic variables, purchasing power parities, etc.  

through  Eurostat  (Prodcom,  Comext), 

Tax revenues 

Market 
data 

size 

Price levels and 
affordability 

Unrecorded 
tobacco 
consumption 

Raw tobacco 

Consumption 
and 
health 
data 

Public 
impact 

Other economic 
and statistics 

180 In accordance with Commission Implementing Decision of 28 July 2011, concerning statistical data to be provided by 
the Member States  pursuant to Directives 92/79/EEC and 92/80/EEC 
181  Survey  ‘Taxation  of  liquids  for  electronic  cigarettes,  heated  tobacco  and  other  modern  oral  products’,  June  2024 
(unpublished). 
182 The Euromonitor’s coverage of tobacco and related market has substantially improved over time.  The use of a single 
source also enhanced the consistency of estimates across market segments and product categories. Regarding data the 
following  disclaimer  apply:  “While  every  attempt  has  been  made  to  ensure  accuracy  and  reliability,  Euromonitor 
International cannot be held responsible for omissions or errors of historic figures or analyses”.  
183 External study.  
184 See: https://www.healthdata.org/research-analysis/gbd.  
185 For instance, Dean T Jamison et al., Global health 2050: the path to halving premature death by mid-century, the 
Lancet, Volume 404, Issue 10462, p1561-1614October 19, 2024.   

91 

 
 
 
 
3.  Desk research 

The results of the External study are also based on desk review activities which involved the mapping 
and  review  of  various  types  of  documents,  such  as  legal  frameworks  (Directive,  the  Horizontal 
Directive and other EU excise legislation), policy documents (the public health policy framework, 
the policy framework concerning the fight against illicit trade of tobacco and fraud, relevant customs 
administrative  framework  and  etc.),  CJEU  jurisprudence,  market  and  consumption  reports  and 
surveys, reports, studies (including PwC PricewaterhouseCoopers LLP, ‘Study assessing articles 32 
and  36  of  Council  Directive  2008/118/EC  concerning  the  general  arrangements  for  excise  duty’, 
2020186), research papers, scientific and grey literature both published and unpublished. Desk research 
also includes more recent documentary sources (see Table A4-2). 

Table A4-2. Documentary sources 
Category 

Sources  

policy 

EU 
and 
regulatory 
frameworks 

International 
sources 

Policy 
frameworks 
in  Member 
States 

Other 
sources 

EU tobacco control policy, including the Tobacco Products Directive and the reports 
and studies produced in the context of the evaluation of the legislative framework for 
tobacco control.187 
Internal  documents  produced  by  the  European  Commission  on  this  subject 
(unpublished).   
The  WHO  Framework  Convention  on  Tobacco  Control  (FCTC),  and  related 
documents from  most recent  Conference of the  Parties (COP) sessions,  i.e. the 9th 
(2021)  and  the  10th  (2023)  sessions,  as  well  as  related  implementation  database, 
global progress reports, and other WHO background work. 
FCTC  Protocol  to  Eliminate  Illicit  Trade in  Tobacco Products,  and the documents 
related to the Third Session of the Meeting of the Parties (MOP3) that took place in 
Panama in February 2024.188 
Review of selected policies and measures put in place by Member States to tackle 
ITTP,  cross-border  shopping,  and  practices  undermining  national  tobacco  control 
policies, including studies and reports on their implementation and impact.  
Review  of  selected  policies  and  measures  put  in  place  by  Member  States  for  the 
taxation and monitoring of new products, including Member States presentation made 
at the Fiscalis 2024 Workshop on the taxation of new products and survey of Member 
States authorities carried out in June 2024 results on this topic.   
Report, studies and other documents on unrecorded tobacco issued by EU entities – 
such as EMPACT189 reports, and documents from the European Commission expert 
group on the Fight against Illicit Trade in Tobacco.  
Recent publications on modelling and analysing tobacco market dynamics, especially 
on new products.  
Recent publications on trends and factors underlying demand for tobacco products 
and smoking prevalence, including the relative impact of taxation and other tobacco 

186 Study assessing articles 32 and 36 of Council Directive 2008/118/EC concerning the general arrangements for excise 
duty - Publications Office of the EU 
187 Evaluation of the legislative framework for tobacco control - European Commission 
188 Third Session of the Meeting of the Parties 
189 The European Multidisciplinary Platform Against Criminal Threats.  

92 

 
 
 
control measures on demand, as well as publications on the public health burden of 
tobacco use.190 
Recent  publications  estimating  and  analysing  cross-border  flows  of  harmonised 
products and/or new products in EU countries, especially in relation to the restrictions 
to cross-border movements in place during the COVID-19 period. 
A variety of stakeholder’s suggested publications as well as internal report, papers 
and data sheets, collected through the ‘call for data’.  

4.  Call for a data  

Methodology  also  involved  a  focused  consultation  of  stakeholders  (national  authorities  and  other 
stakeholders, e.g. industry representatives, public health NGOs and civil society organisations, and 
other experts/ professionals) via call for data and in-depth interviews.  

The call for data focused on collecting factual evidence (e.g. data, reports, studies, legal acts etc.) 
rather than views and positions of respondents to address data and information ‘gaps’, especially in 
areas poorly covered by the available datasets and it allowed involving stakeholders in the process, 
while keeping the consultation on a pure technical level.   
The call was launched on 19th December 2024 12th February 2025. 53 responses were received, of 
which 19 from Member  States authorities and 34 from  industry representatives (see Table A4-3). 
Despite the call addressed also public health NGOs, no feedback was received from this group.   

Table A4-3. Participants to the call of the data  
A) Participants to the call for 
data for national authorities 

B) Participants to the call for data for stakeholders 

Overall participants: 19 

Overall participants: 34 

Countries 
represented: 
Austria,  Belgium,  Cyprus, 
Czechia,  Denmark,  Greece, 
Finland,  Croatia, 
Ireland, 
Italy,  Luxembourg,  Malta, 
the  Netherlands  Poland, 
Portugal,  Romania,  Sweden, 
Slovenia, Slovakia 

Countries represented: Belgium, Bulgaria, Germany, Greece, 
Spain, France, Italy, Luxembourg, , BG, DE, EL, ES, FR, IT, LU, 
the  Netherlands  Poland,  Romania  (in  addition  to  9  ‘EU-level’ 
stakeholders 

Respondents by sector:  

▪  Tobacco  products 

industry:  10 

(including  2 

for 

cigars/cigarillos and 1 for WPT)  

▪  E-cigarettes industry: 7 
▪  Raw tobacco sector:7 
▪  Other: 1 (retailers)    

Eight  interviews  have  been  carried  out,  involving  (1)  European  Commission  relevant  staff;  (2) 
national tax authorities; and (3) law enforcement authorities engaged in the fight against unrecorded 
tobacco.  Most interview discussions revolved around unrecorded tobacco, and specifically (1) cross-
border  flows  and  the  measures  put  in  place  in  Member  States  to  implement  existing  rules  (or 
additional  national  measures  in  place);  (2)  illicit  trade,  illicit  manufacturing  and  how  criminal 

190 https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(24)01439-9/abstract 

93 

 
 
 
 
operations have evolved; and (3) source of data and estimates of the magnitude of unrecorded tobacco 
consumption.  

5.  Case studies 

The contractor in 2021 implemented five ‘case studies’ on specific thematic aspects: (1) Cross-border 
flows;  (2)  Illicit  manufacturing  and  trade;  (3)  Raw  tobacco;  (4)  Heated  tobacco  products  (5) 
Electronic cigarettes (see Table A4-4). This approach aimed to provide deeper analysis of impacts 
and comparison of different options. Findings of the case studies were incorporated were relevant in 
the impact analysis.  

Table A4-4. Case studies and Member States  

Cross-border 
flows 

Illicit manufacturing 
and trade 

Raw tobacco 

Heated 
tobacco 
products 

Electronic 
cigarettes 

France, Ireland, 
Sweden, 
Denmark, 
Finland, 
Bulgaria 

France, Ireland, Bulgaria, 
Poland, Czechia, Croatia 

Italy, Poland, 
Czechia, 
Croatia, 
Bulgaria, 
Sweden 

Italy, Poland, 
France, 
Portugal 

Croatia, Poland, 
Sweden, Portugal 

6.  Methodological limitations 

Mixed methodologies and tools have been employed for the impact analysis by the contractor. Every 
quantitative or qualitative methodology used is prone to a set of limitations which can be roughly 
grouped  as  follows:  (1)  limitations  related  to  the  robustness  of  underlying  data  used;  (2)  intrinsic 
limitation of the assessment model adopted; (3) limitations related to the validity of findings; and (4) 
limitations related to unforeseeable intervening factors. 

Data  validity  limitations  regard  the  availability/completeness  of  data  (e.g.  market  data  for  new 
products  and  for  products  with  marginal  consumption  are  significantly  less  robust  than  cigarettes 
data); and the reliability (e.g. third-party estimates on illicit trade and cross-border flows). 

The analytical models used. Particularly complex was the estimation of impact related to unrecorded 
consumption as, by definition, no reliable data exist. Regarding the limitations in the estimation of 
regulatory  costs,  it  should  be  mentioned  that,  while  the  Standard  Cost  Model  method  is  widely 
accepted,  its  implementation  largely  relied  on  costs  parameters  elaborated  in  existing  previous 
assessments. The validity of findings is based primarily on the triangulation of different data sources. 
Most  of  the  information  gathering  activities  focused  on  factual  and  verifiable  evidence  regarding 
tobacco  and  other  relevant  products,  market  conditions,  evolutions  and  legal  and  administrative 
frameworks.  

In various cases, impacts have been estimated using the baseline situation as benchmark. However, a 
series of unpredictable intervening factors may occur, which can alter the results. These include, of 
course,  exogenous  factors  (an  example  was  the  COVID-19  pandemic,  which  have  modified 
consumption patterns and cross-border flows). More importantly, it also includes endogenous factors, 
like  Member  States  reaction  to  revised  EU  rules,  changes  in  the  business  practices,  product 
developments, market consolidation, demand evolution in unforeseeable directions etc., which are 
likely  (affected  operators  will  certainly  take  measures  to  minimise  the  adverse  effects  on  their 

94 

 
 
businesses) but cannot be properly factored in the analysis. Also in this case, the more radical is the 
change of rules, the weaker impact predictions are.     

The limitations of the stakeholder consultations conducted in 2021 could be summarised as follows:  

▪  Representativeness.  Despite  the  large  participation,  the  open  public  consultation  inevitably 
remains a consultation tool subject to a strong self-selection bias. Participants typically have a 
direct interest in the subject matter, so respondents cannot be considered as a representative 
sample  of  the  population.  The  vast  majority  of  responses  received  to  the  open  public 
consultation came from e-cigarettes consumers, concerned about the possible taxation of these 
products.  The  identification  of  repeating  patterns  in  the  open-ended  questions  suggests  a 
possible degree of coordination in responses.  

The tax authorities’ survey saw large participation and can be considered fully representative. 
The participation in the public health authorities’ survey was partly lower (two-thirds of the 
Member States), hence a certain bias can be assumed.  

In-depth  interviews  have,  by  default,  no  intent  of  offering  an  accurate  representation  of  the 
groups involved. However, to ensure that all perspectives and interests on the subject matter 
were adequately covered, the interview programme was particularly broad and included full 
range of relevant stakeholders from several countries.  

▪  Validity of evidence. The consultation activities also involved the collection of stakeholders’ 
views  and  considerations  on  policy  problems  and  possible  solutions.  Considering  that  all 
stakeholders involved have a clearly identifiable interest in the subject matter (as a regulator, 
trader, public health expert etc.) this kind of statement has an inherent bias that needs  to be 
understood and made explicit. As a rule of thumb, this risk has been addressed by posing the 
same questions to stakeholders having different perspectives and interests, to reconstruct the 
full picture from all angles, and to mutually cross-check and verify the information provided.  

▪  Interpretation of answers. Lastly, it is worth mentioning that the survey has intrinsic limitations 
regarding the correct interpretation of the answers. Close-ended questions have the advantage 
of returning clear and straightforward pictures of stakeholders’ views on a given subject, but 
the  nuances  and  caveats  are  inevitably  ironed  out,  and  respondents  may  interpret  the  same 
questions differently. Some open-ended questions were  added to  the questionnaire, to  allow 
respondents to elaborate on their feedback, but this option was not frequently used. 

7.  Baseline scenario 

Baseline scenario besides indicators listed below includes predictions on the future evolution of the 
baseline191 (quantitative modelling, which can predict market evolutions under a business-as-usual 
situation; review of industry strategies; analysis of the literature on consumers’ behaviour and cultural 
trends;  analysis  of  policy  trends  and  legal  frameworks  at  national  level;  direct  feedback  from 
stakeholders, e.g. authorities, public health experts, economic operators, market intelligence sources 
etc.) 

7.1.  Traditional tobacco products  

Table A4-5 and Box A4-1 provides an outline of baseline indicators for traditional tobacco products. 

191 The baseline year is 2023.  

95 

 
 
 
 
Table A4-5. Baseline indicators 
Impact area  

Baseline indicators 

Tax  rates  and 
revenues 

Market data  

Unrecorded 
consumption  

•  Tax  rates  and  structures  applied  to  cigarettes  and  other  manufactured 

tobacco in the Member States. 

•  Tax revenue trends, in relation to actual rates and price levels.  
•  Volume and value of sales of tobacco products in Member States. 
•  Retail price levels of cigarettes and other manufactured tobacco in Member 

States (average price, lowest market price). 

•  Estimated  cross-border  shopping,  and  impact  on  Member  States  tax 

revenues.  

•  Estimated illicit manufacturing / trade, and impact on Member States tax 

revenues.  

Public  health 
impact  

•  Smoking prevalence trends by demographic and socio-economic groups.  
•  Public health burden associated to tobacco use.        

Box A4-1. Estimation source and methodology for baseline variables 

▪  The excise duty level ‘baseline situation’ in Member States has been calculated based on 

data collected and published on TEDB. 

▪  Excise  duty  yield  (EDY)  indicator  refers  to  the  excise  duties  applicable  to  the  WAP 
(weighted average price level). A few Member States apply MED which is higher than the 
sum of the specific and ad valorem components at the WAP level. In those cases, the EDY 
coincides with the MED. Where Member States reported a MED value that includes also 
VAT  (‘minimum  total  tax’),  the  latter  component  has  been  removed  to  ensure 
comparability of the calculations. 

▪ 

▪  The EDmin indicator refers to the excise duty applicable on the lowest price category in 
the market (Pmin). Again, in some Member States the EDmin coincides with the MED. 
In  the  case  of  cigars  and  cigarillos,  some  Member  States  applies  a  tax  structure  per  kg 
instead of per unit. However, in some Member Staes the distinction is only apparent as the 
weight applied is conventional weight and not the ‘real’ weight (e.g. 1 kg = 800 cigarillos 
or 400 cigars). In all other cases a conversion has been applied in line with the typical weigh 
of these products, i.e. 1.33g for cigarillos and 2.7g for cigars.       

▪  The WAP was calculated based on Euromonitor sales data, except for official estimates 

published on TEDB (cigarettes – and in some cases FCT).  

▪  The Pmin (lowest price in the market) was estimated based on the information gathered 
through the call for data. Where unavailable, the average proportion  between WAP  and 
Pmin was used for reference.   

▪  Sales volume of cigarettes and FCT is based on ‘releases for consumption’ (RFC) figures 
reported by Member States to the Commission. RFC is a proxy indicator of consumption, 
however,  it  does  not  coincide  with  actual  consumption  because  of  (a)  unrecorded 
consumption  (cross-border  flows  and  illicit  products);  (b)  forestalling  practices  and  (c) 
possible time lags in the registration of RFC. Some countries do not separate FCT RFC 
from  OST  ones.  In  those  cases,  the  respective  proportion  has  been  estimated  through 
Euromonitor International’s sales data. 

▪  Sales volume of other tobacco products (cigars, cigarillos, OST) are based on Euromonitor 
sales data, except waterpipe tobacco (WPT) whose market volume is estimated combining 

96 

 
 
 
 
call for data feedback, External study 2021 data and assumptions on the proportion between 
pipe and WPT within the OST category.    

▪  To ensure consistency in the analysis of impact, Member States tax revenues have been 
recalculated based on the sales figures and the applicable excise duties. The results do not 
always coincide with the tax revenue values communicated by Member States for various 
reasons,  including  time  lags  in  the  payment  /  registration  and  the  effects  of  the  MED. 
Furthermore, various Member States do not provide disaggregated data between products. 
▪  Regarding public health and social costs the baseline value have been calculated updating 
healthcare expenditure data in the EU with most recent Eurostat statistics (i.e. 2022) and 
assuming that the share attributable to tobacco is 2.9%.192 For the current impact of tobacco 
consumption on avoidable mortality, the Global Burden of Disease’s most recent estimates 
were used.193 In terms of years of life lost, the burden of tobacco is calculated  based on a 
conventional  value  of  life  year  lost  (VLYL)  of  EUR  52  000  in  accordance  with  the 
estimates used in the studies underpinning the Tobacco Products Directive. 
Indirect  costs  include  also  impact  on  employment  and  productivity  caused  by  tobacco-
related health conditions. In particular, economic loss of productivity can take the form of: 
1) workplace absenteeism and the resulting loss of income from the days off work, and 2) 
premature retirement due to smoking-induced illnesses.194 The following assessments were 
used: 
- 

It is well established in the literature195 that smokers, on average, have a higher rate of 
workplace absenteeism than non-smokers.  

-  The cost of smoking-related absenteeism amounts to roughly 5% of its related estimated 
direct healthcare costs.196 Smoking can also represent a cause of permanent disability 
and early retirement due to the incapacity to work. Roughly 25% of cases regard those 
incapacitated by the typical smoking-related diseases.  

Illicit manufacturing and trade  

Measuring the illicit tobacco trade is complicated and there is no widely accepted methodology197.  
The most recent ITTP trends in the EU have been assessed by triangulating three main data sources: 

192The 2.9% value eventually retain comes from Tobacco Products Directive background impact assessment studies and, 
specifically:  GHK, A study on liability and the health costs of smoking, DG SANCO, April 2012 (External study). 
193 Data source: https://www.thelancet.com/lancet/visualisations/gbd-compare 
194 The premature deaths of smoking employees during productive years would also cause productivity losses, but this 
component is already accounted for in the value of life year lost.  
195 Bunn WB, Stave GM, Downs KE, et al. Effect of smoking status on productivity loss. J Occup Environ Med 2006. 
196 The source was the preparatory study for the Tobacco Products Directive, which used the results of a major EU survey 
on absenteeism from work in Germany and AustriaT to extrapolate EU-level estimates. Results were that in 2009 some 
0.8% of total days lost from work were deemed directly attributable to smoking. In monetary terms, this amounted to a 
total of EUR 1.3 bn EU-wise. 
197 OLAF commissioned a study (RAND 2020) reviewing the main existing methodologies. These include: 
- empty-pack surveys (collection of discarded cigarette packs to obtain a sample of packs that is representative of the 
patterns of cigarette consumption in a given area); 
- consumer surveys with and without pack inspection: with inspection – survey of tobacco users asking about various 
aspects of their smoking behaviour. During the survey respondents present their latest tobacco product for inspection or 
surrender the product to the research team for verification; without inspection - survey of tobacco users asking about 
various aspects of their smoking behaviour without any request or requirement for physical evidence. 

97 

 
 
 
 
 
(1)  Euromonitor  International’s  estimates  (2)  the  KPMG  illicit  cigarettes  report  (2023  edition)198, 
based on empty pack surveys (commissioned by tobacco manufacturers); and (3) statistics on ITTP 
seizures  that  the  Commission  gathers  from  Member  States  authorities.  Further  evidence  has  been 
collected from the call for data. However, only a minority of Member States was in the position to 
provide an estimate of the magnitude of ITTP (between 5 and 10 Member States, depending on the 
type of tobacco product), and in most cases the source of estimates was the KPMG Report.199 

7.2.  New products 

Heated tobacco products. The key variables for the baseline scenario were based on the following 
sources:  

▪  National tax regimes have been gathered through the call for data and Member States’ survey 

conducted in June 2024. 

▪  Market  sales  data  for  each  Member  States  (volumes  and  value)  have  been  drawn  from 

Euromonitor International, distinguishing between devices and consumables.  

▪  Price data (WAP) have been calculated based on Euromonitor International’s sales data. 

Liquids for e-cigarettes and other manufactured tobacco and tobacco related products. With 
minor changes related to market characteristics and data availability similar approach for baseline 
scenario for liquids of e-cigarettes and other manufactured tobacco products as for heated tobacco 
was used. More specifically, the available e-cigarettes market data are far more comprehensive and 
accurate than in the past. The same regards other manufactured tobacco and tobacco related products 
as availability of data in this area has largely improved in the 2020-2024 period (16 Member States 
are now covered in the Euromonitor database). 

8. 

Impact analysis 

The main focus of the analytical work was to compare the baseline scenario, developed on the basis of an 
in-depth baseline assessment, with several policy change scenarios, using both quantitative and qualitative 
methods  and  case  study-based  approach  (where  relevant).  The  impacts  considered  for  the  policy 
options belong to these main categories: (1) impacts on excise duties and on the market (including 
tax  revenues  and  the  impact  on  fraud  and  tax  evasion);  (2)  administrative  costs  and  cost  savings 
(including impact for SMEs and competitiveness check) taking into account digital aspects; (3) public 
health effects (smoking prevalence and related social costs), (4) impact on employment. To address 
the specific problems presented in the case of substitution (cigarettes with FCT) and impacts on cross-
border flows are distinguished. 

8.1.  Traditional tobacco products 

The market simulations refer to the reduction directly attributable to the EU minima revision and do 
not  include  the  effects  of  other  relevant  factors,  which  would  likely  magnify  the  estimated  sales 
decline although cannot be precisely quantified. In particular, it can be expected that the increase of 

- tax gap analyses (i.e. comparison of sales volumes and consumption statistics), and various estimation models.  
The RAND 2020 study suggests that none of these methods would be sufficient if used in isolation and that a combination 
of multiple methods should be employed to obtain reliable estimates. 
198 External study. 
199 Among call for data respondents, Member States that reported own sources of ITTP estimates include Ireland, Finland, 
Sweden and the Netherlands (External study). 

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rates (hence prices) in a given Member State might trigger an increase also in neighbouring countries 
even where this is not strictly required by EU minima. As the survey of Member States authorities 
showed200,  Member  States  authorities  often  consider  the  price  levels  of  cigarettes  in  bordering 
countries when setting national rates, as large price differentials are associated with substantial cross 
border  shopping,  hence  excise  revenue  losses.  Similarly,  when  bordering  countries’  price  levels 
increase,  Member  States  authorities  may  see  an  opportunity  to  increase  their  own  rates  without 
incurring a cross-border shopping issue. In this sense, the effects of higher EU minima would possibly 
have repercussions beyond directly affected Member States and lead to more widespread tax increases 
in most Member States. Such effects would mix with other exogenous effects, completely unrelated 
to  EU minima, such as  the impact  of tax increases spontaneously adopted by Member States, the 
impact of tobacco control policies and the broader societal changes of attitude towards tobacco. 

The two main conditions are required to be examined separately to estimate the increase of Member 
States excise rates following an increase of EU minima, i.e.: 

a)  Calculation  of  the  required  increase  (in  %)  induced  by  the  revised  fixed  minimum  (if  the 
current excise duty level is higher than the revised minimum the expected effect is 0%). This 
condition generally refers to all marketed products, so compliance have been checked against 
the excise duty at lowest market price level (except when this could not be calculated, in which 
case the EDY has been used). 

b)  Calculation of the required increase (in %) induced by the revised relative minimum (if the 
current  excise  duty  is  higher  than  the  revised  minimum  the  effect  is  0%).  For  the  relative 
condition,  ‘recursive  effects’  have  been  considered,  because  the  increase  of  excise  duties 
would lead to an increase in price, which implies, in turn, a further increase of the excise duty 
levels and so on. 

c)  In the case of cigarettes, a third step was required, i.e. to estimate the required increase (in %) 
induced by the revised escape clause (if the current EDY is higher than the revised escape 
clause level the effect is 0%). 

The  estimation  of  the  combined  effects  varied  across  products.  For  cigarettes  the  highest  value 
between (a) and (b) have been retained (since fixed and relative minimum are conditions to be fulfilled 
simultaneously).  However,  if  (c)  was  lower  than  (b)  the  escape  clause  would  be  triggered,  so  the 
combined effects would become the highest value between (a) and (c). For other products the lowest 
value  between  (a)  and  (b)  have  been  retained  (since  fixed  and  relative  minimum  are  alternative 
conditions). 

Overall, impact estimates for cigarettes are more reliable than for other products as underlying market 
data are more robust and comprehensive. Secondly, the reliability of estimates is inversely correlated 
to the extent of the tax increase. Some of the scenarios examined have no precedent at Member State 
level so market reactions are more difficult to predict. 

These possible effects  of an increase of EU minima were assessed on excise duties and market.  
Where national excise levels are set to increase, due to the new EU minima, price levels can be also 
expected  to  increase.  The  standard  approach  used  in  impact  simulations  involved  a  pass-through 
elasticity of tax onto prices equal to 0.7. In practice, an increase of 10% in EDY201 is associated with 

200 EA 2021 study. 
201 In accordance with the original model specifications, the rate of increase was always calculated as the difference of 
natural logarithms.   

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an increase of 7% of WAP (and Pmin). The effects of VAT (i.e. the fact that VAT applies also to excise 
duties) was deemed included in the overall price impact. 

Regarding  the  impact  on  the  demand,  the  elasticity  coefficient  of  -0.54  have  been  applied.  In 
practice, a WAP increase of 10% is estimated leading to a decline in the demand by 5.4%. 

The  impact  on  tax  revenues  have  been  then  calculated  by  multiplying  the  revised  EDY  by  the 
revised sales volume (net of market losses due to reduced demand). 

Regarding impacts on tax fraud it should be noted there was no attempt to estimate in a quantitative 
manner as the independent literature does not support the existence of a direct, causal link between 
tax policies and ITTP. Among others, the EU-funded PPACTE project (Pricing Policies and Control 
of Tobacco in  Europe)202  showed the absence of a  statistically relevant correlation  between illicit 
trade and the price of cigarettes. In the same vein, other authors suggested that ‘the supply of illicit 
tobacco,  rather  than  its  price,  is  a  key  factor  contributing  to  tax  evasion’.203    Overall,  high  prices 
appear more as an enabler of ITTP rather than its determinant204. 

The methodology for substitution between cigarettes and FCT included the following: 

a)  Estimated variation in the tobacco price index associated with the increase of EU minima. 
b)  Estimated  variation  in  the  aggregated  expenditure  in  tobacco  products  linked  to  the  above 

variation in the tobacco price index. 

c)  Estimated  reduction  in  the  conditional  demand  of  each  individual  products  (based  on  the 

elasticity coefficients). 

d)  Estimated variation in the conditional demand due to a variation in the price of substitutes 

(based on the ‘cross’ elasticity coefficient). 

e)  Aggregation of impacts – (b), (c) and (d) – and estimation of the magnitude of substitution 

under the different EU minima increase options. 

The analysis of public health impacts included two parts: 

a)  the first part involved estimating the impact of the proposed EU minima increase scenarios 
on consumption, hence smoking prevalence among the population. This  has been assumed 
corresponding to the estimated decline in sales, assuming no change in the average smoking 
intensity  and  no  mitigation  due  to  the  availability  of  cheaper  and  ‘unrecorded’  products 
(including illegal products and/or cross-border legal products). 

b)  The  second  part  regarded  ultimate  public  health  impacts,  and  the  social  costs  related  to 
smoking.  The analysis estimated the ‘savings’ in  terms  of years of life lost and healthcare 
costs associated to a reduction in smoking prevalence. Savings are largely hypothetical as they 
would materialise in the long run.   

The ultimate public health impact has been estimated following a cost of illness approach.205  In this 
perspective, the economic consequences of smoking can be divided into ‘direct costs’ – the expenses 

202 See: https://www.tri.ie/ppacte.html 
203 Joossens L, Lugo A, La Vecchia C et al. Tob Control 2014; 23:e17-e23 (cited from EA 2019).  
204 The price of illegal products is typically set in relation to the price of legal ones, and at about 50%-60% of it. So, 
assuming production costs as fixed, the higher legal prices go the more profitable ITTP is. For this reason, there is an 
economic incentive for illegal suppliers to focus on markets where the level of price is comparatively higher (External 
study). 
205 Description available in: World Health Organization. Economics of tobacco toolkit: assessment of the economic costs 
of  smoking.  Geneva,  Switzerland:  World  Health  Organization;  2011.  https://apps.who.int/iris/handle/10665/44596 
(External study) 

100 

 
 
 
incurred because of the illnesses caused by smoking, and ‘indirect costs’ – the value of lost production 
because of reduced working time and early mortality from smoking-related diseases. 

Also, the following key calculation coefficients was used: 

▪  the unit value of life years lost, equal to EUR 52 000 across the EU (in accordance with Tobacco 

Products Directive underlying studies); 

▪  the  percentage  of  Member  States’  healthcare  expenditure  that  can  be  attributed  to  tobacco-
related  conditions,  i.e.  2.9%  -  based  again  on  the  Tobacco  Products  Directive  background 
studies; 

▪  productivity losses  have  been  calculated  by adjusting to  inflation and to  change in  smoking 

prevalence that occurred. 

8.2.  New products  

The overall approach to the impact analysis of the measure proposed to harmonise the tax regime for 
new products in the EU is similar to the approach used for traditional tobacco products, albeit with 
two notable differences. Firstly, unlike traditional tobacco, new products are not harmonised, so – in 
addition  to  the  market  effects  of  applying  excise  duty  –  relevant  impact  includes  also  additional 
administrative and adjustment costs for national authorities and economic operators to comply with 
the rules and procedures applicable to harmonised excise goods. Secondly, while the debate on the 
health  risks  of  new  products  continues  to  advance  and  new  evidence  is  produced,  the  excise 
harmonisation proposal assessed no direct connections with the health risks of these new products. 
Hence, impact analysis does not include public health impacts. 

The approach used to estimate the market impacts of the proposed policy options on non-harmonised 
products  is  analogous  to  the  approach  used  for  harmonised  products.  However,  a  few  notable 
differences are worth highlighting. Firstly, the baseline situation is much more heterogeneous across 
Member States, so harmonisation implies a more substantial change, especially where target products 
are currently not taxed. Secondly, market data are less robust and comprehensive than for harmonised 
products. Thirdly, the price and demand dynamics are likely different from the dynamics of cigarettes 
and other well-established products, in particular:  

▪  The impact of taxation on the price of new products is far from straightforward. Currently, the 
incidence of taxation on price is relatively low (or zero) so manufacturers have more room for 
absorbing part of the tax increase rather than passing it on to consumers. Furthermore, as new 
products  and  conventional  products  are  often  produced  by  the  same  companies,  some 
researchers have observed ‘portfolio strategies’ at play, e.g. with HTP price seemingly more 
likely driven by cigarettes’ price than own HTP taxation.   

▪  Unlike cigarettes, the demand for new product is considered elastic but as the market is not yet 

mature, demand elasticity measures vary and are subject to fluctuations.   

8.2.1.  Heated tobacco products   

In the impact analysis all key baseline variables (tax rates, price, sales volume) have been converted 
into  ‘per  stick’  unit  of  measure,  using  a  standard  1  stick  =  0.3g  conversion  rate  that  roughly 
corresponds to the most popular HTP products in the market.  The impact analysis of proposed EU 
minima has also been conducted making reference to HTP sticks, as separate market data for other 
types of HTP were unavailable (and at any rate sales volume are deemed very limited). For the impact 
analysis it is considered that  the ‘per stick’ fixed minimum is  70% of the ‘catch all’ (per weight) 
minimum. Considering that  one HTP stick is approximately 0.3g, the above ratio implies that the 
equivalent unit of consumption for other HTP format is assumed around 0.4g.     

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These possible effects of EU minima were assessed on excise duties and market. The impact analysis 
consisted of the following steps: 

▪  Impact of EU minima of Member States excise rates. The impact of the fixed and relative 
minima  have  been  examined  separately.  The  lowest  value  between  the  effects  of  the  two 
conditions  have  been  eventually  retained  (since  fixed  and  relative  minimum  are  alternative 
conditions). 

▪  Impact on price levels. It has been assumed that part of the tax would not be passed on to 
consumer.  Regarding  the  estimation  of  the  tax  pass-through,  the  approach  is  based  on  the 
assumption  that  HTP’s  WAP  shall  remain  in  a  fixed  proportion  with  cigarettes  WAP,  and 
specifically at 83% of cigarettes’ level, which is the HTP / cigarettes price ratio in 2023. This 
assumption is supported empirically by the fact that the WAP of HTP in Member States appears 
more robustly correlated with the WAP of cigarettes than with the HTP tax rate (the correlation 
coefficient with cigarettes’ WAP is 0.89, against 0.36 in the case of HTP tax rate). This suggests 
that, where feasible, manufacturers would rather maintain HTP price somehow pegged to the 
price of cigarettes. This appears realistic also considering that the excise duty incidence on retail 
price would remain comprised between 35% and 40%, i.e. higher than the current 25% but in 
line or lower than what is already the situation in various Member States (Germany, Lithuania, 
Latvia, Sweden) where HTP is marketed. This is in line with the empirical observation of tax / 
price dynamics in Member States in recent years. 

▪  Impact on the demand. Regarding the price elasticity of the demand for HTP, coefficient of  

-1.36 was used. 

▪  The impact on tax revenues have been then calculated by multiplying the new EDY levels by 

the revised sales volume (net of market losses due to reduced demand). 

8.2.2.  Liquids for e-cigarettes  

The impact analysis on excise duties and market followed the following the same steps as for HTP:  

▪  Impact of EU minima of Member States excise rates. To estimate market impacts at Member 
State level, the effects of the fixed minimum and relative minimum were assessed separately 
and retained the lowest of the two (as these would be set as alternative conditions). Where a 
national  ad  hoc  tax  already  existed,  the  incremental  effects  of  the  EU  minima  (if  any)  was 
estimated.  

▪  Impact on price levels and demand. As for the price elasticity of demand, the coefficient of -
1.36  was  used.206  Regarding  the  tax  pass-though,  the  approach  takes  into  account  the  price 
strategies that operators might adopt to offset in part the effects of tax increase. Liquids of e-
cigarettes price is poorly correlated with the price of cigarettes, so an alternative approach has 
been  developed  based  on  the  empirical  observation  of  tax  and  price  data  in  the  2020-2023 
period. In summary, while tax rates increased on average by 81%, the WAP increased by only 
20%.207  This translates into a pass-through factor elasticity of 0.25, which have been used to 
simulate the impact of the introduction of EU minima. 

206 Huang J, Gwarnicki C, Xu X, Caraballo RS, Wada R, Chaloupka FJ. A comprehensive examination of own- and cross-
price  elasticities  of  tobacco  and  nicotine  replacement  products  in  the  U.S.  Prev  Med.  2018  Dec;  117:107-114.  doi: 
10.1016/j.ypmed.2018.04.024. Epub 2018 Apr 21. PMID: 29684418; PMCID: PMC6195827. 
207 The analysis focussed on 11 Member States where the taxation of e-cigarettes has increased between 2020 and 2023. 
In monetary values, the average rate moved from EUR 0.11 to EUR 0.20 per ml, while the average WAP, in the same 
countries,  moved  from  EUR  0.48  to  EUR  0.57  per  ml.  To  avoid  distortions  due  to  market  composition,  the  analysis 
focussed on the price of liquids for open systems. 

102 

 
 
 
▪  The impact on tax revenues have been then calculated by multiplying the new  excise duty 

levels by the revised sales volume (net of market losses due to reduced demand).  

8.2.3.  Other manufactured tobacco and related products 

Other  manufactured  tobacco  and  related  products  (except  nicotine  pouches).  The  estimation 
model is the same used for traditional tobacco products, but with the elasticity coefficient applied to 
new products. However, compared to HTP and e-cigarettes, the underlying data remain less robust, 
so the validity of estimates have to be taken with greater caution. 

Nicotine pouches. The coverage and reliability of available market data has improved, allowing a 
more reliable baseline assessment. At the same time, the impact of harmonisation remains complex 
to  estimate  because  nicotine  pouches  have  only  recently  been  introduced,  so  price,  demand,  and 
product  characteristics  have  not  yet  stabilised  and,  secondly,  despite  the  steep  growth,  nicotine 
pouches remain a niche product in most Member States. The standard simulation model estimates 
that  for  some  Member  States  indicate  a  possible  market  collapse  would  be  possible.  While  this 
scenario  cannot  be  entirely  ruled  out,  it  appears  more  probable  that  operators  will  adopt  pricing 
strategy to minimise such risk, especially considering that nicotine pouches are mostly marketed by 
transnational tobacco companies, which are commonly more resilient than SMEs to market shocks. 
The impact simulation has therefore been developed based on the assumption that in each Member 
State  the  WAP  will  not increase  more  than  the  monetary  value  of  the  tax  increase  caused  by  EU 
minima. This assumption is based on the empirical observation of price trends before and after the 
introduction of national  tax in  the three Member States that did  so in  the 2020-2023 period.208  A 
demand  elasticity  coefficient  of  -1.36  has  been  considered.  Analysis  relates  to  standard  20  units 
container weighting 14g – i.e. 0.7g per unit. Given the limited number of observations available, the 
results of this simulation have to be considered as indicative. 

Administrative costs and savings for new products  

The  proposed  introduction  of  new  harmonised  tax  categories  would  generate  additional 
administrative and adjustment costs. These additional costs include information obligations, such as 
the  need  for  economic  operators  to  obtain  authorisation,  fill-in  tax  declarations,  etc.,  as  well  as 
substantive obligations, such as establishing and operating a tax warehouse, setting up an appropriate 
IT system for managing movements under the EMCS, and keeping fiscal records.  

The estimation methodology is based on the Standard Cost Model (see Box A4-2) and encompasses 
recent inflation trends. 

Box A4-2. Overview of the Standard Cost Model approach 
The approach of reference for the estimation of administrative and adjustment costs is the Standard 
Cost Model, which consists, in summary, of the following steps: 

(i)  identification  of  the  new  obligations  established  by  the  proposed  policy  revision  and  of  the 

specific actions (procedures, operations) required to comply with them; 

208 Specifically, Hungary introduced a national tax on nicotine pouches in 2021, Italy and Denmark in 2022. The analysis 
of price effect is based on the empirical observation of WAP over a three-year period starting in the year before the tax 
adoption of the tax and ending in the year after the tax adoption. The following step involved estimating the ratio between 
the price increase and the tax increase (both in monetary terms). It turned out that in Denmark the price level increase 
was higher than the tax; in Hungary it was much lower, while in Italy the price increase corresponded to the monetary 
value of the  tax. So, it was eventually assumed that  – on average  – the price  increase in other Member States would 
roughly correspond to the monetary value of the tax increase.       

103 

 
 
 
(ii) removal of ‘business-as-usual’ (BAU) costs, i.e. the actions and the related costs that concerned 
entities would incur anyway, even in the absence of the policy reform (only incremental costs are 
relevant for the analysis); 

(iii) quantification  of  the  unit  costs  associated  with  the  specific  actions  identified,  including 
appropriate depreciation of investment costs, and the possible variability of unit costs depending 
on the nature and size of the affected entities (e.g. SME or large firms);  

(iv)  identification of the frequency of required actions, i.e. whether the required action is ‘one-off’ or 
recurrent  and – if recurrent – whether it is periodical (e.g. annual fixed costs) or transactional 
(linked to operations); 

(v) identification and quantification of the concerned population, i.e. which and how many entities 

would be affected. 

The actions required have been classified in relation to the periodicity involved (one-off v. recurrent 
actions) and the nature of the costs generated (investment, staff time, fees, etc.). Some of the required 
actions may differ depending on the economic operator’s profile. It was elaborated different estimates 
for manufacturers (which are, for instance, assumed to register as tax warehouse-keepers and operate 
under  duty  suspension)  and  importers/wholesalers,  who  are  more  likely  to  seek  authorisation  as 
registered or certified consignees (with no duty suspension-related obligations involved).      

The estimation  of each required  action’s  costs is  based on the simple  formula  ‘Price x Quantity’, 
where the unit price (expressed in monetary terms) can refer to various quantities, such as number of 
economic operators (like registration costs), number of operations (like EMCS transaction costs), etc. 
The unit price may vary depending on several factors, not all of which can be considered in the model. 
EU average price in the calculations (e.g. the EU average cost of labour including overheads) it was 
used.  

The methodology includes estimations of obligations which would not stem from Directive but from 
the  extension  of  the  obligations  of  the  Horizontal  Directive  to  new  products/economic  operators, 
namely the obligations related to producing, holding and moving of excise goods in the EU.209 The 
analysis does not include obligations involving negligible effects that are not strictly connected to the 
EU legislation (e.g. additional national rules and provisions, or side-effects on non-directly involved 
operators), or impossible to quantify (e.g. the risk of errors). 

Also, cost parameters have been increased by a standard 19.2%, which is the overall increase in the 
HICP index over 2021-2024. Calculation parameters like labour costs and unit costs (e.g. of EMCS 
operations) refer to the EU average and not to specific costs in Member States as the information was 
insufficient to break down costs by country in a robust manner. 

There are no official data on the number and type of enterprises active in the sectors concerned. The 
number  of  affected  economic  operators  was  estimated  in  two  ways:  (1)  assuming  the  number  of 
enterprises  varied  proportionally  to  the  size  of  the  market;  and  (2)  removing  enterprises  based  in 

209  Wherever  feasible,  the  regulatory  costs  parameters  that  were  estimated  in  previous  external  studies,  (1)  Ramboll, 
‘Evaluation of current arrangements for the holding and moving of excise goods under excise duty suspension’, and (2) 
‘Study contributing to an Impact Assessment on Council Directive 2008/118/EC concerning the general arrangements for 
excise duty’. In this sense, they present a substantial degree of uncertainty. Some estimates are based on the e-cigarettes 
economic operators survey conducted under the EA 2019  (External study). 

104 

 
 
 
 
Member States that have recently introduced national taxes (i.e. assuming in such cases, EU-level 
harmonisation would not translate into additional costs).210 

It  has  been  assumed  that  the  incremental  costs  would  be  negligible  as  in  a  number  of  cases  the 
products and/or the operators at stake are already subject to similar obligations due to national fiscal 
legislation, Evidently, the actual costs incurred might vary greatly depending on how Member would 
transpose and enforce the new rules, as the Horizontal Directive leaves substantial margins of freedom 
to Member regarding implementation. 

The reported impact might be affected by a whole set of additional Member State-level obligations 
that would plausibly be put in place to implement the reform at the country level. Also, it was that 
the new requirements would apply to the current business models and practices, but in reality, we 
could expect that such practices would be modified to offset as much as possible the effects of the 
new rules. 

8.3.  Raw tobacco 

Impact  on  illicit  manufacturing  and  trade  because  of  putting  raw  tobacco  under  the  scope  of  the 
Directive  cannot  be  precisely  quantified  because  (1)  the  magnitude  of  the  problem  can  only  be 
roughly  estimated  and  (2)  the  proposed  measure  is  a  radical  innovation  for  which  there  is  no 
benchmark, and the impact of similar Member States regimes can only partly be leveraged to this 
end.  

Regarding impact on administrative and adjustment costs for economic operators the following worth 
highlighting: 

▪  It has been assumed that the proposed measures would be equally implemented in all Member 
States, although various aspects will actually remain up to Member to decide (e.g. actual excise 
duty rates, level of guarantees required, registration criteria and conditions, treatment of internal 
movements, etc.); 

▪  It  has  been  assumed  that  economic  operators  would  choose  to  implement  the  new  rules  by 
choosing the options that would minimise the costs incurred (e.g. establishing a tax warehouse 
or  not,  moving  products  under  the  duty-paid  or  duty-suspension  procedures),  but  operator 
choices would also be influenced by other factors, which cannot be considered in the model, 
and relate to individual economic operators capacity, operations, local business environment, 
etc. 

▪  Simulations developed are based on the current situation, as it is not feasible to predict how 
players, practices and flows would change as a consequence of the reform (e.g. shift toward 
shorter/domestic  supply  chains,  storage  at  farm  level,  recourse  to  offshore  processing, 
establishment of storing  facilities outside of the  EU, and, possibly,  reliance on non-EU raw 
tobacco etc.).  

Quantification of the administrative and adjustment costs is based on the same methodology as for 
new products. The methodology – based on the standard cost model – consists of estimating (1) the 
‘price’  (unit  costs)  of  each  new  action  that  would  be  required  of  economic  operators,  and  (2)  the 
‘quantity’ of actions required, in relation to the number of operators, the number of transactions, the 
periodicity of the requirement, etc. The business-as-usual costs, which are the costs that EOs would 
incur anyway (even in the ‘no change’ scenario), have to be subtracted from the total.  

210 External study. 

105 

 
 
 
The estimates provided are subject to the following caveats and limitations and should be viewed as 
indicative:  

•  There are no Eurostat or other official data on the number and type (first or second processors, 
importers  etc.)  of  economic  operators  in  the  raw  tobacco  sector.  Where  available,  estimates 
have  been  gathered  from  authorities  and  stakeholders,  otherwise  the  EA  2021  study  figures 
have been revised assuming the number of operators varied with the size of the market.  

•  The  unit  costs  of  requirements  were  primarily  drawn  from  the  background  studies  of  the 

Horizontal Directive, and/or stakeholders.  

•  Inflation  rates  and  calculation  parameters  like  labour  costs  and  unit  costs  (e.g.  of  EMCS 
operations) refer to the EU average and not to specific costs in Member States as the information 
was insufficient to break down costs by country in a robust manner.    

The  costs  that  Member  States  authorities  would  incur  from  the  adoption  of  a  harmonised  excise 
category for raw tobacco are of two main kinds:  

(1)  the  costs  for  including  new  economic  operators  in  the  excise  system,  which  relate  to 

registration and authorisation activities (one-off and periodical renovation); and  

(2)  the costs related to operations, which include capital costs of adapting the  IT infrastructure 
(EMCS  interface,  etc.)  to  the  enlarged  scope  of  the  system,  and  the  costs  of  individual 
transactions (verification and confirmation of movements under EMCS). 

The  costs  analysis  focussed  on  incremental  costs,  i.e.  it  did  not  include  costs  already  incurred  in 
Member  States  where  a  fiscal  regime  for  raw  tobacco  is  already  in  place.  In  particular,  fiscal 
registration and/or authorisation related costs are deemed nil where similar provisions are already in 
place. For the costs on operations, it has been assumed that all Member States would incur additional 
costs, as EMCS is not currently used for cross-border movement of raw tobacco in any Member State.           

The different policy scenarios examined can influence the extent of the costs incurred by Member 
States’ authorities.  In particular, the zero-rate option might  prompt operators to  use the  duty-paid 
procedure instead of duty suspension where feasible.  

8.4.  Comparison of the options  

The final step in the impact analysis was a comparison of policy options. The issues addressed in this 
analysis call for policy reviews that are relatively independent of each other (e.g. new products and 
raw tobacco). Therefore, the options were compared for each thematic area separately rather than 
cumulatively. 

106 

 
 
 
 
ANNEX 5: COMPETITIVENESS CHECK 

1.  Overview of impacts on competitiveness  

One of the key objectives of the initiative is to reduce demand and consumption of tobacco and related 
products by raising their prices through taxation. As such, and differently from other initiatives, it is 
by definition affecting market sales of businesses involved. Having said that, it is also important to 
identify where the initiative brings competitive benefits, and verify whether the proposed measures 
interfere with competition between different types of operators. 

Dimensions of 
Competitiveness 

Impact of the initiative 
(++ / + / 0 / - / -- / n.a.) 

References to sub-sections of the 
main report or annexes 

Cost 
and 
competitiveness 

International 
competitiveness  

Capacity to innovate 

SME competitiveness 

price 

-- 

0 

0 

- 

2.  Synthetic assessment 

Cost and price competitiveness 

Main  report  sections  6,  7  and  8; 
ANNEXES 3 and 17. 

Main  report  sections  6,  7  and  8; 
ANNEXES 3, 12, 13, 14, 15 and 17. 

Main report sections 6, 7 and 8. 

Main  report  sections  6,  7  and  8; 
ANNEXES 3, 13, 15 and 17. 

The impact of the preferred options on the cost and price competitiveness is overall negative. This 
overall estimation takes into consideration the different and diverging impacts, as explain here below. 

The  impact  of  the  revision  on  excise  duty  levels  would  be  higher  for  certain  products 
(cigars/cigarillos) and lower for others (cigarettes), but this should be interpreted as redressing current 
disparities in the tax levels applied to different product categories. In particular, the proposed revision 
would  help  approximating  the  tax  rate  of  cigarettes  and  fine-cut  tobacco,  mitigating  tax-induced 
substitution.  

The revision of EU minima would lead to price increase, hence reduction of demand and subsequently 
of market sales, even if some losses could be offset through exporting (the EU being a net exporter 
of cigarettes and fine-cut tobacco). The preferred option, which foresees high increase of minima for 
tobacco products, would have more pervasive effects. Specifically, the preferred option is expected 
to generate a 14% reduction in market sales of cigarettes, -9% in the case of fine-cut tobacco, -13% 
for cigarillos, -5% for cigars, -12% for other smoking tobacco. 

The proposed introduction of separate excise categories for cigarillos and waterpipe tobacco, would 
allow to apply tailored tax regime, thus reducing unintended negative impact on other products (cigars 
and pipe tobacco). 

The impact will differ across Member States, with substantial impact in some countries, while others 
are not affected at all, depending on existing excise rates. The proposed PPP-based adjustment will 
allow to mitigate most significant effects. 

107 

 
 
 
The four large  transnational  tobacco companies that  dominate the tobacco market  may be able to 
adjust  retail  prices  to  minimise  reduced  profitability.211  First  and  second  processors  who  depend 
directly on sales volumes and are typically bound to local markets, may be more affected. 

Regarding new products, the negative effects of price increase would be in part offset by the benefit 
of harmonisation, and the removal of obstacles to cross-border trade in the internal market (currently 
affected by national fragmentation). 

On the other hand, the introduction of harmonised categories for new products and raw tobacco would 
increase  administrative  and  adjustment  costs  for  operators,  thus  reducing  their  competitiveness, 
although many businesses operating in these segments are already compliant with EU requirements 
or similar requirements at national level. 

International competitiveness 

Excise  taxes  apply  when  the  goods  are  released  for  consumption  in  the  EU  thus  at  the  level  of 
importers or manufacturers, whereas exports are not subjected to excise duty. Foreign and domestic 
operators are therefore equally impacted by the increase of EU minima.  

Regarding new products, the impact of administrative burden is not relevant as (1) heated tobacco 
manufacturers are big companies that already incur in such costs; (2) e-cigarettes export is currently 
negligible compared to import. 

Under the preferred option, the cost increase for first processed tobacco would remain below 0.1% 
for both raw tobacco in the EU and imported tobacco, with negligible effects on competitiveness. 

Capacity to innovate 

None  of  the  elements  proposed  for  revision  appear  to  have  any  impact  regarding  the  capacity  to 
innovate of business. The introduction of ‘catch-all’ categories allows fiscal regimes to remain neutral 
vis-à-vis future product developments. 

SME competitiveness212 

In  general,  the  increase  in  taxation  and  related  administrative  costs  would  affect  all  operators. 
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). 

Focusing on SMEs in the e-cigarettes sector, the following impacts can be expected:   

▪  The reduction in the demand and sales that would follow the increase of taxation will lead to 
some market consolidation, as evidenced after the introduction of national ad hoc tax regimes. 
Assuming a consolidation proportional to sales reduction it can be expected a reduction in the 
number of SMEs of up to 1 500 SMEs. In turn, this would accelerate the expansion of large 
companies,  which  are  better  equipped  to  face  worsened  competitive  conditions.  it  is 
noteworthy  that  concentration  is  already  underway  in  the  e-cigarette  segment,  with 

211 R. Branston, Industry profits continue to drive the tobacco epidemic: A new endgame for tobacco control?, Tobacco 
Prevention & Cessation, 2021; Z.D. Sheikh, J.R. Branston, A.B Gilmore, Tobacco industry pricing strategies in response 
to excise tax policies: a systematic review, Tobacco Control, 2021. 
212 See ANNEX 6: (SME check) for details. 

108 

 
 
 
transnational tobacco companies and large companies taking up a greater share of the market 
over time. 

▪  The impact of regulatory costs (described in ANNEX 3:) would be mainly borne by SMEs, as 
the large companies active in this segment are already equipped to deal with the holding and 
movement rules for excise goods. However, the average additional costs incurred by operators 
is estimated at around EUR 1 500 - 2 000 annually, with a negligible effect on overall SME 
competitiveness. 

▪  The impact of regulatory costs increase is estimated to be slightly higher for manufacturer than 
for  importers.  However,  since  manufacturers’  operation  volumes  are  deemed  larger  than 
importers’  ones,  the  effects  on  price  levels  would  be  similar  and  no  trade-off  between  EU-
manufactured and imported products is expected. 

From the other side, the initiative will harmonise regimes for new products that, in turn, would remove 
the  market  barriers  caused  by  the  fragmentation  of  national  rules  and  regimes,  creating  new 
opportunities  for  operators,  and  especially  SMEs,  to  expand  their  activities  to  other  markets. 
Furthermore, the harmonisation would contribute to remove the disparities in taxation levels, which 
are behind unfair competition practices such as B2C online sales from countries where no excise is 
levied, and cross-border shopping. This issue affects primarily the e-cigarettes sector, which is mostly 
made of SMEs. Therefore, the proposed revision would help establish a level playing field, whose 
benefits will be mostly reaped by small players. 

109 

 
 
ANNEX 6: SME CHECK 

OVERVIEW OF IMPACTS ON SMEs 

Relevance for SMEs 

The  initiative  is  only  partly  relevant  for  SMEs.  With  regards  to  the  different  elements  of  the 
proposed revision: 

•  The revision of EU minima for tobacco products is not relevant for SMEs, as they play a 
negligible  role  limited  to  the  manufacture  of  cigars,  pipe  tobacco  and  other  specialty 
products. 

•  The enlargement of the scope to HTP and tobacco related products is not relevant for SMEs, 
as these segments are largely dominated by transnational tobacco companies and other large 
companies.  However,  the  harmonisation  of  the  tax  regime  for  e-cigarettes  is  considered 
relevant for SMEs involved in the manufacture and trade of liquids. However, due to the 
ongoing concentration in this segment, its relevance for SMEs is expected to decline in the 
future.  

•  The enlargement of the scope to raw tobacco is considered relevant for SMEs involved in 

the tobacco growing sector. 

(1) Identification of affected business and assessment of relevance  

Are SMEs directly impacted? Yes 
In which sectors? 
The manufacturing stage, which would be directly affected by the initiative, is largely dominated 
by  large  enterprises,  with  SMEs  playing  a  limited  role  only  in  selected  market  segments,  in 
particular: 

▪  Manufacture of Tobacco Products. The manufacture of traditional tobacco products is largely 
dominated by large enterprises. In 2023 there were 306 enterprises involved in the manufacture 
of  tobacco  products,  of  which  34  were  large  enterprises.213  However,  these  enterprises 
accounted for nearly 87% of the workforce and for 90% of total turnover. The importance of 
large enterprises has increased in recent times, as their share of total employment and turnover 
has increased since 2021. In practice, the manufacture of tobacco products is largely controlled 
by  four  transnational  tobacco  companies,  plus  some  national  players,  which  in  particular 
dominate the cigarettes markets. Only the production of cigars/cigarillos, pipe and waterpipe 
tobacco is mostly controlled by a limited number of medium sized players. 

▪  Manufacture  of  Non-Harmonised  Products.  The  production  of  HTP  is  dominated  by 
transnational tobacco companies, with SMEs virtually playing no role. Regarding e-cigarettes, 
it  is  estimated  that  this  sector  includes  300  manufacturers  of  e-cigarettes  liquids214,  SMEs 
accounting  for  the  near  totality  of  e-cigarettes  manufacturers/importers.  However,  in  recent 
years  the  market  value  controlled  by  transnational  tobacco  companies  and  other  large 

213 EUROSTAT’s Structural Business Statistics (SBS) 
214 Based on information gathered directly from authorities and stakeholders and other secondary sources. External study 

110 

 
 
 
 
 
 
corporation (especially Asian companies) has increased, in conjunction with the expansion of 
the ‘closed systems’. The share of transnational tobacco companies in the e-cigarette segment 
has grown from 2% in 2014 to  possibly  70% in  2023. The nicotine pouches sector appears 
largely dominated by transnational tobacco companies and their subsidiaries although there are 
also a few independent  producers, especially in  Sweden and Denmark, which are often also 
snus producers. In value terms, large company accounts for the large majority of the market, 
with small players below 1% of market share.   

The role of SMEs is more important in the other stages of the tobacco supply chain, on which the 
initiative would have a direct effect, in particular: 

▪  Tobacco Processing.215 First processing is carried out by around 30 enterprises, with the bulk 
of  activities  being  accounted  for  by  subsidiaries  of  key  players  in  the  tobacco  industry, 
vertically integrated manufacturers of tobacco products, and other large operators. There are 
possibly 12-15 small processors, estimated to cumulatively accounting for 10% of total tobacco 
processed in the EU. Second processing is  even more concentrated, with one main operator 
based in France, a few subsidiaries of first processing large companies, and possibly less than 
ten small processors. 

▪  Importing  and  Wholesaling.  In  2022  there  were  almost  2  000  enterprises  involved  in 
wholesaling of tobacco products.216 With an average workforce of 25 employees and turnover 
of  EUR  45  million,  these  enterprises  would  qualify  as  SMEs.  Regarding  non-harmonised 
products, there are around 3 000 importers dealing with e-cigarettes, with a clear prevalence of 
SMEs, while import of HTP and nicotine pouches is mostly carried out by transnational tobacco 
companies.217 

Estimated number of directly affected SMEs 
The number of SMEs potentially directly affected by the initiative is estimated at around 5 300 EU-
wide. 

Estimated number of employees in directly affected SMEs 
There  is  no  data  on  the  associated  employment.  However,  since  over  half  of  these  SMEs  are 
importers, the number of employees is expected to be minimal. 

Are SMEs indirectly affected? Yes 
In which sectors? What is the estimated number of indirectly affected SMEs and employees? 

The initiative would have an indirect effect on the following sectors, because of reduced tobacco 
consumption: 
▪  Tobacco Growing. 15 000 farmers grow tobacco, down from an estimated 60 000 active in 
2010. These are typically small operators, on average cultivating 2-3 hectares. Tobacco growers 
are usually members of umbrella organisations (Producers’ Organisations and Associations of 
Producers  Organisations).  As  a  result  of  a  progressive  concentration,  tobacco  farms  are 
controlled by just two to four umbrella organisations in most tobacco growing countries. 

215 See ANNEX 15: for details on the raw tobacco supply chain  
216 EUROSTAT’s Structural Business Statistics (SBS) 
217 External study. 

111 

 
 
 
 
 
 
 
 
▪  Retailing of tobacco and related products. This sector shows significant differences across 
Member  States,  with  countries  where  tobacco  products  is/used  to  be  a  state  monopoly,  and 
others where tobacco products are mostly sold in supermarkets and grocery stores. There are 
no consolidated statistics on tobacco retailers in the EU: while EUROSTAT statistics identify 
67 181 retailers of tobacco products, industry sources and national reports concerning a sample 
of nine Member States provide an estimate of 133 000 tobacco shops and another 90 000 points 
of  sales  (gas  stations,  bars  &  restaurants,  supermarkets’  outlets).  Tobacco  shops  are 
overwhelmingly micro and small businesses.218  To a large extent new products are sold at retail 
in the same generalist or specialised stores that sell tobacco. In addition to this, e-cigarettes can 
be  purchased  in  small,  specialised  ‘vape-shops’  and  online  (where  national  legislation 
allows).219 A few HTP specialised shops also exist in few large EU cities. 

Source: External study 

(2) Consultation of SMEs Stakeholders 

How has the input from the SME community been taken into consideration? 

SMEs were consulted in the context of the different consultation activities ran in preparation for 
the impact assessment, and their input has been duly taken into consideration. 

First,  the  public  consultation  has  been  implemented  through  an  on-line  questionnaire  survey, 
accessible through the Commission website Have Your Say, from 30 March to 22 June 2021. 

518  economic  operators,  including  business  associations  and  organisations,  companies,  trade 
unions, contributed to the public consultation and have been grouped in a category called ‘industry’ 
for the purpose of the analysis. Among these, 321 (62%) were micro enterprises, 83 (16%) were 
small enterprises, and 41 (8%) were medium enterprises, with SMEs cumulatively accounting for 
about 86% of industry bodies participating in the public consultation. In particular, 101 industry 
stakeholders from the e-cigarette manufacturing/importing business, among which 89 SMEs. 

From the analysis of the public consultation results, it appears that  respondents from companies 
qualifying as SMEs (394) supported the harmonisation of e-cigarette liquids containing nicotine at 
57%  (64%  of  medium-sized  companies,  65%  of  small-sized  companies,  54%  of  micro-sized 
companies), and not containing nicotine at 46% (40% of medium-sized companies, 52% of small-
sized companies, 44% of micro-sized companies). Regarding the potential excise duty rate to be 
applied to e-cigarette liquids, 45% of the companies qualifying as SMEs expressed a preference for 
the EUR 0.10 per ml option (36% of medium-sized companies, 56% of small-sized companies, 
43% of micro-sized companies), while 40% of them preferred no taxation at all (48% of medium-
sized companies, 29% of small-sized companies, 42% of micro-sized companies). 

218  Confédération  Européenne  des  Détaillants  en  Tabac  -  CEDT  survey  involving  over  9,000  tobacco  shops  in  eight 
Member States: 59% shops employed one or two persons, another 31% employed three or four people, and just 10% 
employed five or more. First EU-wide CEDT Survey for Tobacco Retailers, 2024 
219 The exact number of vape-shops across the EU is unknown, but according to industry’s stakeholders there are no less 
than 65 000 specialised e-cigarettes retailers based in eight main EU markets, i.e. Belgium, Germany, Spain, France, Italy, 
the Netherlands, and Romania. 

112 

 
 
 
 
 
 
SMEs were also consulted in the context of targeted interviews, which involved 41 entities across 
the EU, through the associations representing their interests in various product segments at national 
and  EU  levels.  While  these  bodies  typically  represent  an  entire  market  segment  or  stage  in  the 
tobacco products supply chain, due attention was paid to aspects of relevance for SMEs. This was 
particularly  the  case for  interviews with  entities  active in  tobacco growing, tobacco processing, 
manufacturing  and  wholesaling  of  new  products  (notably  e-cigarettes),  and  retailing,  which  as 
indicated above in Step 1 are those with the greatest involvement of SMEs. These interviews were 
particularly useful to gather information for the estimation of administrative burdens potentially 
linked to the harmonisation of new products and raw tobacco. 

Finally, the call for data allowed for the collection of information on SMEs involved in the retailing 
of tobacco products.   

Are SMEs’ views different from those of large businesses? Not fundamentally according to the 
consultation activities carried out. 

(3) Assessment of impact on SMEs 

What are the estimated direct costs for SMEs of the preferred policy option? 

The assessment of direct impacts on SMEs focuses on the proposed harmonisation of e-cigarette 
taxation and on the enlargement of the scope of the Directive to raw tobacco. SMEs operating in 
the  manufacture,  import  and  wholesale  of  traditional  tobacco  products  are  deemed  already 
compliant. 

Distinctions  between  large  companies  and  SMEs  have  been  fully  considered,  in  the  data  and 
assumptions underlying the cost benefit assessment of the proposed measures, which were tailored 
to the specific constraints faced by SMEs.220 Other elements have been assessed qualitatively. 

The proposal for EU excise duty minima on e-cigarette liquids would generate compliance costs 
for all economic operators involved including SMEs: 

▪  administrative costs which are primarily related to general  excise arrangement obligations 
such  as  to  obtain  authorisation,  adopt  record-keeping  tools  and  procedures,  fill-in  tax 
declarations;  

▪  adjustment costs to  establish and operate a tax  warehouse (where required), to  install and 

operate IT software for excise control. 

The exact amount of these costs depends on how each EU country implements EU rules. Indeed, 
while common provisions are agreed at EU level, Member States retain room for manoeuvre when 
setting up specific requirements and obligations on economic operators. Second, as e-cigarettes are 
already subject to fiscal regulation in several Member States, some of the compliance costs linked 
to the EU intervention would simply replace costs resulting from national legislation and, therefore, 
would not be fully incremental. 

220 For instance, the costs of setting up a tax warehouse (where required for new products) is deemed much higher for 
large company than for SMEs, in relation to the different volume of activities. 

113 

 
 
 
 
The additional costs incurred would amount on average to EUR 1 500 – 2 000 annually for each 
SME  operating  in  the  e-cigarettes  segment  (costs  are  higher  for  manufacturers  than  for 
wholesalers/importers).  

Additional costs incurred to the e-cigarette industry sector (aggregated) are distributed as follow: 

▪  registration in the excise system: one-off cost, around EUR 0.5 million; 
▪  set up a tax warehouse: one-off set-up cost of EUR 9.1 million221, and recurrent costs of EUR 

1.0 million per year; 

▪  IT set-up and operation related to the EMCS: recurrent costs of EUR 5.4 million. 

The proposal to enlarge the scope of the Directive to raw tobacco would generate compliance costs 
for economic operators involved in tobacco processing including a few SMEs. The additional costs 
for  SMEs  would  include  a  one-off  component  of  approximately  EUR  0.1  million  (essentially 
registration  costs),  and  a  recurrent  cost  component  of  EUR  0.8  million  (mostly  EMCS-related 
costs). For instance, annual costs for a first processing SME would amount to roughly EUR 6 000 
/ year, and to EUR 2,000 / year for an SME importing raw tobacco. 

What are the estimated direct benefits/cost savings for SMEs of the preferred policy option? 

The proposed excise harmonisation of new products would remove the market barriers caused by 
the fragmentation of Member States rules and regimes, creating new opportunities for operators, 
and especially SMEs, to expand their activities to other European markets. EU-wide approach will 
reduce  trade  uncertainties  and  increase  legal  certainty  by  reducing  the  divergent  interpretations 
around  product  definition,  administrative  difficulties  and  associated  costs.  Furthermore,  the 
initiative  would  contribute  to  remove  the  disparities  in  taxation  levels,  which  are  behind  unfair 
competition practices like the direct B2C sales online from excise-free countries, and cross-border 
shopping.  This  issue  affects  primarily  the  e-cigarettes  sector,  which  is  mostly  made  of  SMEs. 
Therefore, the legislative initiative would help establish a level playing field, whose benefits would 
be  mostly  reaped  by  small  players.  Although  they  are  tangible,  these  benefits  cannot  be 
quantitatively assessed. 

1.  What are the indirect impacts of this initiative on SMEs? 

The EU minimum rates foreseen under the preferred policy option are expected to have an impact 
on sales. Reduced consumption would indirectly affect businesses including SMEs operating at all 
stages of the supply chain. As far as SMEs are concerned: 

▪  The impact of a reduction in demand for tobacco would have an impact on tobacco growers, 
but its size is not straightforward and not necessarily proportional.  First,  the agricultural 
market is highly dependent on policy decisions on subsidies, tariffs and quotas on imports; 
this is particularly the case for tobacco, as the vast majority of it is imported.222 Second, the 
EU production of tobacco has been continuously declining due to a combination of different 

221 Setting up a tax warehouse is a one-off investment cost that can be annualised based on the depreciation period.  
222 Raw tobacco available for manufacturing in the EU amounted about 440 thousand tonnes in 2020 whereas only roughly 
140 thousand tonnes were grown in the EU in 2019. 

114 

 
 
 
 
reasons over the past decade.223 Third, the final impact on employment may be dampened 
by switching to other crops, which is frequent in agriculture. 

▪  The impact of a reduction in demand on retailers would vary across EU countries due to the 
diversity of market structures, as explained at step (1). Retail outlets typically do not sell 
only  tobacco products.  Ultimately,  the impact  will  depend on the share of revenue from 
tobacco products out of the total revenue. It is not possible to quantify it due to the lack of 
reliable data. 

Source: External study 

(4) Minimising negative impacts on SMEs 

Are SMEs disproportionately affected compared to large companies? Yes, to some extent. 

SMEs  are  less  capable  overall  to  deal  with  new  administrative  requirements  and  absorb  cost 
increase than large companies. In addition, since management of the excise regime is characterised 
by economies of scale in administrative and financial costs, SMEs would be comparatively more 
affected. 

Have  mitigating  measures  been  included  in  the  preferred  option/proposal?  No,  it  is  not 
appropriate. 

Tobacco  is  a  peculiar  product  for  which  the  standard  criteria  of  industry  competitiveness  and 
market impact must be considered with caution, since the ultimate policy goal is to reduce demand 
and consumption. Accordingly, no mitigation measures are foreseen for SMEs. Nonetheless, the 
proposed measures have been conceived to minimise the risk of giving a competitive edge to certain 
products  against  others,  in  particular  by  preventing  tax-induced  substitution,  and  therefore  to 
companies operating in certain segments.  

Contribution to the 35% burden reduction target for SMEs 

Are there any administrative cost savings relevant for the 35% burden reduction target for 
SMEs? No, the initiative is only partly relevant for SMEs, and for the reasons stated above, no 
SME-specific cost saving measures are envisaged. 

223 This reduction is in line with the drop in cultivated surface, which nearly halved in ten years, from an estimated 112 
000 ha to less than 60 000 ha in 2019. Information collected indicates that this trend has continued in recent years. 

115 

 
 
 
 
 
ANNEX 7: SMOKING PREVALENCE AND PRICE LEVELS 

1.  Smoking prevalence 

In 2023, smoking prevalence amounted to 24% of EU population (older than 15 years old), which 
corresponds to approximately 92.1 million people (see  

Figure A7-1), i.e., one percentage point less than 2020 and four points down compared to 2012 levels. 
However,  there  remain  substantial  differences  between  countries  and  population  groups.  In  some 
Member  States  (e.g.  Greece,  Bulgaria  and  Croatia)  smokers  still  represent  more  than  35%  of  the 
population, while in others (e.g. Finland, the Netherlands, and Sweden) prevalence has fallen below 
15%.  

Figure A7-1 summarises the smoking prevalence trends occurred in 2020-2023 in Member States. 
While  Eurobarometer  estimates  are  subject  to  some  margin  of  errors  (due  to  the  numerosity  of 
samples), data would indicate a substantial decline (more than 3 percentage points) in some countries 
(Czechia,  Greece,  Slovenia,  Luxembourg)  but  also  substantial  increase  in  others  (e.g.  Romania, 
Austria, Estonia). 

Figure A7-1. Smoking prevalence in Member States 

s
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EU avg  

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Source: External study based on Eurobarometer, wave 99.3. 
Note: Data refer to current use of any of the following products: cigarettes, cigars, cigarillos or a pipe. 

116 

 
 
 
 
 
 
 
 
Figure A7-2. Smoking prevalence trends in Member States (2020 - 2023) 

Source: External study based on Eurobarometer (various editions) 

2.  Smoking prevalence. Gender and socio-economic groups 

Gender. Males are heavier smokers than females. In 2023, the prevalence of smoking among males 
at  the  EU  level  was  30%,  with  compared  with  20%  among  females.  Since  2012,  when  the  first 
Eurobarometer  survey  on  attitudes  towards  smoking  was  carried  out,  prevalence  declined  in  both 
gender  groups,  but  the  decrease  was  relatively  stronger  among  males.  Indeed,  among  males, 
prevalence passed from 32% in 2012 to 24% in 2023, with a decline of 8 percentage points, i.e. about 
one quarter. Among females, prevalence declined by one fifth (i.e. from 24% to 20%).224 As shown 
in  

224 External study. 

117 

 
 
 
 
 
Figure A7-3 below, gender attitudes towards smoking vary considerably across Member States: in 20 
countries  the  difference  between  males  and  females  is  wider  than  at  the  EU  level,  reaching  or 
exceeding 15 percentage points in Bulgaria, Estonia, Lithuania, Latvia and Slovakia. In the remaining 
Member States, the gender gap is within 1 to 4 percentage points (Denmark, Spain, Finland, France, 
the Netherlands, and Sweden) or simply non-existent (Ireland, where 16% of both males and females 
declared smoking). 

118 

 
 
 
 
Figure A7-3. Smoking prevalence by gender in the Member States (2023) 

Source: External study based on Eurobarometer wave 99.3 

Age group. Smoking prevalence is distributed across age groups follow a reverse U curve (see Figure 
A7-4. Prevalence is below average in the youngest age group (15-24) and in the oldest one (55+.). 
Since 2015, the prevalence among young people has declined by 3 percentage point. However, in five 
countries  it  remains  above  30%  (Poland,  Hungary,  Cyprus,  Croatia  and  Latvia).  The  lowest 
prevalence  among  people  aged  15-24  is  found  in  Sweden  (3%)  where,  however,  there  is  a  high 
prevalence of consumption of snus (8% among the 16-29).225 

Figure A7-4. Smoking prevalence by age group (2023) 
A)  EU-level 
prevalence by age group 

smoking 

B) Smoking prevalence in the 15-24 age group, across Member 
States 

Source: External study based on Eurobarometer wave 99.3  

225 External study. 

119 

 
 
 
 
 
 
Note: in Panel A, figures refer to simple average of Member State value 

Education and socio-economic conditions. Smoking prevalence is inversely correlated with socio-
economic conditions, represented by the professional status. In 2023, prevalence was highest among 
the  unemployed  (40%)  and  manual  workers  (37%),  and  lowest  among  managers  (20%)  and 
especially, retired people and students (both at 16%), with self-employed, white collars and house 
falling in between (at, respectively, 28%, 25% and 23%). Compared with the situation in 2012 found 
by the first Eurobarometer survey, smoking prevalence declined for all professional categories, with 
the only exception of house persons which displayed a marginal increase from 21% to 23%. Again, 
there  are  differences  across  Member  States,  but  the  pattern  found  at  the  EU  level  is  generally 
confirmed. In 2023, in no less than 22 countries the unemployed and/or the manual workers displayed 
the  highest  prevalence  of  smoking.  Only  in  five  Member  States  the  ranking  was  led  by  other 
categories, namely self-employed (in Italy, Luxembourg and Portugal) and house persons (in Belgium 
and Hungary). 

Level of education. Smoking prevalence is partly negatively correlated with the level of education. 
In  2023,  the  highest  prevalence  of  smoking  (28%)  was  found  among  people  holding  a  secondary 
degree, followed by individuals with only primary education (24%) and those with tertiary education 
(20%). No precise comparison is possible with results of earlier surveys, but data on the age of leaving 
formal education suggests a decline in smoking prevalence by 3 to 5 percentage points since 2012. 
As usual, there are differences across countries, but as shown in Figure A7-5 below, in nearly two 
thirds Member States the highest prevalence of smoking was found among people with a secondary 
degree. In the remaining Member States the ranking is usually led by holders of primary education, 
with only a couple of cases (Italy and Bulgaria), where prevalence is highest among those with tertiary 
education.226 

Figure A7-5. Smoking prevalence by education level (2023) 

226 External study. 

120 

 
 
 
 
Source: External study based on Eurobarometer wave 99.3 
Note: The three levels of education result from the aggregation of data for the nine categories of educational achievement 
(from  pre-primary  education  to  doctoral  education)  used  in  the  Eurobarometer  survey.  This  is  intended  to  smooth 
differences attributable to the varying structure of education systems across Member States. 

3.  Affordability and the role of EU minima on tobacco products 

As scientific literature shows, the causal link between taxation and smoking cessation patterns is far 
from  linear.  Many  policy  measures  can  reduce  demand,  namely:  product  regulation,  smoke-free 
environment  policies,  tobacco  advertising  bans,  health  warnings  and  labelling,  smoking  cessation 
support, mass media campaigns, etc. Still, there is overwhelming consensus among the public health 
experts’ community and concerned stakeholders that taxation is the single most effective measure to 
curb tobacco consumption. The analysis of the scant literature on the subject and the public health 
experts’ own guess-estimates indicates that – depending on the country – it is reasonable to believe 
that between one-third and a half of the smoking prevalence decline might be roughly attributed to 
the impact of taxation policies.227 It is generally observed that in reality tobacco control policies and 
tobacco taxation tend to operate in synergy with one another, and the credibility and effectiveness of 
the former is greatly enhanced by consistency with the latter, in that taxation policy delivers an overall 
‘price  signal’  to  society  that  smoking  is  indeed  a  harmful  activity  for  consumers  that  should  be 
discouraged by all possible means. So, the relationship between the two in the achievement of certain 
targets  is  not  substitutive  but  rather  complementary  in  fostering  a  greater  reduction  in  smoking 
prevalence than each element would have achieved alone. 

The  standard  indicator  used  in  scientific  literature  to  measure  the  affordability  of  cigarettes  is 
represented by the relative income price (RIP), i.e. the percentage of per capita gross domestic product 
(GDP) (as a proxy for disposable income) required to buy 100 packs of cigarettes.228 An increase in the 
RIP value roughly indicates that cigarettes have become less affordable and vice versa.229Figure A7-6 
below provides the current RIP levels in Member States concerning both the weighted average price 
(WAP) of cigarettes registered in 2023 and the lowest price category available on the market (Pmin). As 
shown, affordability levels vary greatly across Member States: the highest RIP levels (hence lowest 

227 External study. 
228 See: Blecher EH, van Walbeek CP, “An international analysis of cigarette affordability”, Tobacco Control 2004.  
229 Cross-country comparisons of cigarette affordability based on simple RIP values would nevertheless require some 
words of caution since there can be significant inequalities in income distribution and/or in the  consumption patterns 
among different socioeconomic groups between countries that can eventually distort the results (External study). 

121 

 
 
 
affordability levels)  can  be found in countries  with comparatively lower income, such  as Romania, 
Bulgaria and Hungary. Conversely, cigarettes are most affordable in Luxembourg and Sweden.230 

Figure A7-6 Affordability of cigarettes (RIP index) across EU countries (2023) 

Source: External study 
Notes: The RIP index is calculated by dividing the price of 100 packs of cigarettes (WAP or lowest price – Pmin) by the 
GDP per capita (as a proxy of average income). The highest is the index, the lowest is the affordability. 

The  affordability  of  cigarettes  has  only  marginally  declined  over  time:  decreased  until  2014,  then 
substantially stalled until 2019, and registered a decrease again in 2020. In 2023, the EU median RIP 
index was only slightly higher than in 2011 (i.e. 2.1% instead of 1.8%) and no relevant change occurred 
between 2020 and 2023. In the case of FCT, some reduction in affordability has instead been registered, 
as the affordability index moved from 1.5% in 2020 to 1.7% in 2023. 

230 The GDP per capita is an imperfect proxy of consumer’s income. Other metrics can be developed reflecting more 
accurately the disposable income and, therefore, the actual affordability. The current RIP formulation has the advantage 
of being immediately available for virtually all countries in the world, thus allowing WHO to conduct comparisons at the 
international level. In the EU, a  more precise  index can be elaborated starting from the Eurostat’s disposable income 
indicator, which is, however, expressed in purchasing power terms and, therefore, have to be translated in nominal terms 
to make it coherent with the numerator of the RIP formula, i.e. price levels (or prices have to be translated in PPP terms). 
As alternative metrics for the calculation of a EU-specific RIP needs are not readily available (they need to developed, 
validated and made stable by Eurostat). It was used provisionally the RIP standard formulation, based on GDP per capita, 
as it nonetheless provides a sufficiently accurate picture of the affordability situation in Member States (External study). 

122 

 
 
 
 
 
 
Figure A7-7 RIP index trend in the EU (2011-2023) 

Source: External study based on DG TAXUD (Price data); Eurostat (DGP per capita data) 
Notes: The RIP index is calculated by dividing the price of 100 packs of cigarettes (WAP) by the GDP per capita (as a 
proxy of average income). The higher the index, the lowest is affordability.  The tree values presented in the diagram 
refer to the minimum, median and maximum RIP value among Member States. 

The lack of change in RIP levels registered in the past few years can be attributed partly to the fact that 
the EU minima have lost  their traction on actual  rates  applied in Member  States.  Additionally,  the 
current approach to EU minima is not conducive to the reduction of affordability as they are expressed 
in nominal terms and do not consider the disparities of income or purchasing power that exist between 
Member States. For instance, in nominal terms cigarettes in Bulgaria and Romania are among the 
cheapest in the EU, but the RIP index in these countries is the highest.  Conversely, price and tax 
levels in Denmark and Sweden are among the highest in the EU, but in terms of RIP, cigarettes are 
more affordable there than in most EU countries. 

At the same time, it is worth noting that the relation between affordability and prevalence is 
complex. As  

123 

 
 
 
Figure A7-8 shows, prevalence is counterintuitively higher where the RIP index is also higher (thus 
affordability is lower). This is due to manufacturer’s pricing policies and the inelastic nature of the 
demand for cigarettes. 

124 

 
 
 
 
Figure A7-8. Correlation between RIP Index and smoking prevalence in Member States (2023) 

Source: External study based on Eurostat, Eurobarometer, Euromonitor and TEDB data. 
Note: The RIP index is calculated by dividing the price of 100 packs of cigarettes (WAP) by the GDP per capita (as a 
proxy of average income): the higher the index, the lower the affordability. 

4.  Excise duty levels  

Member States apply different levels of excise duties to tobacco products. In most cases, cigarettes 
are  subject  to  the  highest  excise  levels  per  unit  of  consumption,  but  exceptions  exist  (notably  for 
cigarillos). 

In 2023, the average EU excise duty levied on cigarettes was about EUR 187 (per 1 000 sticks). As 
shown in Figure A7-9 below, there are significant differences between Member States. On the one 
hand, six Member States (Denmark, Belgium, Finland, France, the Netherlands, and Ireland) charge 
excise duty above the EU average, with values ranging between EUR 262 and EUR 469, i.e. between 
1.4  and  2.5  times  the  EU  average.  On  the  other  hand,  in  a  number  of  Member  States  duty  levels 
remain below EUR 150, i.e. about 25% below the EU average. 

Figure A7-9. Excise duty levels for cigarettes in Member States 

Source: External study 
Note. Figures refer to EDY at WAP.   

125 

 
 
The average EU duty levied on FCT was EUR 153 per kg. As shown in, the Figure A7-10 extent of 
divergence between national levels is even higher than for cigarettes, with  five countries applying 
rates  exceeding  EUR  200/kg  (Finland,  the  Netherlands,  Denmark,  France  and  Ireland),  while  a 
number of Member States charge less than EUR 100/kg (Hungary, Luxembourg, Poland, Germany, 
Bulgaria, Latvia and Spain). 

Figure A7-10. Excise duty levels for FCT in Member States 

Source: External study 
Note. Figures refer to EDY at WAP. 

The EU average excise for cigars is EUR 727 per 1 000 items while for cigarillos it is EUR 137 per 
1 000 units, and for OST, EUR 132 per kg of the product. 

126 

 
 
 
ANNEX 8: CROSS-BORDER FLOWS OF TOBACCO AND NEW PRODUCTS 

1.  Context 

Significant price differences between Member States (due to differences in excise duty rates) continue 
to be a major driver of excessive ‘cross-border shopping’, i.e. the activity wherein private individuals 
buy tobacco products abroad because of lower taxes and bring them home for their consumption. It 
leads to situations where the conditions currently provided in Article 32 of the Horizontal Directive 
are  abused.  This  article  establishes  that,  when  excise  goods  are  acquired  and  moved  to  another 
Member State by private individuals for their own use, these goods are subject to the excise duties of 
the country of purchase and not of the country of consumption. To prevent abuses, Member States 
may  establish  rules  to  quantify  the  extent  of  the  individual’s  own  use  principle,  including  setting 
‘guide levels’ of allowed goods, which cannot be lower than 800 cigarettes, 400 cigarillos, 200 cigars 
and 1 kg of smoking tobacco. 

Abusing the current rules includes: (1) purchases for family members, friends etc.; (2) ant-smuggling, 
also referred to as ‘bootlegging’ (i.e. frequent shopping trips, e.g. multiple trips per day or week to 
purchase small, legitimate quantities of tobacco for re-selling at a profit); and (3) organised smuggling 
activity, especially when it involves buying cigarettes in low-price markets to resell them in high-
price markets that are not geographically close. 

Excessive cross-border flows of tobacco products have negative effects that are mainly: 

▪  They can undermine Member States policies to deter tobacco consumption through taxation, 

since a consumer may procure cheaper products in neighbouring countries. 

▪  They have a distributional impact on Member States’ tax revenues, with low-tax Member States 

registering an increase of revenue at the expenses of high-tax Member States. 

They can distort competition and market functioning through ‘cross-border substitution’. In the past, 
some cases were registered (and sanctioned), involving manufacturers’ practice of oversupplying one 
market, with the surreptitious aim of reaching a neighbouring market. 

2.  Assessment of cross-border flows 

2.1.  Methodology  

Accurate  estimates  of  the  extent  of  cross-border  flows  are  difficult  to  produce,  however  certain 
assessments  of  this  phenomenon  are  possible.  To  measure  the  extent  of  cross-border  flows,  the 
External study applied the following methods: 

▪  Counterfactual sales benchmarking 

▪  Survey-based estimates 

▪ 

‘Trade shock’ method 

However, due to methodical limitations (presented in the Table A 8-1) the estimates provided should 
be interpreted with caution. 

Table A 8-1. Methodological approach   
Method  
Counterfactual sales 
benchmarking 

Description  
Relies  on  two  sources  of  information:  (1) 
Eurobarometer survey results, which provide 
insights  into  consumption  patterns  and  the 

Limitations  
▪ 
consumption 

Releases 

are 

for 
an 

127 

 
 
average  per  capita  consumption  of  different 
products  by  country  residents,  and  (2) 
releases  for  consumption,  which  serve  as  a 
proxy for sales to final consumers within the 
domestic territory. 

Survey-based 
estimates 

‘Attitudes  of  Europeans 

Based  on  the  Special  Eurobarometer  385, 
titled 
towards 
Tobacco’  conducted  by 
the  European 
Commission's Directorate-General for Health 
and  Consumers.231  The  survey  included 
questions  on  the  frequency  of  cigarette 
consumption and, for daily regular smokers, 
a  question  about  the  average  number  of 
cigarettes  smoked  per  day.  Additionally,  it 
asks about the share of cigarettes purchased 
across  borders,  with  response  options:  less 
than 5%, 5% to 19%, 20% to 50%, and more 
than 50%. This set of questions allows for the 
calculation of lower and upper bounds for the 
volume of cross-border purchases for each of 
the  2  137  respondents  who  answered  this 
question.  Consequently,  a  central  estimate 
between the lower and upper bounds can also 
be derived.  

of 

The 

errors 

impact 

subjected 

imperfect  proxy  for  sales 
to final consumers.  
▪ 
average 
The 
cigarettes 
number 
smoked 
capita 
per 
estimated with survey data 
is 
to  errors 
related  to  the  sample  size 
and  design  of  the  error. 
are 
These 
the 
proportional 
to 
volumes/frequency 
of 
products  used.  Thus,  the 
relative error for cigarettes 
is 
lower 
incomparably 
than for other products.  
▪ 
of 
travellers and cross-border 
purchases 
be 
distinguished. 
▪ 
The  estimates  are 
outdated,  and  in  Member 
relative 
States  where 
to 
prices 
countries 
neighbouring 
have 
changed 
significantly, the estimates 
(expressed as a percentage 
of consumption) cannot be 
used 
approximate 
current levels.  
▪ 
estimate 
purchases.  
▪ 
due to sample size. 

Does not capture or 
fraudulent 

Natural  limitations 

compared 

cannot 

to 

231 Attitudes of Europeans towards Tobacco - May 2012 - - Eurobarometer survey. The fieldwork took place between 
February and March 2012, with the report published in May 2012. This survey aimed to assess tobacco consumption 
patterns, public attitudes towards tobacco use, and awareness of tobacco-related policies across EU Member States. It 
involved  a  representative  sample  of  EU  citizens  aged  15  and  over  from  all  27  Member  States  at  that  time,  totalling 
approximately 26 751 respondents.  

128 

 
 
 
 
 
‘Trade 
method 

shock’ 

the 

but 

eased 

These 

2020.232 

introduced 

throughout 

The  calculation  algorithm  follows  several 
steps. In the first stage, it estimates the yearly 
cigarette  consumption  for  each  respondent 
based  on  the  variable  concerning  daily 
cigarette  consumption.  In  the  second  stage, 
the lower, upper, and central estimates of the 
volume are calculated. In the final step, each 
household is weighted using the appropriate 
frequency  weight  to  obtain  estimates  at  the 
country level and for the EU overall. 
spread  of  COVID-19,  EU 
With 
governments 
restrictions  on 
cross-border travel, starting in most cases in 
March 
restrictions, 
2020,  were 
implemented 
remained 
later 
gradually 
substantially  in  place  in  2021,  significantly 
limiting  travel  across  borders  as  well  as 
purchases  by 
tourists  and  cross-border 
shoppers.  According to Eurostat, the value of 
purchases made on domestic territory by non-
residents dropped by 58% (in nominal terms), 
reflecting the fact that restrictions were only 
in effect from March onwards and that some 
travel was still permitted. It can be reasonably 
expected  that  cross-border  shopping  was 
similarly  constrained,  with  a  reduction 
proportionate to the decline in other types of 
purchases.  
The  measurement  is  based  on  shifts  in  two 
key  indicators:  (1)  the  value  or  volume  of 
domestic sales, and (2) the purchases (value 
or volume) made by residents, regardless of 
the country where the purchase occurs.  The 
the  measurement  of 
difference  between 
product 
the 
or  values 
volumes 
consumption level and the sales level allows 
to  observe  the  disparity  between  domestic 
sales 
residents' 
purchases abroad. 

to  non-residents 

and 

at 

Releases 

▪ 
for 
consumption  used  in  the 
formula  are  an  imperfect 
proxy  for  sales  to  final 
consumers. 
▪ 
Highly  reliant  on 
the accuracy of underlying 
particularly 
data, 
Eurostat’s 
published 
changes  in  the  value  of 
purchases  on  domestic 
territory by non-residents. 
▪ 
data 
availability.233 
▪ 
of 
travellers and cross-border 
be 
purchases 
distinguished 

impact 

cannot 

Poor 

The 

232 Due to the inability or significant restrictions on cross-border shopping, individuals who previously purchased tobacco 
cross-border in 2020 had to rely on domestic purchases and may have also reduced their overall consumption because of 
the  restrictions  to  buy  cheaper  products  across  border.  Moreover,  the  COVID-19  pandemic  and  associated  lifestyle 
changes likely had broader implications that influenced all consumption habits, including those related to manufactured 
tobacco products. 
233 Complete implementation would require granular summary data or access to micro-level data from all Member States, 
which are often not published, require a lengthy application process, or are not available at all. 

129 

 
 
 
In  addition  to  the  estimates  derived  with  these  methods,  available  figures  from  credible  sources 
covering  recent  periods,  notably  for  Denmark,  France,  Ireland,  the  Netherlands  and  Finland  were 
leveraged. Furthermore, various rescaling and extrapolation procedures were implemented234, using 
both the study’s own estimates and results from other relevant work. The combination of these models 
allows measurement of the sensitivity of cross-border flows to price differentials between bordering 
regions and provides for a quantitative estimate of flows that can be attributed to such flows. 

The analysis involved cigarettes, FCT, HTP and liquids e-cigarettes. For e-cigarettes and HTP, the 
estimates of cross-border flows were derived for the expected main destinations of such flows (see 
Figure A8-3). The estimates for Member States where cross-border flows were expected to be low 
(due  to  small  price  differentials)  were  subject  to  large  imprecisions  and  were  excluded  from  the 
analysis. 

For other products (cigars, cigarillos and OST) data were insufficient due to relatively small market 
size and the influence of average cross-border prices to develop any quantitative estimate but it can 
be  assumed  that  the  contribution  of  products  other  than  those  considered  to  cross-border  flows  is 
negligible.235 

2.2.  Cigarettes 

The estimated volume of cross-border purchases of cigarettes in other EU Member States amounted 
to  28  billion  cigarettes,  corresponding  to  7%  of  the  total  volume  of  cigarettes  released  for 
consumption.  Due  to  the  lower  excise  burden  in  the  Member  States  of  acquisition  cross-border 
purchases generate forgone excise revenue around EUR 2.9 billion. This corresponds to about 4.1% 
of the total excise revenue on cigarettes collected in the EU. 

In volume terms, the main destinations for cross-border trade were Germany and France, while the 
main sources of cigarettes purchased abroad were Poland, Spain and Luxembourg (see 

234 In particular in the case of liquids for e-cigarettes and HTP due to data unavailability 
235 External study.  

130 

 
 
 
 
Figure A8-1).236 

236 Although the numbers are subject to measurement error, the estimates for countries with relatively high confidence in 
the  data  represent  over  80%  of  both  inflows  and  outflows  providing  a  useful  validation  of  the  chosen  methods  and 
assumptions (External study). 

131 

 
 
 
 
 
 
Figure A8-1. Estimated net cross-border flows of cigarettes by Member State  (million sticks 
and % of domestic market RFC, 2023) 

Source: Commission analysis based on External study 
Note:  for  Member  States  not  displayed  quantification  of  flows  was  unfeasible.  *  Denotes  lower  confidence  around 
estimates.  

The highest inflows of cigarettes in relation to domestic release for consumption, were estimated for 
Finland (28.6%), Netherlands (24.8%), Denmark (23.5%), France (23.4%), and Ireland (22.7%), all 
of which have some of the highest excise-induced cigarette prices in the EU. The estimates for Ireland 
are high despite no land border with the EU. This is due to the fact that Ireland has the highest cigarette 
prices  in  the  EU.  The  highest  share  of  cigarettes  released  for  consumption  was  observed  in 
Luxembourg, with a net flow ratio of nearly -89%. 

The estimated volume of cross-border purchases of FCT in other EU Member States amounted in the 
range of 8.3 to 14 thousand tonnes (equivalent to 11.1-18.5 billion sticks).237  8.3 thousand tonnes, 
represents  the  sum  of  estimated  cross-border  flows  between  neighbouring  country  pairs  with 
significant  price  differentials  for  which  individual  estimates  could  have  been  derived  using 
counterfactual sales benchmarking method.  In other countries, where price differentials are smaller 
and cross-border flows not individually estimated, flow volumes are likely lower. 14 thousand tonnes, 
based on market size, should be considered as an upper bound.238 

237 A conversion rate of 0.75g=1 stick was applied. 
238 The dispersion of the lower and upper bound is relatively broad, as the individual estimates, treated as a lower bound, 
were derived for approximately 60% of the FCT market, necessitating extrapolation for the remaining 40% to obtain an 
upper-bound estimate. The largest FCT markets not covered by individual estimates are Spain, Italy, and Hungary, which 

132 

 
 
 
 
In  relative  terms,  the  volume  of  flows  ranged  between  12.6  %  and  20.  %  of  FCT  released  for 
consumption.  The  estimated  forgone  excise  revenue  was  between  EUR  1.26  billion  and  EUR  2 
billion. 

Similar  to  cross-border  trade  in  cigarettes,  Germany  and  France  were  identified  as  the  main 
destinations, while Poland and Luxembourg were the main sources of FCT purchased cross-border. 
In relative terms, compared to domestic releases for consumption, the movement of FCT was higher, 
with the volume of purchases exceeding 60% of recorded sales in Denmark and France. 

Figure A8-2.  Estimated net  cross-border flows for  FCT by  Member  State (tonnes and % of 
domestic market RFC, 2023) 

Source: Commission analysis based External study 
Note:  for  Member  States  not  displayed  quantification  of  flows  was  unfeasible  *  Denotes  lower  confidence  around 
estimates.  

2.3.  HTP and liquids for e-cigarettes 

For HTP and liquids for e-cigarettes, more substantial cross-border activities occur only in a limited 
number of Member States (for HTP in Germany, France and Austria, for e-cigarettes in Belgium, 
Germany, Ireland, France, Austria and Finland).239 

together accounted for approximately 21% of the EU FCT market by volume in 2023. However, with the exception of 
Slovenia  neighbouring  with Italy,  all  EU  Member  States  bordering  Spain, Italy,  and  Hungary had higher  FCT  prices 
giving no incentives for large scale cross-border flows. 
239 Estimations can be made:  if there is data concerning WAP and releases for consumption and if there is a similar price 
relationship among neighbouring Member States like it is for cigarettes. Due to these limitations, estimations could be 
derived only for listed Member States in Figure A8-3. 

133 

 
 
 
 
 
In the case of liquids for e-cigarettes, the estimated volume of cross-border purchases was close to 
300 thousand litres in 2023, close to 9 % of recorded sales. The aggregated forgone excise revenue 
was estimated at around EUR 14 million. Due to the domestic market size and relatively high prices, 
the largest inflows of cross-border liquids for e-cigarettes were recorded for France. The largest ratio 
of cross-border inflows to the recorded domestic market of 41.7% was estimated for Ireland. 

The  estimated  volume  of  cross-border  purchases  of  HTP  was  around  800  million  sticks  in  2023, 
equivalent to less than 2% of recorded sales. The aggregated forgone excise revenue was estimated 
at EUR 64 million. Due to the domestic market size and relatively high prices, the largest inflows of 
cross-border  HTP  were  recorded  for  Germany.  The  largest  ratio  of  cross-border  inflows  to  the 
recorded domestic market of 20.7% was estimated for France. 

Figure A8-3. Net cross-border purchase of liquids e-cigarettes and HTP (2023) 
A) E-cigarettes (thousand litres) 

B) HTP (million sticks)  

Source: External study 
Note: for Member States not displayed quantification of flows was unfeasible 

134 

 
 
 
 
 
 
ANNEX 9: ILLICIT TRADE AND MANUFACTURING OF TOBACCO 
PRODUCTS 

1.  Overview 

The  illicit  trade  of  tobacco  products  (ITTP)  has  different  magnitude  and  characteristics  across 
Member  States.  Some  countries  can  be  more  exposed  to  illicit  trade  for  geographical  reasons 
(bordering  with  illicit  trade  hubs),  others  for  enforcement  capacity  deficits,  or  widespread  social 
acceptability of illicit products consumption. The value of the potential market – determined by the 
number of consumers and price levels - is another relevant factor.  

Most of the illicit tobacco trade consists of cigarettes, but tax authorities, industry and public health 
stakeholders  agree  that  the  illicit  trade  of  other  tobacco  products  (e.g.  waterpipe  tobacco  (WPT), 
heated tobacco products) is on the rise. Also, tobacco related products (especially in the case of liquids 
for e-cigarettes) and unmanufactured tobacco are subject to illicit trade.  
Illicit cigarettes are generally segmented into three categories:240 (1) contraband products, i.e. branded 
products manufactured by a legitimate operator in a third country that are smuggled into the EU; (2) 
counterfeit products, i.e. fraudulent imitations of branded products illegally manufactured and sold 
by non-authorised operators; and (3) ‘illicit whites’, i.e. non-branded cigarettes which are generally 
manufactured  by  a  legitimate  operator  in  a  third  country,  which  are  diverted  to  illicit  trade  and 
smuggled  into  the  EU.241  Illegal  tobacco  products  are  mostly  smuggled  into  the  EU  through  the 
Eastern borders, the Balkan route, or from North Africa.  

Smuggling through external borders is enabled inter alia by tax (hence price) differences with non-
EU countries (both neighbouring and far away) and can be influenced by the extent of permeability 
of borders and by the penalties imposed. However, in recent years, a surge in illicit manufacturing 
within  the  EU  has  been  registered.  Illicit  manufacturing  has  developed  within  the  EU  through 
exploiting  the  weaknesses  in  the  monitoring  and  control  of  the  tobacco  supply  chain  and  the 
widespread availability of idle machinery following the downsizing and concentration of the legal 
sector. Policy measures against illicit manufacturing require strengthening controls over the tobacco 
and precursors supply chain. As it is noted in the report on the implementation of the Strategy to step 
up the fight against the illicit tobacco trade242 published in May 2017243, the measures taken in the 
first 4-year period had limited impact on the challenge posed by illicit tobacco trade in the EU. In 
particular, the report took  note of an upsurge in  illicit tobacco manufacturing inside the EU. This 
trend is  consistent with the more recent findings  of Europol’s Analysis Project ‘Smoke’ based on 

240 This classification does not include intra-EU cross border flows of products duty-paid in another country although in 
some cases they possibly abuse excise duty rules. 
241 The contraband products remain the relative majority (43%), followed by counterfeit products (35% and increasing), 
and illicit white (21% and declining, mainly due to the armed conflict in Ukraine and regional tensions) (External study). 
242 COM(2013) 324 final. ITTP Strategy laid down the Commission’s overall approach to illicit trade of tobacco products, 
and related action plan, which set out 50 specific measures to be implemented by the  Commission and/or the Member 
States. After the implementation review carried out in 2017 (COM(2017) 235 final) a second, revised Action Plan was 
adopted, to cover the period 2018-2022 (COM(2018) 846 final). Before the adoption of the Strategy in 2013, an Action 
Plan was in place to fight the smuggling of cigarettes and alcohol along the EU’s eastern border (SEC(2011) 791 final of 
24 June 2011).  
243 Progress report on the implementation of the Commission Communication ‘Stepping up the fight against  cigarette 
smuggling and other forms of illicit trade in tobacco products - a comprehensive EU strategy (Com (2013) 324 final of 
6.6.2013)’, COM(2017) 235 final. The salient conclusions of the Report were taken up in the Council Conclusions on 
stepping up the fight against illegally traded tobacco products in the EU, issued in December 2017. 

135 

 
 
 
evidence from law enforcement raids and intelligence reports. The Action Plan (2018-2022) adopted 
in  2018  by  the  Commission  in  support  of  the  fight  against  ITTP  builds  on  a  mix  of  legislative 
measures, law enforcement, and cooperation at the EU and international level.244 As regards measures 
specifically touching upon excise duty rules and arrangements for tobacco, the Action Plan, included 
a review of the minimum rates applicable under the Directive and the development of operational 
tools to better monitor and control cross-border movements of raw tobacco within and into the EU. 
The latter is also included as a way forward in the Outcome on the implementation of the 2nd Action 
Plan to fight the illicit tobacco trade for the years 2018 to 2022.245 

2.  Estimated magnitude and characteristics of ITTP across the EU246 

Cigarettes.  Overall,  the  illicit  trade  of  cigarettes  declined  between  2016-2017  and  2019.  Then,  it 
bounced while reaching in 2023 a level higher than in 2018. The incidence on total EU cigarettes 
consumption247 fell from 9.0% to 8.4% between 2017 and 2020 and bounced back to 8.8% in 2023.248 

The volume of seizures of illicit cigarettes follows a similar trend, i.e. declining between 2016 and 
2019 then reversing in 2022 the same level of 2016 (see 

Figure A9-1). The growth of ITTP in more recent years is confirmed also by independent national 
reports, e.g.: 

▪  in Ireland, illicit cigarettes increased from 13% of the total in 2021 to 19% in 2023 (FCT: from 

13% to 20%)249; 

▪  in the Netherlands, illicit cigarettes increased from 1.4% of the total in 2021 to 4.1% in 2023.250 
The forgone tax revenue associated to illicit trade of  cigarettes could amount to EUR 9 billion.251 
Between 2018 and 2023 the estimated forgone revenue has increased by EUR 2.3 billion, i.e. nearly 
35%.252 In terms of incidence, it increased from 8% of total tobacco revenues253 in 2018 to 11% in 
2023 (see Figure A9-2). As  

Figure A9-1 B shows the countries with the highest volume of illicit trade of cigarettes are France 
and – to a smaller extent – Germany and Italy. In terms of incidence on total consumption, the highest 
rates are found in Ireland, France, Finland, Greece, Lithuania and Latvia254. 

Figure A9-1. Estimates of illicit trade of cigarettes and seizures 

244 2nd Action Plan to fight the illicit tobacco trade 2018-2022. 
245 Outcome on the implementation of the 2nd Action Plan to fight the illicit tobacco trade for the years 2018 to 2022, 
SWD (2023) 409 final 
246 See ANNEX 4: for the methodological approach and limitations.  
247 The total consumption is the sum of recorded consumption and ITTP. 
248 Assuming ITTP volume corresponding to the average of Euromonitor and KPMG estimates. 
249 Source: https://www.revenue.ie/en/corporate/documents/research/tobacco-surveys-2023.pdf  
250 Source: https://open.overheid.nl/documenten/d700225c-f7a0-4c28-9a4c-6278cdf9f877/file 
251 Based on the average value of Euromonitor and KPMG estimates (2023). 
252 In the same period, the EU consumer’s price index increased by 22%. In this sense, the ITTP has increased also in 
‘real’ terms. 
253 From harmonised products. 
254 Euromonitor estimates may not coincide with Member Staes own estimates. In the case of Ireland and Denmark, own 
country’s estimates are substantially lower. 

136 

 
 
 
A)  EU-aggregate  Estimates  of  illicit 
trade  of  cigarettes  and  seizures  (2016-
2023) 

B)  Estimates  by  Member  States  (volume  and 
incidence in % on total) 

EU 

Source: External study based on Panel A: Euromonitor International, KPMG study, statistics on seizures gathered by 
OLAF. Panel B: Euromonitor International 
Legend: (L)=scale displayed on the left axis; (R)=scale displayed on the right axis; EMI=Euromonitor International. 
Notes:  Estimates  regard  illicit  cigarettes  (i.e.  contraband  and  counterfeit  products).  Non-domestic  legal  products 
purchased in another country (i.e. ‘cross-border shopping’) are not included. In Panel B, the incidence is estimated on the 
total consumption (licit + illicit). In Panel B, Cyprus, Malta and Luxembourg are not displayed due to lack of data. 

Figure A9-2. Forgone tax revenue associated to illicit cigarettes 

Source: External study based on Euromonitor International, KPMG study, and TEDB.  
Legend: (L)=scale displayed on the left axis; (R)=scale displayed on the right axis.  

Other tobacco products. Concerning the illicit trade of other tobacco products than cigarettes, data 
and  evidence  are  still  fragmented,  which  makes  quantification  hardly  feasible.  The  following 
indicative  estimates  can  be  put  forward,  assuming  that  the  seizures/illicit  trade  volume  ratio  of 
cigarettes (5% on average in a period between 2017 and 2022) applies as well. 

137 

 
 
 
 
 
138 

 
 
 
 
Table A 9-1. Illicit trade of tobacco products other than cigarettes 

Product 

Amount (tonnes) 

Forgone revenue (EUR million ) 

FCT 

WPT 

Cigars/cigarillos 

HTP 

Oral tobacco 

15 000 

6 000 

32 

20 

16 

2 500 

900 

3.5 

3.6 

1 

Source: Commission analysis based on External study.  

Overall, in 2022, the illicit trade of tobacco products other than cigarettes in the EU  amounted to 
around 21 000 tonnes representing a forgone revenue at around EUR 3.5 billion. Of the above total, 
smoking  tobacco  (mainly  FCT  likely  accounts  for  the  majority  (75%,  i.e.  15  000  tonnes, 
corresponding  to  nearly  EUR  2.5  billion  of  forgone  revenue).  It  is  likely  that  part  of  this  illegal 
smoking tobacco ends up being used for the manufacturing of cigarettes and not sold as FCT. The 
following most-seized tobacco product is WPT, with approximately 6 000 tonnes (EUR 0.9 billion 
of forgone revenue). For other products volumes are much more limited (see Table A 9-1). 

For liquids of e-cigarettes, Member States authorities were seldom in a position to provide an estimate 
on the share of illicit products. A very rough estimate of what this might amount to 10% of the total 
market,  which  would  amount  to  350  thousand  litres.  This  would  correspond  to  EUR  150  million 
forgone tax revenue. 

3. 

Illicit manufacturing within EU 

If the  volume of illicit tobacco products  consumed in  the  EU is  difficult to  measure, determining 
where and how illicit products are manufactured and shipped is even more challenging. The main 
information source on illicit manufacturing used in this respect consists of law enforcement reports 
and  some  studies  that  examined  them  to  draw  an  accurate,  though  qualitative,  picture.  More 
specifically two sources have been reviewed: (1) an internal report made under the EUROPOL’s AP 
Smoke  initiative,  which  examined  130  investigations  carried  out  in  the  2016-19  period;  and  (2) 
KPMG Project Stella 2019 report dedicated to illicit manufacturing.255 The salient findings from these 
analyses can be summarised as follows:  

▪  Based  on  interviews  held  by  the  contractor  the  number  of  reported  illicit  manufacturing 
facilities dismantled in the EU is declining, but this does not entail they have become fewer. 
On the contrary, criminal organisations have increasingly moved operations in Member States 
where detection capacity is weaker, and penalties are lighter. Moving closer to consumption 
markets (e.g. France and the United Kingdom) remains a relevant driver. 

▪  Most reports underline that clandestine factories were equipped with full production lines, from 
tobacco cutting machinery to packaging lines. In many cases, production lines were relatively 
modern and highly performing, with a capacity comparable to legal big factories. Machinery 

255 External study. 

139 

 
 
 
 
was operated by skilled workers, often formerly employed in legal manufacturing plants in the 
EU  or  abroad.  The  scale  of  operation  has  further  expanded  in  recent  years.  Most  of  sites 
dismantled have capacity of up to 7-8 million cigarettes per week. 

▪  As the profitability of  ITTP has increased, the  business  has  increasingly attracted organised 
crime group that are active in drug trafficking. As reported by law enforcement experts, this 
has led to an increase in violent crime related to ITTP – a trait that was previously absent in this 
activity. 

▪  Reports  seldom  state  where  the  tobacco  used  in  illicit  factories  was  sourced.  In  general, 
intelligence data indicate connections with Eastern Europe - both EU and third countries like 
Ukraine and Belarus. Some reports mentioned the involvement of networks in the Baltic region, 
Turkey  and  the  Balkans,  as  well  as  the  overseas  origin  of  tobacco  (e.g.  Brazil).  Italy  is 
reportedly another relevant point of entry of illicit tobacco into the EU. 

A  quantitative  estimation  of  the  volume  of  illicit  manufacturing  activities  allows  an  indicative 
assumption  that  approximately  one-third  of  total  illicit  cigarettes  consumed  in  the  EU  are  also 
manufactured in the EU – i.e. around 13 billion sticks. In the case of FCT and WPT, it can be assumed 
that half of illicit products are manufactured in the EU – i.e. more than 10 000 tonnes. 

Concerning the supply chain of diverted raw tobacco, the lack of stringent EU-wide monitoring and 
control rules can facilitate the emergence of parallel supply chains operating in a grey area, outside 
of the conventional channels. Evidently, the availability of raw tobacco is a precondition for illicit 
manufacturing activities. Raw tobacco, including intermediate products like first-processed tobacco, 
reconstituted/homogenised  tobacco  and  tobacco  refuse,  is  not  legally  defined  and  no  harmonised 
excise good. 

It is difficult to determine how raw tobacco is diverted to illicit manufacturing. Theoretical patterns 
of diversion from the legitimate supply chain (see Figure A9-3) were described in EA 2021 study. 

▪  Diversion  of  EU-grown  tobacco  before  being  processed  by  a  legitimate  processor  (i.e. 
green or leaf tobacco). Leaf tobacco requires some treatment to become a smokable product, so 
diversion  at  this  stage  of  the  supply  chain  would  require  some  processing  prior  to 
manufacturing. Law enforcement reports indicate that 96 illicit tobacco ‘cutting facilities’ were 
raided in 2020, i.e. more than cigarettes manufacturing facilities (61). 

▪  Diversion of EU-grown processed tobacco. The most common cases at this level seems the 
acquisition of tobacco by intermediaries (e.g. ‘diversion agents’) based in countries where no 
or  limited  obligations  exist  for  trading  and  tracking  the  movement  of  raw  tobacco.  The 
mechanism consists in a sort of ‘tobacco laundering’: a foreign customer purchases and moves 
tobacco outside of the country, then sells it to an unregistered entity (sometimes after a few 
transactions), which illegally moves the tobacco back into the country to supply clandestine 
factories  there  or  transports  it  to  another  manufacturing  site  in  Western  Europe.  The  legal 
frameworks introduced in some Member States, including Croatia, Poland, Czechia, Hungary 
and Lithuania, can prevent this, as a specific authorisation is required to buy/sell/hold etc. raw 
tobacco.  

▪  Diversion of foreign raw tobacco. The mechanism described above for EU-processed tobacco 
can  also  apply  to  foreign  tobacco.  It  seems  unlikely  that  illicit  manufacturing  sites  can  be 
primarily  supplied  with  EU-grown  tobacco,  as  this  would  require  significant  unrecorded 
tobacco cultivation. It is plausible that part of the problem is linked to tobacco of foreign origin.  

At  this  level,  a  distinction  has  to  be  made  between  raw  tobacco  legally  entering  the  EU  and 
smuggled tobacco. In the first case, diversion is a bit more complex as the tobacco is also subject 

140 

 
 
to the customs regime and control. Most of the tobacco used for manufacturing cigarettes in the 
EU is imported by transnational tobacco companies, stored in large warehouses either in customs 
suspension regime or in free circulation regime, and then moved to the companies’ tax warehouses 
for manufacturing. The same process applies also to the raw tobacco that transnational tobacco 
companies  purchase  from  global  tobacco  merchants  (processed  both  in  the  EU  or  externally). 
Foreign  raw  tobacco  is  generally  cheaper  than  European  tobacco,  which  could  create  a  further 
incentive  for  it.  However,  the  economics  of  illicit  manufacturing  activities  suggest  that  the 
differences  in  the  costs  of  raw  materials  are  of  little  relevance  compared  to  the  gains  in  tax 
avoidance.    

Direct smuggling of raw tobacco, e.g. through false import declarations (tobacco enters the EU 
disguised as another product, such as vegetables) is also a possibility. This mechanism is fairly 
common  for  finished  products  (especially  WPT)  and  could  also  be  used  for  raw  tobacco. 
Conversely,  in  external  border  regions  (e.g.  in  the  Balkans  and  along  the  Eastern  border  with 
Ukraine,  Moldova  etc.)  smaller  scale  smuggling  of  raw  tobacco  hidden  in  trucks  or  passenger 
vehicles are more frequently reported.256 

Figure A9-3. Theoretical patterns for diversion of tobacco to illicit manufacturing 

Source: EA 2021 study 

To tackle this supply chain monitoring gap, some Member States have adopted ad hoc policies and 
measures for raw tobacco and related operators. These measures include, for instance, fiscal definition 
of  raw  tobacco,  authorisation  schemes  for  operators,  administrative  controls  on  holding  and 
movement of raw tobacco, deposits and financial guarantees to cover diversion risks, prohibition to 
sell to unauthorised operators, and application of tax rates on raw tobacco (see ANNEX 15: section 
2). 

256 External study. 

141 

 
 
 
 
 
ANNEX 10: INCOHERENT FISCAL TREATMENT OF CIGARILLOS AND 
WATERPIPE TOBACCO 

1.  Cigarillos 

Differentiation between cigarettes and cigarillos. Some types of low-price cigarillos (i.e. the so-
called  ‘borderline’  cigarillos257)  have  the  potential  to  become  a  relevant  substitute  product  for 
cigarettes,  taking  advantage  of  the  lighter  regulatory  regime  imposed  on them  under  the  Tobacco 
Products Directive – regarding flavour ban, minimum pack size, pictorial warnings, etc. 258 – as well 
as of lower excise duty rates. In addition to the affordability and substitution issues, legal aspects of 
cigarillos need to be mentioned. In particular, April 2019 the CJEU issued a ruling on this matter in 
response to a question posed by the Lithuanian authorities (Case C-638/17). The appellant requested 
(i) whether the definition of ‘cigars and cigarillos’ in the Directive covers or not cases where part of 
the wrapper of natural or reconstituted tobacco is additionally covered by another outer (paper) layer, 
and (ii) if it is relevant that the use of paper as an additional layer in the outer wrapper of the tobacco 
product (where the filter is) makes it visually similar to a cigarette.259 

Differentiation between cigars and cigarillos. A substantial issue regards the suitability of placing 
cigars and cigarillos in the same tax category. The emergence of the ‘eco-cigarillos’ issue a few years 
ago and the appearance on the market of flavoured cigarillos and of products otherwise designed to 
take advantage of the lighter Tobacco Products Directive rules, raise questions on the suitability of 
the current approach. Unintended effects would be magnified in Member States where these products 
are taxed per weight, and where the tax structure relies exclusively or prevalently on the ad valorem 
component.  This  issue  was  addressed  by  Member  States  through  the  revision  of  the  product 
definition, and increasing national rates. Differentiated tax levels for cigarillos and cigars are applied 
in Portugal and Italy. The demarcation line can be drawn based on the product weight in line with the 
3-gramme threshold laid down in the Horizontal Directive and the Council Directive 2007/74/EC.260 

2.  Waterpipe tobacco 

Two main issues have been identified in  connection with  WPT (which  currently falls under other 
smoking tobacco for excise purposes). Firstly, there is generally poor knowledge of the WPT market, 
and of the consumption magnitudes and trends. Secondly, a large share of the WPT consumed in the 

257 A few years ago, ‘borderline’ cigarillos (also called ‘eco-cigarillos’) have spread in some Member States like Germany, 
Hungary, Spain, Denmark and in the Baltic countries. These  products were in many respects similar to cigarettes but 
enjoyed a more favourable tax regime because they were classified as cigarillos. The issue was addressed by revising the 
definition of the tax category and by the phasing out of the derogation extended to these types of products in Germany 
and Hungary. Additionally, various Member Sates increased the domestic taxation of low-price cigarillos products. 
258 The Tobacco Products Directive: 

- 
- 

- 

prohibits cigarettes, heated tobacco products and roll-your-own tobacco with characterising flavours; 
requires  health  warnings  on  tobacco  and  related  products:  combined  health  warnings  (picture,  text  and 
information  on  how  to  stop)  must  cover  65%  of  the  front  and  back  of  cigarette  and  roll-your-own  tobacco 
packages; 
sets minimum dimensions for warnings and prohibits small packages for certain tobacco products. 

259 The CJEU ruling eventually rejected the Lithuanian authorities’ interpretation stating that: ‘Article 4(1)(a) of Directive 
2011/64 must be interpreted as meaning that tobacco products, such as those at issue in the main proceedings, part of 
whose outer wrapper of natural tobacco is covered, at the filter, by an additional paper layer, liable to make those products 
visually similar to cigarettes, fall within the category of cigars or cigarillos, within the meaning of that provision’. 
260 Article 8 (cigarillos are cigars of a maximum weight of 3 grams each) of Council Directive 2007/74/EC and Article 
32 (‘cigarillos’ (cigars weighing not more than 3 g each)) of the Horizontal Directive. 

142 

 
 
 
EU is estimated to come from illicit sources. The share of EU illicit trade of WPT amounts to around 
5 900 tonnes, i.e. approximately 59% of the nearly 10 000 tonnes consumed annually. These issues 
are partly connected to the lack of a separate excise category for this product. In particular: 

▪  Currently, WPT fall within the broad excise duty category of ‘other smoking tobacco’ (OST), 
along  with  pipe tobacco and, in  some Member  States, heated tobacco products.  There is  no 
separate recording of the taxes collected on WPT, hence Member States are not in the position 
to monitor WPT trade and consumption. Conversely, there is an ad hoc category for WPT in 
the customs nomenclature261, so there is also a misalignment between the two classifications. 
▪  The inclusion of WPT in the OST category can also unintendedly foster illicit trade. Current 
OST excise rates – which are expressed per kg – can lead to very high levels of taxation for 
WPT. Due to its composition – WPT is only partly made of tobacco (generally around 20%), 
while the rest consists of molasses - this product’s specific gravity is much higher than other 
tobacco products, which translate into a much higher taxation per consumption unit. In some 
Member  States,  such  high  taxation  levels,  combined  with  limited  monitoring,  represent  an 
incentive for various types of tax avoidance practices and fraud.262 

261 HS 2403 11. Note. The Harmonized System (HS) is a standardized numerical method of classifying traded products. 
It is used by customs authorities around the world to identify products when assessing duties and taxes and for gathering 
statistics. https://www.tariffnumber.com/info/abbreviations/1637 
262 The estimated share of WPT illicit trade in the EU is around 50%, possibly exceeding 80% in a few countries (e.g. 
Germany, country with the highest consumption of WPT in the EU). (External study). 

143 

 
 
 
 
 
ANNEX 11: PURCHASING POWER PARITIES APPROACH 

1.  Overview 

Fixing  a  single  minimum  for  the  excise  duty  on  tobacco  products  is  challenging  because  of  the 
substantial diversity in economic conditions between Member States. Not only the income level, but 
also the general price level, differs substantially. As a result, any minimum that is the same for all 
Member  States  will  have  different  impacts  on  affordability  depending  on  income  differentials 
between Member States. This concern was highlighted in the European Commission’s evaluation of 
the Directive and the Council insisted that any future revision should take into account the specific 
economic situations of Member States. 

2.  Comparison between Relative Income Price (RIP) and Purchasing Power Parities (PPP) 

based mechanisms 

Several  alternative formulations  of how to  express  nominal  monetary amounts in  real  terms  were 
analysed. The simplest solution would be tying the minimum to the average income per capita in the 
Member State. This could be done by adjusting EU minima by reference to average income levels, 
through the ‘relative income price’ (RIP) indicator. The RIP indicator is defined as the ratio between 
the cigarette price and the average national income per capita. In simple terms, this expresses how 
many cigarettes could be bought by an average citizen of the country in question. The RIP, however, 
does not adjust for differences in the cost of living. If the price level in country ‘A’ is twice that of 
country ‘B’, but the average income is also twice, one can conclude that in real terms, the citizens of 
country ‘A’ are no better off than the citizens of country ‘B’. However, applying the RIP in such a 
context would imply a tax level that is twice as high in country ‘A’ than in country B. To correct for 
this effect,  this impact  assessment suggests  utilising a more sophisticated indicator that takes into 
account the differences in price levels, i.e. the Purchasing Power Parity (or PPP indicator). In the 
example presented above, the PPP indicator  would  be the same in country  ‘A’ as  in country ‘B’. 
Figure A11-1 below shows the baseline situation for cigarettes, comparing national excise duty levels 
in nominal terms and Purchasing Power Parities (PPP), i.e. adjusting levels by the country’s Price 
Level  Index  (see  Box  A11-1  for  details).  Except  Ireland,  France,  and  Finland,  which  remains  the 
highest-tax countries also in PPP terms, Figure A11-1 shows that in various Member States nominal 
excise duty levels are substantially higher than in real terms (e.g., Luxembourg, Sweden, Austria, and 
Denmark) or vice versa (e.g., Romania, Poland, Bulgaria, Hungary, and Croatia). 

Box A11-1. PPP-based adjustment and affordability 
As described by Eurostat, purchasing power parities (PPPs) are indicators of price level differences 
across countries.  They indicate how many currency units a particular quantity of goods and services 
costs  in  different  countries.  In  this  sense,  PPP  is  the  method  of  choice  to  statistically  compare 
Member States economies with one another (e.g. GDP), the material well-being of their residents, 
as well as Europeans’ income levels (as in the case of Eurostat’s indicator on the ‘adjusted gross 
disposable income of households per capita’). PPP is primarily a static indicator, able to compare 
economic  variables  at  a  specific  point  in  time,  but  not  suitable  for  describing  trends  within  an 
individual country. 

The choice to favour PPP was made for the following reasons: 

▪  PPP is a reasonably stable and well-accepted indicator, which is regularly elaborated by Eurostat, 
with the specific purpose of allowing economic comparisons between Member States, whereas 
RIP is not an established EU statistical measure. Conversely, the RIP is published by the WHO 

144 

 
 
but  with  reference  to  most  popular  price  category  and  in  US  dollars.  It  would  therefore  be 
calculated on an ad hoc basis, and an appropriate EU statistical methodology would need to be 
developed and validated for this purpose. 

▪  PPP,  as  a  measure  of  ‘price  affordability’,  is  also  more  appropriate  in  the  context  of  EU  tax 
harmonisation, where the aim of harmonisation for internal market functioning relates to price 
convergence  and  not  to  underlying  income  convergence.  In  this  sense,  PPP  appears  more 
consistent with both the overarching objectives of the Directive and is not skewed towards the 
public health protection objective, as is the RIP. 

▪  The  arguments  in  support  of  RIP-based  adjustments  emphasize  the  greater  precision  of  this 
indicator to reflect affordability, which is the public health objective of taxation. However, the 
potential impact of EU minima should not be overestimated, as EU minima remain thresholds and 
not the actual level of excise duty imposed by Member States. Only Member States that fall below 
this threshold would be compelled to increase their rates, while the rest would be free to apply 
different rates. The PPP approach would offer a more neutral policy perspective on the matter, as 
its underlying logic is to correct technical ‘distortions’ in the EU minima ‘tool’ (the distortions 
that arise due to a monetary amount having different ‘weight’ in different countries) and not to 
encourage specific policymaking approaches in Member States (such as setting excise duty levels 
in connection with the measured affordability). 

Figure A11-1.  Cigarettes’ excise duty yield in Member States,  in nominal  and PPP-adjusted 
terms (2023) 

Source: External study based on TEDB excise duty data and Eurostat 2023 Price Level Indexes.  
Legend: PPP=purchasing power parity; EDY at WAP level.  
Note: The EDY levels displayed take into account the effect of the minimum excise duty (MED), where relevant. 

3.  Limits of the PPP approach 

Even adjusting in this way for higher price levels in higher-income Member States, introducing full 
proportionality between the EU minima and the PPP (pure PPP-based system) would result in very 
large and socially destabilising changes in the minima in several countries. The Price Level Index 
(PLI) differences between Member States  are significant  (the PLI of Luxembourg is  almost  three 
times higher than the PLI of Bulgaria). Hence, a 100% conversion of minima into PPP may lead to 
(1) large and potentially disruptive tax increases for a few high-income countries (e.g. Luxembourg, 
Denmark,  Austria,  and  Sweden)  and,  conversely,  (2)  keeping  or  even  increasing  the  price  gap 

145 

 
 
 
between Member States. In this sense, both overarching objectives of the Directive (harmonization 
of tax levels and the public health protection) would be poorly supported. A more detailed assessment 
of expects market impacts under a pure PPP system is provided in the External study. 

For this reason, it is proposed that one third of the difference in the PPP is taken into account for 
fixing the EU minima while the remainder would be fixed (in nominal terms). 

The choice of a partial PPP approach implies that EU minima are not uniform across Europe. This 
approach is therefore less supportive (although still conducive) of the Directive’s price convergence 
objective, which is of mitigating cross-border flows, than high minima increases in nominal terms. 

The calculation of the EU minima for each individual Member State is made slightly more complex 
due to the introduction of the partial PPP approach. The formal expression for the calculation of the 
minimum applicable in Member States would be as follows: 

MSmin = 2/3 * EUmin + 1/3 * EUmin * PLIMS / 100 
where: 

• 
• 
• 

MSmin= New minimum applicable in a specific Member State 
EUmin= Current EU minimum in nominal terms  
PLIMS= Price Level Index of the Member State263 

Examples: 
For Member State A (PLI = 119) 
New minimum= 2/3 * 215 + 1/3 * 215* 119/100 = EUR 228 

For Member State B (PLI = 49.1) 
New minimum= 2/3 * 215 + 1/3 * 215* 49.1/100 = EUR 178 

This proportion has been derived from the increase scenario for the EU minima on cigarettes that 
correspond  to  the  average  expectations  of  Member  States,  as  emerged  from  the  tax  authorities’ 
survey. The average new fixed minimum for cigarettes would amount to EUR 128 per 1 000 sticks, 
i.e. EUR 38 more than the current EUR 90. This translated into a revised level that is composed by 
roughly 2/3 of the old minimum and 1/3 of the increase. By expressing the first component in nominal 
terms, the risk that EU minima go below the current level (e.g. in countries with a very low PLI) is 
removed.  At  the  same  time,  expressing  the  increase  in  PPP  terms  would  mitigate  the  burden  for 
countries where, in real terms, excise duties are already above the EU average. 

4.  Conclusion 

The partial PPP approach achieves a more balanced distribution of impacts across Member States, 
while at the same time mitigating the risk of radical effects, which may derive from the application 
of a pure PPP system. 

263 PLI expresses the price level of a given country relative to another (or relative to a group of countries like the European 
Union), by dividing the Purchasing power parities (PPPs) by the current nominal exchange rate. If the price level index 
of a country is higher than 100, the country concerned is relatively expensive compared to the one to which it is compared 
(for example the EU), while if the price level index is lower than 100, then the country is relatively inexpensive compared 
to the other country. 

146 

 
 
 
 
  
 
 
 
Figure A11-2. Proposed minima for cigarettes based on a partial PPP approach and current 
excise duty levels by Member States 

Source: Commission analysis based on External study data. 
PPP levels evolve and are re-estimated annually.264 However, annual revision of EU minima would 
not  be  suitable  as  would  be  more  difficult  for  certain  Member  States  to  prepare  multi-annual  tax 
increase plans. It is rather suggested to establish a fixed reference year of PLI and schedule periodical 
revisions on longer periods (e.g. three or five years), along with the periodical revision and update of 
the Directive and of the EU minima. 

The  possibility  of  introducing  alternative  approaches  for  EU  minima  was  tested  among  Member 
States tax and customs authorities through the targeted survey. As  

264 Statistics | Eurostat (europa.eu) 

147 

 
 
 
 
Figure A11-3 shows, the initial feedback was cautious,265 but a substantial share of survey participants 
did not provide a concrete answer (i.e. only half of participants replied with respect to the incremental 
PPP  approach).  In  particular,  various  Member  States  expressed  the  concern  that  PPP-based 
approaches could negatively affect convergence in tax levels. The tested approaches were therefore 
dropped and the partial-PPP approach was developed to mitigate the adverse effects anticipated by 
Member States authorities. 

265 It should be added that the objective of the proposed reform is to expand the impact of EU minima to Member States 
that  so  far  have  never  been  touched  because  of  their  high  income  levels.  A  certain  resistance  towards  the  reform  is 
therefore not surprising.     

148 

 
 
 
 
 
Figure  A11-3.  Member  States  authorities’  feedback  on  PPP-adjusted  approaches  for  EU 
minima  

Source: External study based on the results of tax and customs authorities survey. 

149 

 
 
 
ANNEX 12: HEATED TOBACCO PRODUCTS 

1.  Market and demand trends 

Since its first introduction in EU markets266, sales of heated tobacco products (HTP) sales have 
constantly been growing at a steep pace (Figure A12-1 and 

266 This sentence refers to the products currently on the market. Previously, other types of HTP had been launched but 
did not succeed. Hence they are no longer commercialised.   

 
 
 
 
Figure A 12-2). Heated tobacco was introduced progressively, firstly in some pilot cities of a few 
countries  (Italy  and  Romania),  then  to  more  countries  and  larger  areas.  Therefore,  part  of  the 
growth  is  explained  by  the  expanded  geographical  availability  of  these  products,  and  not  only 
consumer uptake. There are major differences across countries. In 11 Member States (Bulgaria, 
Czechia, Greece, Hungary, Italy, Lithuania, Poland, Portugal, Slovenia, Slovakia and Sweden) a 
significant market penetration is recorded, with HTP market shares of at least 10%. In contrast, in 
six countries the product has not (yet) really taken off. Italy is by far the largest HTP market, with 
2023 sales exceeding EUR 4 billion and 14 billion consumable sticks. 

Figure A12-1. HTP market in the EU 
A)  Trend  in  Sales  at  the 
EU Level (2018 – 2023) 

B) Sales in Member States (2023) 

Source: External study based on: panel A: Euromonitor International; Panel B: Euromonitor International and TEDB. 

151 

 
 
 
 
 
 
Figure A 12-2. HTP sales volumes in the EU (2018 – 2023) 
A)  Volume  of  HTP  Consumable  Sticks 
(Millions) 

B) Volume of HTP devices (Millions) 

Source: External study based on Euromonitor International.  
Note: figures do not include Member States where HTP was not commercialised in the corresponding year, as well 
as Member States for which no data are available. 

As  

Figure A 12-3 shows, HTP prices are usually lower than the WAP for cigarettes and significantly 
higher than the price for FCT. In 2023, in the 21 Member States the average HTP price was almost 
EUR  250,  compared  with  a  cigarettes  price  of  EUR  272  and  FCT  price  of  EUR  180.  In  eight 
Member States the differential between HTP and cigarettes was in the 5 to 10 percentage points 
range, while in the remaining countries, the differential exceeded 10 percentage points. The highest 
price differentials were in France (where HTP sell at a 31% discount compared with the cigarettes 
WAP),  Spain  (where  the  discount  was  about  21%)  and  Bulgaria  (where  HTP  were  25%  more 
expensive than cigarettes). Only in four countries (Bulgaria, Germany, Estonia and Italy), HTP 
sticks were more expensive than cigarettes. 

Figure A 12-3. Average price for HTP, cigarettes and FCT (WAP, 2023) 

152 

 
 
 
 
Source: External study 
Note:  HTP  figures  do  not  include  Member  States  where  the  product  was  not  commercialised  in  2023  as  well  as 
Member States for which no data are available (Belgium, Cyprus, Malta, Luxembourg, Ireland and Finland).  

Demand trends 

Overall, the total  HTP users’ population  in  the EU can be  estimated at  around  7.6 million and 
prevalence is generally comprised between 1% and 2%.267 The prevalence varies across Member 
States.  There are some differences in the prevalence of HTP use across Member States. In 2023, 
prevalence was highest, at 4% or 5%, in six countries (Cyprus, Czechia, Italy, Lithuania, Portugal 
and Slovakia), while it was lowest,  at  1% or lower, in  11 Member States (Belgium, Germany, 
Denmark, Spain, Finland, France, Ireland, Luxembourg, the Netherlands, Poland, and Sweden) 
(see Figure A 12-4).  

Figure A 12-4. HTP prevalence in the EU (daily use, 2023 vs 2020) 

267 Eurobarometer 99.3 wave. 

153 

 
 
 
 
Source: External study based on Eurobarometer 99.3 (2023) and 96.3 (2020). 

Based on Eurobarometer estimates, the prevalence of HTP use by socio-economic groups could 
be summarised as follows: 

▪  Young adults are more intensive users. In 2023, the prevalence of HTP use among people 

was 3%, compared just 1% for older generations (see Figure A 12-5). 

▪  HTP use is broadly similar among males and females. There are some differences across 
Member States, but these differentials are offset at the EU level, where both gender groups 
had a 2% prevalence in 2023. 

▪  HTP use increases with the level of education. In 2023, 4% of people with tertiary education 
used HTP, compared with a prevalence of 3% among those with secondary education and 
just 1% among people with primary education. 

▪  HTP is mildly associated with higher socio-economic status. In 2023, the prevalence of HTP 
use among people identifying themselves as upper-middle class was 3%, while it was 2% 
among people belonging to the middle class. In all other socio-economic groups (working 
class, lower middle class and upper class) prevalence was at 1%.268 

Figure A 12-5. Prevalence of HTP use among young people (2023) 

268 External study. 

154 

 
 
 
Source: External study based on Eurobarometer 99.3 (2023) 

Finally, frequency of use has increased overtime, while intensity of daily use remains stable. In 
2023, 70% of users consumed HTP daily, compared with 60% in 2019. On average, users of HTP 
consumed 12 sticks per day in 2019 and 2023. 

2.  Legal framework of HTP in Member States 

Definition of HTP in Member States’ legislation 

Member States where an ad hoc tax category for HTP is in place have adopted substantially similar 
product definitions by making explicit reference to the absence of combustion or ‘burning’ in their 
definitions, and to the production of a vapour aerosol as an output. In this sense, the product is 
defined not by intrinsic characteristics (except the obvious reference to tobacco) but by a specific 
modality of consumption. 

Tax structures and rates across the EU 

The fiscal policies for HTP have evolved since HTP appeared in the market. One of the challenges 
faced by Member States tax authorities in designing the tax regime for HTP was the absence of 
clear benchmarks  for  establishing  the appropriate tax rate.  Italy  was the only  Member State to 
design an ad hoc tax regime connected with the tax regime of cigarettes, under the assumption of 
direct substitution effects. Other countries adopted the tax rate of smoking tobacco (other smoking 
tobacco  (OST)  or  fine  cut  tobacco  (FCT))  as  reference,  either  to  classify  HTP  as  such  or  to 
introduce ad hoc regimes applying de facto the same rates as OST and FCT.   

As shown in Figure A12-6, all EU countries currently tax HTP, except Malta where HTP is banned. 
HTP is treated as a harmonised product in seven Member States. In most cases, it is considered as 
OST, except Sweden that differentiate between HTP sticks (taxed as cigarettes) from other HTP 
formats (taxed per weight). In Germany, HTP is considered a harmonised product, but the rate is 
calculated in relation to the rates of both cigarettes and OST.  In all other countries, HTP is subject 
to a non-harmonised national tax, which consists of a flat rate per kg in nine countries, a flat rate 
per  1  000  units  in  two  countries,  while  three  Member  States  have  differentiated  rates  for  HTP 
sticks  and  other  formats  of  HTP.  In  all  Member  States  considered,  the  structure  of  the  tax  is 
‘specific’, but three Member States apply also an ad valorem component. 

Figure A12-6. Tax treatment of HTP in Member States (as of end 2024) 

155 

 
 
  
HTP treated as harmonised product  
BG: € 169.2/kg  
DE:  the  rate  is  a  combination  of  the  tax  rate  for  pipe 
tobacco  and  an  additional  amount  equal  to  80%  of  the 
difference between the tax on cigarettes and that of pipe 
tobacco. For reference, the rate of most popular product in 
2024 was equal to €144.75 per 1 000 items. 
EL: € 156.7/Kg 
ES: Ad valorem 28.4% of RSP, Minimum Excise € 22/kg 
IE*: 335.3 €/kg 
NL: € 347/kg  
SE: same rate as cigarettes for HTP sticks (i.e.  €166.7 per 
1 000 items in 2024), same rate of OST for other formats 
(€ 230/kg)   

Non-harmonised category for HTP 
AT: € 164/kg 
BE*: Ad valorem: 31.5% of RSP and specific: € 136/kg, 
Minimum Excise: €228.1/kg 
CY: € 150/kg  
CZ: € 127/kg 
DK: € 201/kg if deemed equivalent to OST, or € 208/kg 
if deemed equivalent to FCT 
EE: € 112,4/kg if not smokable as a cigarette, otherwise € 
169 per 1 000 items  
FI: € 300/kg 
FR: €30.2 per 1,000 items for HTP sticks, or €113.9/kg 
for other formats plus an ad valorem of 51.4% and a MED 
of €268 / 1,000 items or € 1011.3 per kg (since 2025, the 
specific rate has increases to €41.1 per 1000 and €155.2 
per kg, plus a MED of €303.8 per 1 000 or € 1,146.4 per 
kg) 

HR: € 186/kg 
HU: € 90 per 1 000 sticks 
IT: €39.5% of the excise duty applied to cigarettes (for 
reference €63 per 1 000 items in 2024) 
LT: € 79.5 per 1 000 items 
LU: Ad valorem: 28% of RSP and specific: € 16.8/kg  
LV: € 251/kg 
MT*: banned 

156 

 
 
 
 
PL:  Ad  valorem:  32.05%  of  WAP  and  specific:  € 
85.77/kg  
PT:  Ad  valorem:  15%  of  RSP  and  specific:  €  93.5/kg, 
Minimum Excise: €180/kg 
RO: € 220.1/kg (as of end 2024, then € 230.5 since 2025) 
SI: €180/kg 
SK: €188/kg 
Source: External study 
Note: (*) not on the market at the end of 2024. 

Over the 2020 – 2023 period, most Member States revised upward the tax levels for HTP (see 
Figure A 12-7). On average, the actual rate applied throughout the EU moved from EUR 44 sticks 
to EUR 61 per 1 000.  Such increase was higher than the inflation rate occurred in the same period, 
so in real term the taxation of HTP has increased.  

In 2023, the EU average tax incidence on HTP price was 25.3% and well below the average excise 
duty incidence on the price of cigarettes, which is 61.7%. 

Figure A 12-7. HTP tax level trends in Member States (2020 – 2023) 

Source: External study 

The current regimes in place in Member States has almost exclusively adopted a ‘per weigh’ tax 
base for HTP, but the survey results suggest there is interest in a ‘per unit’ approach ( 

157 

 
 
 
 
Figure A12-8). A flexible, two-tiered regime could therefore meet the expectation of the greater 
number of Member States and maximise benefits. 

158 

 
 
 
 
 
Figure A12-8. Member States authorities’ feedbacks on applicable regimes for HTP 
A) Suitability of proposed excise duty structure   B) Preferences on taxation levels  

Source: External study based on tax and customs authorities survey.  
Note: answers refer to the number of Member States that expressed a ‘high’ or ‘moderate’ appreciation of the scenarios 
proposed.  The  scenarios  were  not  presented  as  mutually  exclusive,  so  the  totals  do  not  add-up  to  the  number  of 
participants (25 Member States). 

3.  Tax revenue 

As shown in Figure A12-9 estimated total revenue close to EUR 3 billion.269 Italy displays the 
highest revenue, with about EUR 916 million. It is followed by Germany and Poland (each with 
revenues in the EUR 300 – 500 million range), while in the majority of Member States reviewed 
values are well below EUR 100 million. 

Figure A12-9. Revenues from HTP taxation (EUR million, 2023)  

Source: External study 
Note: Member States where HTP  are not commercialised or for which market sales data are not available are not 
displayed. 

269 Most recent information dates back to 2022 and refers to only a subset of 17 Member States. In particular, no 
information is available for Germany, which is the second largest HTP market after Italy. Overall, the figures reported 
by Member States indicated a total of EUR 1.46 billion. 

159 

 
 
 
 
 
 
ANNEX 13: LIQUIDS FOR ELECTRONIC CIGARETTES 

1.  Market trends and demand 

Market trends 

As shown in Figure A13-1, after a few years of stagnation, the e-cigarettes270 market has expanded 
considerably in recent years, from an EU aggregate value of EUR 2.9 billion in 2020 to nearly 
EUR 5 billion in 2023.  

The recent grow was mostly attributable to ‘closed systems’ and – in particular to a new generation 
of single use products growing from a mere EUR 89 million in 2020 to EUR 1.6 billion three years 
later. The growth  of single use products  (and closed system in  general)  goes  in  parallel  with  a 
possible reduction of ‘do-it-yourself’ practices271 among consumers. This is mainly because most 
Member States have extended taxation to nicotine-free liquids, thus removing a relevant economic 
incentive to ‘do-it-yourself’. Refills for rechargeable closed systems also expanded their market 
by  76%  (from  EUR  236  million  to  EUR  416  million),  while  liquids  for  open  systems  have 
increased  more  moderately  (19%  in  2020-2023,  i.e.  from  EUR  1.46  to  EUR  1.74  billion),  but 
remains the largest segment. 

In  the  past  the  e-cigarettes  market  was  largely  segregated  between  the  closed  system  segment, 
largely dominated by big companies and the open system segment, mostly formed by independent 
companies and SMEs. In 2023 independent companies and SMEs accounted for nearly 90% of the 
liquids for open systems market, but they have also increased their involvement in the single-use 
e-cigarettes  segment,  with  an  aggregate  market  value  that  have  grown  EUR  920  million  (from 
around EUR 90 million in 2020). Big companies and large Asian companies have expanded their 
business in the single-use segment even more rapidly, and in 2023 controlled 43% of the market 
(up from 9% in 2020). 

At  the  EU  level  closed  refills  have  become  the  main  component  of  the  e-cigarettes  market, 
accounting for 41% of total sales in 2023, compared with 35% for liquids for open systems and 
25% for devices. Closed refills are the main component in 12 countries, with a market share of 
50% or more in 10 Member States (accounting for 50% or of sales in Austria, Germany, Greece, 
Ireland,  Lithuania,  Latvia,  Poland,  Portugal  and  Romania).  Liquids  for  open  systems  have  the 
largest market share in 10 countries, but they account for 50% or more of total sales only in 6 
Member  States  (Denmark,  France,  Croatia,  Hungary,  the  Netherlands  and  Sweden).  The 
differences in the composition of the e-cigarettes market in value and volume terms is mainly due 
to unit price: closed refills and single-use products are much more expensive, and this obviously 
inflates their relative importance in value terms. 

270 E-cigarettes market includes two main components, namely (i) the devices used for vaping, and (ii) the liquids to 
be vaporised (also referred to as the ‘consumables’). The liquids to be vaporised may have different flavours (tobacco, 
menthol, fruit, candy, coffee, etc.) and may or may not contain nicotine. The e-cigarettes can be roughly subdivided 
into the so called ‘open systems’, which required the user to manually pour a certain amount of liquid into the device’s 
tank , and the ‘closed systems’, which might be further divided into rechargeable systems (consisting of pre-filled 
pods or cartridges that can be easily inserted into the device, i.e. the ‘closed system refills’, and disposable or single-
use e-cigarettes. 
271 There can be various degrees of’‘do-it-yourself’ from simply adding neutral ‘nicotine booster’ to ‘shortfills’, i.e. 
underfilled bottles of flavoured liquids, to more radical homemade mixing of all basic ingredients of liquids. 

160 

 
 
 
E-cigarettes are often sold by retailers of tobacco products. However, there are also specialised 
retailers, focusing exclusively on the sale of devices and  consumables (liquids for e-cigarettes, 
cartridges, etc.). In 2024 there were about 11 500 specialised e-cigarettes shops in 9 Member States 
(Belgium, Germany, Greece, Spain, France, Italy, the Netherlands, Poland and Romania). France 
is the country with the largest number of specialised shops (about 4 000), followed by Italy (2 
500), Germany (1 200) and Greece, the Netherlands and Poland (each with some 900 to 1 000 
shops). 

Figure A13-1. Trend in sales of e-cigarettes at the EU level (EUR million)   

Source: External study based on Euromonitor International. 
Note: Information is not available for three Member States (Cyprus, Luxembourg and Malta). 

In 2023 the sales of liquids for open systems in the EU were almost 2.9 million litres, accounting 
for no less than 83% of the total volume of consumables sold (approximately 3.5 million litres)272. 
Liquids also dominate most national markets and liquids for closed systems (refills and disposable) 
account for the largest share of volumes sold only three Member States, i.e. Estonia, Lithuania and 
Latvia. 

Figure A 13-2. Sales volume in Member States (in 1000 litres of liquids, 2023) 

272 It is assumed an average of 2ml for closed system refills  and single-use e-cigarettes, but accurate estimates are 
unavailable (External study). 

161 

 
 
 
 
 
Source: External study based on Euromonitor International. 
Note: Information is not available for three Member States (Cyprus, Luxembourg and Malta). 

The  retail  price  of  e-cigarettes  products  varies  significantly  across  different  types  of  products. 
Regarding consumables, closed refills are the most expensive product. In 2023, the EU weighted 
average  price  (WAP)  for  closed  refills  was  EUR  3.60  per  millilitre,  compared  with  just  EUR 
0.64/ml for e-cigarette liquids.  

The  retail  price  of  consumables  displays  significant  variations  across  countries.  As  shown  in 
Figure A13-3, in 2023, the WAP for closed refills ranged from a minimum of EUR 1.91/ml in 
Hungary to a maximum of EUR 9.01/ml in Spain, with only five Member States displaying prices 
close to the EU average (i.e. within a +/- 10% band). The WAP for liquids of e-cigarettes ranged 
from a minimum of EUR 0.37/ml in Slovakia to a maximum of EUR 1.20/ml in Hungary, and the 
distribution  of  prices  is  somewhat  more  compact,  with  seven  Member  States  displaying  prices 
close to the EU average (i.e. +/- 10%) and a coefficient of variation of 36%. 

Figure A13-3. Weighed average price (WAP) of e-cigarettes consumables (EUR/ml, 2023) 

Source: External study based on Euromonitor International. 
Note: Information is not available for three Member States (Cyprus, Luxembourg and Malta). Also, information on 
closed refills WAP is not available for Hungary and Finland. 

Demand trends 

According  to  the  most  recent  Eurobarometer  survey,  in  2023  current  users  of  e-cigarettes 
accounted for about 3% of the EU adult population, compared with 2% found in 2020. Overall, 
the total number of users in the EU can be estimated at almost 11.5 million. As shown in  

162 

 
 
 
Figure  A13-4  there  are  some  differences  in  the  prevalence  of  e-cigarettes  use  across  Member 
States. In 2023, prevalence was highest at 9% in Estonia, followed by Latvia (8%) and France 
(7%). On the other hand, prevalence is below 1% in Portugal and around 1% in four countries 
(Finland, Hungary, Romania and Sweden). Overall, between 2020 and 2023, the use of e-cigarettes 
increased in 17 Member States, with the highest increases recorded in Estonia (7 percentage points) 
and  Latvia  (6  percentages  points).  Prevalence  remained  stable  in  nine  countries  (typically  at 
low/very low levels) and declined in Ireland (from 7% to 5%).  

163 

 
 
 
 
Figure A13-4. Prevalence of use of e-cigarettes in the EU (current use, percentages, 2023 vs. 
2020) 

Source: External study based on Eurobarometer 99.3 (2023) and 96.3 (2020). 

Smokers of  e-cigarettes  are mostly  regular users.  In 2023, 83% used  e-cigarettes  on a daily or 
weekly basis, with only 17% making a less frequent use. Irrespective of the frequency in use, on 
average EU smokers used e-cigarettes 11.5 times per day. In 2023, 74% of EU regular smokers of 
e-cigarettes  only  used  products  containing  nicotine,  13%  only  products  without  nicotine  and 
another 13% used both nicotine and non-nicotine products. 

Based on Eurobarometer estimates, the prevalence of e-cigarettes use by socio-economic groups 
could be summarised as follows: 

▪  E-cigarettes are more popular among young people. In 2023, the prevalence of e-cigarettes 
among people in the 15-24 years age group was 6%, compared with between 2 and 5% for 
older generations (see Figure A13-5). 

▪  E-cigarettes use is similar among males and females. In 2023 there were no differences in e-

cigarettes’ use between males and females, as both genders had a 3% prevalence.  

▪  E-cigarettes use is highest among people with secondary education. In 2023, 7% of people 
with secondary education used e-cigarettes, compared with a prevalence of 4% among those 
with primary education and 3% among people with tertiary education.  

▪  E-cigarettes use is uncorrelated with socio-economic status. In 2023, the prevalence of  e-
cigarettes in the various socio-economic groups was generally aligned with the 3% found in 
the  general  populationThere  are,  however,  some  differences  across  Member  States,  e.g. 
prevalence is highest in the upper class in Estonia, Croatia and Latvia. 

164 

 
 
Figure A13-5. Use of e-cigarettes by age group (percentages, 2023) 

Source: External study based on Eurobarometer 99.3. 

Data  on  market  composition  shows  (see  Figure  A13-6)  in  2023  nicotine-containing  products 
accounted for 87% of the total consumables market vs. just 13% for nicotine-free products. Among 
nicotine-containing products, consumers tend to prefer low strength liquids (with 1 to 9 mg/ml), 
although  medium  strength  products  (10  to  19  mg/ml)  hold  more  than  50%  of  the  market  in  5 
Member States (Austria, Denmark, Italy, the Netherlands and Romania). 

Figure  A13-6.  Composition  of  e-cigarette  liquids  market  value  by  nicotine  concentration 
band (market share in %, 2023) 

Source: External study based on Euromonitor International 
Note: Information not available for three Member States (Cyprus, Luxembourg and Malta). In some countries, not all 
the four types of liquids are sold and/or consumed. 

165 

 
 
2.  Legal framework for e-cigarettes in Member States 

Definition of liquids for e-cigarettes in Member States’ legislation 

Member States with an ad hoc taxation of e-cigarettes in place (see  

Figure A13-7) have adopted various approaches to define the related tax category. Considering a 
typical liquid for e-cigarettes containing 6 mg/ml of nicotine, and including Member States that 
start levying taxes in 2025, the average tax level is EUR 0.20/ml, ranging from nil (Croatia) to 
EUR 0.70/ml (Slovenia). 

According to the definitions implemented, Member States can be divided into three categories: (1) 
making reference to liquid used in e-cigarettes (e.g. Cyprus, Croatia, Latvia, Poland); (2) making 
reference  to  the  classification  under  Combined  Nomenclature  (e.g.  Greece,  Romania);  and  (3) 
making  reference  to  the  vapour,  vaporising,  inhaling  of  liquid  (e.g.  Italy,  Slovenia,  Portugal). 
Meanwhile, in Estonia, liquids for electronic cigarettes fall under the broad category of products 
intended for use similarly or for similar purposes with tobacco products.  

Figure A13-7. Tax regimes for liquids for e-cigarettes across Member States 

BE: € 0.15/ml 
BG: € 0.18/ml 
CY: € 0.12/ml  
CZ: € 0.10/ml 
DE: € 0.20/ml 
DK:  €  0.20/ml  up  to  12mg/ml  of  nicotine,  € 
0.34/ml  for  liquid  with  more  than  12mg/ml  of 
nicotine. Nicotine-free liquids are not taxed.  
EE: € 0.21/ml  
EL: € 0.10/ml  
ES:  €0.15/ml  up  to  15mg/ml  of  nicotine 
(including nicotine-free liquids), €0.20 for liquid 
with more than 15mg/ml of nicotine 
FI: € 0.30/ml 
HR: € 0.00/ml 
HU: € 0.09 /ml 
IE: € 0.50 /ml (to be introduced in 2025) 
IT: € 0.13/ml and € 0.08 for nicotine-free liquids 
(€ 0.14 and € 0.10 respectively, since 2025) 
LT: € 0.25 /ml 
LU: € 0.12 /ml  
LV: € 0.24 /ml 
MT: € 0.13 /ml 
PL: € 0.13 /ml 
PT: € 0.35/ ml (€ 0.17 for nicotine-free liquids) 
RO: € 0.16 / ml (€ 0.18 in 2025) 
SE:  €  0.20  /  ml  up  to  15mg/ml  of  nicotine,  € 
0.40/ml  for  liquid  with  more  than  15mg/ml  of 
nicotine. Nicotine-free liquids are not taxed. 
SI: € 0.70/ml (€ 0.31 for nicotine-free liquids) 
SK: € 0.20/ml (introduced in February 2025) 

No tax 

Flat rate 

Differentiated rates 

Source: External study 
Note: Note: (*) taxation introduced/to be introduced in 2025. 

3.  Liquids for e-cigarettes regime’s implementation and obligations 

▪  The  relative  majority  of  Member  States  apply  similar  rules  and  arrangements  as  for 
traditional  tobacco  products.  These  similarities  particularly  regard  the  obligation  for 

166 

 
 
 
manufacturers / importers of liquids to provide a financial guarantee. Similarly, in most cases 
it is requested to keep products in tax warehouses until they are released for consumption. 
▪  The majority of countries allow movement under duty suspension. This permission can be 
coupled  –  but  not  necessarily  –  with  the  obligation  to  use  electronic  documents  for  the 
movement of products. 

▪  Most of the countries with a tax regime on e-cigarettes have prohibited distant selling online 
to avoid tax circumvention. E-commerce is challenging to control, and most stakeholders 
estimate  that  a  significant  share  of  ‘unrecorded’  consumption  is  actually  linked  to  cross-
border transactions made online. 

Figure  A13-8.  Administrative  arrangements  and  obligations  linked  to  ad  hoc  e-cigarettes 
taxes 

Source: External study (based on EA 2019273, based on feedback from 11 Member States with an ad hoc e-cigarettes 
tax in place). 

4.  Tax revenue 

In 2022, tax revenues from e-cigarette taxation amounted to almost 170 million. In 2023, such 
revenues, based on the market  size and the rates applied in  the Member States, amount to 290 
million. EUR, i.e. significantly more than in 2022. In addition to the inevitable discrepancies in 
estimates, the difference may be due to various reasons, primarily the significant increase in market 
value (+34% between 2022 and 2023). 

273 Economisti Associati, ‘Study on Council Directive 2011/64/EU on the structure and rates of excise duty applied to 
manufactured tobacco’, 2019 

167 

 
 
 
 
 
 
 
Figure A13-9. Estimated revenues from e-cigarettes taxation (EUR million, 2023) 

Source:  External  study  based  on  tax  rates  applicable  in  Member  States  and  market  data  from  Euromonitor 
International. 
Note: The figure shows only Member States that had a tax regime with positive rates in place in 2023, and for which 
market data were available (Cyprus, Malta and Luxembourg are not covered by Euromonitor). 

168 

 
 
 
 
ANNEX 14: OTHER TOBACCO-RELATED PRODUCTS 

1.  Market trends and demand 

Nicotine pouches274 are a relatively new product, and sales increased considerably in recent years. 
As shown in Figure A 14-1, in 2023, the EU market for nicotine was valued at about EUR 1.1 
billion, i.e. almost three times more than the value recorded in 2020 and more than twenty times 
the  value  recorded  in  2018.  A  similar  trend  emerges  from  data  in  volumes,  with  2023  sales 
surpassing 4 400 tonnes, compared with 800 tonnes in 2020 and a mere 200 tonnes in 2018.  Sales 
of nicotine pouches are concentrated in few countries, mostly in Scandinavia and Central Eastern 
Europe. Sweden is by far the main market, and in 2023 it accounted for about 37% of total sales 
in value, followed by Denmark, accounting for about 26%. In 2023, nicotine pouches were sold in 
another  13  Member  States,  but  significant  sales  were  recorded  only  in  Austria  and  Czechia 
accounting for, respectively, 13% and 11% of the total market. 

From a public health perspective, nicotine pouches are sometimes regarded as particularly harmful, 
and their sale is prohibited in several Member States (Belgium, Cyprus, Germany, Lithuania, the 
Netherlands and Portugal). 

Demand trends. Nicotine pouches are a niche product and according to the 2023 Eurobarometer 
survey, at the EU level only 1% of the population used them on a less than monthly basis. Daily 
users are found only in Sweden (6%), Denmark (2%) and in four other Member States (Estonia, 
Finland, Italy and Luxembourg). Both in Sweden and in Denmark, the relative majority of daily 
users  of  nicotine  pouches  are  found  primarily  in  younger  generations  (15  –  24  age  bracket). 
Compared to traditional tobacco products, the consumption of nicotine pouches is more popular 
among upper / mid-upper classes than in the working class.  

Figure A 14-1. EU nicotine pouches market (2018 - 2023) 
A) Trend in Sales - Value (EUR million) 

B) Trend in Sales - Volume (1,000 kg) 

274Nicotine pouches are small bags containing nicotine powder designed for oral use, usually placed under the lip, to 
facilitate  nicotine  absorption. Nicotine  pouches  can  be  regarded  as  a  modern  evolution of  traditional  oral  tobacco 
products and where they are not prohibited are sold in a variety of flavours and nicotine strengths. 

169 

 
 
 
 
 
Source: Euromonitor International 
Note:  Market  data  for  2023  refers  to  15  Member  States  (Austria,  Belgium,  Czechia,  Denmark,  Estonia,  Finland, 
France, Croatia, Hungary, Ireland, Italy, Poland, Romania, Sweden, and Slovakia). In the remaining 12 countries, 
nicotine pouches sales are prohibited or otherwise not available in the market or simply no information is available, 
presumably because of the very limited sales. 

Other  manufactured  tobacco  product  category  covers  chewing  tobacco,  nasal  tobacco,  and 
other  products.275  These  products  are  often  prohibited  or  very  marginally  consumed  in  EU 
countries. The consumption of these products is small and declining. Chewing tobacco sales have 
decreased  by  13%  since  2020,  and  in  2023  were  below  19  tonnes  EU-wide.  Moist  snuff  sales 
(except snus) amounted to 128 tonnes in 2023 and are rather stable for the past 3 years. In Member 
States where smokeless tobacco is commercialised, sales exceed the EUR 10 million benchmark 
only in Czechia, Denmark and Slovakia, whereas sales are negligible (below EUR 1 million), in 
Bulgaria, Spain and Hungary. 

According to the latest Eurobarometer survey found an extremely limited utilisation of smokeless 
products EU-wide. In fact, in 2023 95% of the people interviewed never used these products, while 
the rest either only tested them once or twice or stopped using them.276 

2.  Legal framework in Member States 

Nicotine pouches are taxed in 14 Member States (including Spain and Slovakia that introduced 
tax in 2025). No duties are levied in six countries (Austria, France, Croatia, Ireland, Poland and 
Slovenia.  In two Member States, taxes are linked to the nicotine content expressed in milligrams. 
In the other countries, nicotine are charged a fixed amount per weight, expressed in kg (plus an ad 
valorem component used by Finland). Taxation levels show significant variation across countries. 
Duties levied on the weight range from a maximum of EUR 120/kg in Latvia (closely followed by 
Estonia with EUR 112/kg, the same rate applied to fine cut tobacco) to a minimum of around EUR 
19/kg in Sweden.  

Other manufactured tobacco products are taxed in nine Member States. In seven Member States 
there is a ban in place, which may regard only chewing tobacco, only nasal tobacco or both. In all 
other cases these products are not taxed (regardless of whether actually in the market or not).  All 
countries  charge  a  fixed  amount  per  kg,  except  Italy  where  the  tax  is  purely  ad  valorem,  and 
Portugal where a mixed regime is applied. Sweden applies differentiated rates across products, 
where  snus  is  taxed  about  EUR  47/kg,  while  chewing  tobacco  is  taxed  less  than  €  54  kg.  In 
addition, Sweden has a ‘catch-all’ regime of EUR 226/kg on any other tobacco products, aimed at 
discouraging the commercialisation of bulk tobacco or the like. Among taxing Member States, the 
highest rate is in Denmark – EUR 154 / kg. 

275 Sale of snus has been prohibited in the EU, except for Sweden, since 1992 (Article 17 of the Tobacco Products 
Directive). 
276 External study. 

170 

 
 
 
 
 
ANNEX 15: RAW TOBACCO 

1.  Reconstruction of the tobacco supply chain 

Table A15-1 below provides an overview of the supply chain’s building blocks and flows between 
different steps, from the tobacco leaf to the retail sale of final products.  The tobacco supply-chain 
is complex and ever-changing277 and the reconstruction is inevitably simplified and subject to a 
series of caveats.278 

Table A15-1. The tobacco supply-chain 

Phase 

Description 

Tobacco 
growing  

▪  Overall, there are approximately 14 500 – 15 000 tobacco growers registered in 
Member States in 2024. Their number has constantly declined in the past decade 
from an estimated 60 000 in 2010. In Bulgaria, Germany, Greece, Spain and 
Italy, the number of growers cumulatively declined by some 35%. The largest 
numbers are found in Bulgaria (about 6 200), Greece (approximately 4 600), 
and  Poland  (3  500).  Tobacco  growers  are  generally  organised  in  Producers’ 
Organisations (PO) and Associations of Producers Organisations (APO), often 
charged  with  market  self-regulatory  purposes.  These  also  have  been 
increasingly concentrating and in most growing countries, 2-4 POs account for 
100% of tobacco crops. 

▪  According to Eurostat data, roughly 86 000 tonnes of tobacco were harvested 
in  the EU in  2023, with a marked decline compared with  the  about  180  000 
tonnes recorded in 2016. The decline in EU production of tobacco accelerated 
after the discontinuation of decoupled EU aid in 2014, which led to a more than 
50% drop in output. In 2023, tobacco was cultivated in 11 Member States. IT is 
the  main  producer,  accounting  for  about  one  third  of  total  output.  Other 
significant producers include Poland, Greece and Spain. Compared to 2020, the 
decline  in  production  was  particularly  steep  in  Spain  (-50%),  Greece  (-42%) 
and Croatia (-41%); but less marked in Poland (-15%). 
In 2023, tobacco was cultivated in 11 Member States. Italy is the main producer, 
accounting  for  about  one  third  of  total  output.  Other  significant  producers 
include Poland, Greece and Spain.279  

▪ 

▪  Tobacco is a commodity whose market prices fluctuate. To allow some form of 
regulated  market,  in  most  EU-growing  countries  cultivation  plans  and 
contractual agreements are negotiated in advance and under the supervision of 
public  authorities.  PO/APOs  set  out  multi-annual  plans  in  line  with  the 

277 A common trait, which can be observed in all Member States, is a progressive consolidation and concentration of 
the supply chain in the hands of few operators. This process led to unprecedented cross-border flows of raw material.   
278Such as lack of robust and detailed production data at all stages of the supply chain; the difficult use of Comext 
data to reconstruct the path of raw tobacco; diachronic reconciliation issues, with tobacco grown in year Y ending up 
in being used in a product released for consumption in 2-3 years or more;  different units of measurement used by 
different sources for the range of products involved, i.e. volume (tonnes/ Kg) or units (pieces etc.); limitations with 
the  time-significance  of  ‘release  for  consumption’  data,  due  to  the  authorities’  registration  methods  and  possible 
‘forestalling’ practice.  (External study).    
279 Compared to 2020, the decline in production was particularly steep in Spain (-50%), Greece (-42%) and Croatia (-
41%); less marked in Poland (-15%). 

171 

 
 
 
 
requirements  of  tobacco  buyers,  which  can  be:  (a)  first  processors;  (b)  final 
manufacturers;  or  (c)  tobacco  merchants.  The  majority  of  buyers  are  large 
companies,  but  there  are  still  some  SMEs  among  manufacturers  and  first 
processors. In most Member States, there is a legal obligation to sell tobacco 
only to registered operators. 

Figure  A15-1  Trends  in  EU  tobacco  harvested  production  (2016  –  2023, 
thousand tonnes) 

▪  First processing includes a variety of activities that transform ‘leaf’ tobacco into 
‘processed’ tobacco which manufacturers can use to produce cigarettes, FCT, 
cigars etc. The first processing includes inter alia: (a) threshing (separation of 
tobacco  laminas  from  stems  and  veins);  (b)  cutting;  (c)  stabilisation;  and  (d) 
sorting into lots (i.e. grading of the products by quality).  

▪  First  processing is  carried out  in  dedicated facilities, generally located in  the 
growing areas (although increasingly less so). The number of first processors 
has consolidated over time (less than 30 operators were likely active in 2024). 
The  bulk  of  activities  carried  out  by  a  handful  of  operators,  including  some 
entities owned by transnational tobacco companies. With an estimated output 
of  less  than  1,000  tons  /  year,  other  minor  processors  can  be  found  other 
countries  (Hungary,  Bulgaria,  Greece,  Italy,  Poland,  Czechia)  and  in  the 
outermost  regions  of  Spain  and  Portugal.  There  are  no  longer  active  first-
processing plants in France, Hungary, and Germany, so the tobacco grown in 
these  countries  is  processed  elsewhere  (for  instance  Hungarian  tobacco  is 
mostly sent for processing to Italy).  

▪  As shown in Figure A15-2, in 2023, EU imports of ‘unmanufactured tobacco’ 
(i.e. CN 2401 heading) were at little more than 450 000 tonnes, while exports 
were almost 110 000 tonnes. First processed tobacco was the main item. 

▪  The  importers  of  processed  tobacco  are  primarily  final  manufacturers.  Once 
processed, the tobacco is then moved to the EU for storage until it is needed for 
production.  In  this  system,  there  are  no  intermediaries  involved  (except  ‘on 
service’ suppliers) and they own the tobacco from the plant to the final product. 
However,  the  tobacco  acquired  through  this  channel  is  insufficient  to  fulfil 
manufacturing  needs,  so  manufacturers  also  buy  tobacco  on  the  free  market 

First 
processing 

Import of raw 
tobacco 

172 

 
 
 
from tobacco merchant companies. These companies have their supply chains 
in producing countries (Brazil, India, China, Far East, Africa etc.). 
Figure A15-2 Import / export of raw tobacco (1 000 tonnes, 2023) 

▪  As shown in Figure A15-3, Belgium is the main entry point for EU imports of 
raw tobacco, accounting for nearly 29% of total EU imports in 2023. A large 
share of imported tobacco is stored in warehouses in Antwerp, which are the 
world’s largest  tobacco  storage facilities. Other  relevant  storage facilities are 
reported in Rotterdam (the Netherlands), Hamburg (Germany), and other EU 
countries  where 
major  ports. 
Imports 
processing/manufacturing 
the 
Netherlands, Germany, Greece and Italy. 

are 
also 
facilities  are 

located,  notably  Poland, 

significant 

in 

Figure A15-3 Import of raw tobacco into the EU by Member State and type of 
tobacco (1 000 tonnes, selected Member States, 2023) 

Raw  tobacco 
trade 
and 
logistics 
within the EU 

▪  A rough estimate of the amount of raw tobacco available for manufacturing in 
the EU can be obtained by combining the above import / export data with EU 
‘own’ production. The result suggests a total of about indicates a total of 333 

173 

 
 
 
 
000  tonnes  of  ‘available’  raw  tobacco  in  2023.280  In  2023,  almost  300,000 
tonnes of raw tobacco were moved between Member States, i.e. nearly 90% of 
the abovementioned total ‘available’ processed tobacco. 

▪  Belgium emerges as the main logistics platform for intra-EU movements. Big 
manufacturers keep substantial amounts of their tobacco in Antwerp’s storage 
facilities,  to  then  move  it  to  their  manufacturing  facilities  based  on  the 
production needs. 
Inward movements of leaf tobacco in countries like Italy, Croatia, Poland, and 
Germany has seemingly a transformation purpose. The first processing plants 
located  in  these  countries  receive  ‘leaf’  tobacco  from  other  tobacco  growing 
Member States like Hungary, Spain and Greece.  

▪ 

▪  After processing, the tobacco is either moved to the above-mentioned storage 
facilities  (especially  tobacco  owned  by  big  manufacturers  and  processed  ‘on 
service’  by  first  processors),  or  to  manufacturing  facilities.  The  latter 
movements are mostly directed to big manufacturing plants in Germany, Poland 
and Romania. 

Figure A15-4 Cross-border flows of ‘leaf’ tobacco – CN  2401 10 (1 000 tonnes, 
selected  Member States, 2023) 

Figure A15-5 Cross-border flows of ‘processed’ tobacco – CN 2404 20 (1 000 
tonnes, selected Member States, 2023) 

280 Of the leaf tobacco available, an estimated 80% become first processed tobacco (around 90 000 tonnes), while the 
remaining 20% is tobacco refuse, which is used for the production of reconstituted tobacco. Considering a net import 
of first processed tobacco of 245 000 tonnes, the total available for manufacturing in the EU amounts to roughly 333 
000 tonnes.    

174 

 
 
 
 
from  processing/manufacturing 

▪  Second processing” designates a range of activities that transform tobacco by-
into 
products,  originating 
reconstituted  tobacco  or  other  intermediate  products  (such  as  ‘expanded 
tobacco’),  which  can  be  used  for  the  manufacturing  of  final  products. 
Reconstituted  tobacco  is  then  used  in  cigarettes’  blend  (up  to  15%  of  the 
volume) and as the basis for HTP products (up to 100% of the blend). In the 
latter case, the tobacco leaf (and not only by-products) is also used.      

activities 

Second 
processing  

▪  There is one major producer of reconstituted tobacco in the EU, based in France, 
that processes several thousand tonnes of tobacco / year, to a large extent on a 
service  contract  for.  Other  smaller  plants  linked  to  large  first  processors  are 
located  in  the  Netherlands  and  Germany.  Other  transnational  tobacco 
companies  operate  a  vertical-integrated  approach  to  the  production  of  HTP, 
controlling the entire supply chain from raw tobacco to reconstitution to final 
manufacturing  in  dedicated  facilities  (in  Italy),  from  which  most  EU  and 
international markets are served. 
In  2023,  the  refuse  tobacco  generated  by  first  processing  activities  likely 
amounted to  23 000 tonnes. A further (estimated) 33 000 tonnes281  of refuse 
tobacco  is  generated  during  final  product  manufacturing  (primarily  cut  rags, 
dust and fines) and re-injected in the cycle. Additionally, the EU is also a net 
importer of refuse tobacco, so the total ‘available’ refuse tobacco within the EU 
can be estimated at approximately 128 000 tonnes. 

▪ 

▪  Not all refuse tobacco is transformed into reconstituted tobacco. Refuse tobacco 
is also used for preparing smokeless tobacco like ‘snus’ in Sweden or chew bags 
in  Denmark  and  other  EU  countries  (tentatively  8  000  tonnes  /year). 
Considering that the EU is a net exporter of reconstituted tobacco (6 000 tonnes 

281  Based  on  Comext  data,  in  2023  cross-border  movements  of  refuse  tobacco  amounted  to  approximately  56000 
tonnes. As there are few plants in the EU transforming refuse tobacco into reconstituted tobacco, this figure can be 
taken as a proxy for the total refuse tobacco generated by processing/manufacturing activities within the EU. 

175 

 
 
 
 
in  2023),  the  total  second  processed  tobacco  ‘available’  for  manufacturing 
amount to around 114 000 tonnes. 

Figure A15-6 Cross-border flows of refuse tobacco – CN 2401 30 (1 000 tonnes, 
selected Member States, 2023) 

Figure  A15-7  Cross-border  flows  of  reconstituted  tobacco  (1  000  tonnes, 
selected Member States, 2023) 

Manufacturin
g and sales 

▪  The last steps of the tobacco supply chain include the manufacturing of final 
products  and their  commercialisation, i.e. the  release for consumption (RFC) 
within  the  EU  and  sales  to  third  countries.  At  this  level,  first  and  second 
processed  tobacco  is  blended,  cut,  rolled,  pressed  and  transformed  into  final 
products,  i.e.  cigarettes,  cigars/cigarillos,  fine-cut  tobacco,  pipe  tobacco  and 
water-pipe tobacco.  

▪  The manufacturing of tobacco products is quite widespread across the EU, and 
in 2023 only five Member States (Austria, Cyprus, Estonia, Finland and Malta) 
did not have any production facility. The largest number of manufacturers of 
tobacco  products  was  found  in  Germany,  with  57  enterprises,  followed  by 
Sweden and Spain, with 37 and 32 enterprises, with Poland and Greece ranking 
in fourth and fifth places, with respectively 28 and 24 enterprises. Since 2019 
the  number  of  producers  has  hovered  around  300.  In  2023  the  EU  tobacco 
industry consisted of 34 large enterprises, i.e. employing 250 persons or more, 
and 272 small and medium enterprises (SMEs). The turnover was marginally 
above EUR 29 billion, with a significant increase over the previous two years, 

176 

 
 
 
 
but still lower than in 2019 and 2020. As for employment, in 2023 the tobacco 
industry  had  almost  41  000  employees,  which  marked  a  recovery  from  the 
declining trend recorded over the 2019 – 2022 period. 

▪  The manufacture of tobacco products is largely controlled by four transnational 
tobacco companies - (PMI, BAT, JTI and IB282), plus some important national 
players.  Transnational  tobacco  companies  dominate  the  cigarettes  and  HTP 
markets. Other cigarette-makers have tiny market shares and mostly operate in 
one  or  few  countries  (Greece,  Luxembourg,  Hungary,  Bulgaria,  Italy, 
Germany).    Only  the  production  of  cigars/cigarillos,  pipe  tobacco,  and  some 
specialty  products  (e.g.  snus)  is  mostly  controlled  by  a  limited  number  of 
medium sized players, with transnational tobacco companies playing a modest 
role.  

▪  508  billion  cigarettes  sticks  were  produced  in  the  EU  in  2023,  while  the 
production  of  FCT  amounted  to  115  000  tonnes.  The  FCT  segment  is  less 
concentrated,  with  a  more  limited  role  played  by  transnational  tobacco 
companies and with some 10-15 mid-size or small players involved). Cigars and 
cigarillos are mostly produced by some 20 – 25 medium-sized manufacturers. 
In  2023  the  production  was  about  10.8  billion  pieces.  HTP  has  become  the 
second-largest segment with a production that reached 360 000 tonnes in 2023 
(of  which  a  substantial  share  for  export).  Like  cigarettes,  HTP  is  mostly 
controlled by transnational tobacco companies.  

▪  EU’s imports of manufactured tobacco products are minimal, i.e. less than 15 
000 tonnes in 2023, mostly consisting of cigarettes and FCT. Export flows are 
much  higher  and  more  diversified.  In  2023,  EU  sales  to  third  countries 
surpassed 170 000 tonnes, with cigarettes accounting for 40%, HTP for 25%, 
and FCT for 20%. 

▪  The number of retailing outlets dealing with tobacco products in the EU is in 

the order of some 250 000 – 300 000. 

Source: External study 

2.  Legal framework for raw tobacco in Member States 

The review’s focus is primarily on the fiscal legislation that was adopted in certain Member States 
to tackle the issues connected to the diversion of raw tobacco outside of the legitimate channels. 
However, in tobacco-growing countries, the first part of the supply chain, i.e. growing and first 
processing, is typically in the remit of agricultural policy. So, where relevant, the review contains 
also relevant information on control measures and obligations applicable under the EU common 
agricultural policy and on the interaction between fiscal and agricultural legal frameworks. The 
review focuses on the definition of raw tobacco adopted in different Member States; the legal and 
administrative obligations for supply-chain players; and applicable excise duty. 

Member States can be divided into three categories according to the definition implemented,: (1) 
defining raw tobacco by contrast with manufactured tobacco (e.g. Croatia, Sweden); (2) making 
reference  to  the  classification  under  Combined  Nomenclature  (e.g.  Lithuania);  and  (3)  making 
reference  to  the  harvested  tobacco  (e.g.  Bulgaria,  Poland,  Spain).  Meanwhile,  in  Czechia  the 

282  Philip  Morris  International  (PMI),  British  American  Tobacco  (BAT),  Japan  Tobacco  International  (JTI)  and 
Imperial Brands (IB). 

177 

 
 
 
definition  of  natural  tobacco  covers  a  heterogeneous  range  of  products,  i.e.  leaf  tobacco,  first-
processed tobacco, refuse tobacco and reconstituted tobacco.  

Legal and administrative obligations implemented by Member States include: 

▪  Registration obligations: mandatory registration of entities involved in growing, handling, 
selling and manufacturing (e.g. Bulgaria, Greece, Croatia, Czechia, Hungary, Poland, Italy, 
Spain). In the case of Bulgaria, any person who produces, imports or recycles machines for 
manufacturing tobacco products is subject to obligatory registration.  

▪  Reporting obligations: obligation for raw tobacco players to provide a list of transactions 
to  competent  authorities  on  monthly  or  quarterly  basis  (Greece,  Poland);  report 
electronically  of  all  tobacco  shipments  (received/dispatched)  (Greece,  Czechia,  Italy, 
Spain)283. In the case of Greece, additional due diligence obligations are in place for licensed 
processors, manufacturers, wholesalers and warehouse keepers in the framework of renewed 
anti-fraud  national  policies  (e.g.  an  electronic  submission  of 
transactions  and 
customers/suppliers involved to the competent anti-smuggling agency). 

Movement  control:  electronic  tracking  (SENT  system)  implemented  by  Poland  includes  prior 
registration of the transport on an electronic platform and GPS tracing of the vehicle. In the case 
of Croatia, the carrier must notify transits of raw tobacco through the territory of Croatia. For most 
authorities  with  a  fiscal  regime  on  raw  tobacco  in  place,  the  main  weakness  of  the  current 
arrangements related to the fact that their coverage is limited to the national territory and that there 
is no coordinated, efficient mechanism to track movements across borders.  While the measures 
taken  have  contributed  to  solving  this  problem,  it  is  widely  acknowledged  that  it  would  be 
necessary  to  extend  and  harmonise  the  obligation  to  comply  with  such  measures  to  all  EU 
countries. 

283 Croatia: any inward/outward movement has to be notified via email to customs authority no less than 24h prior to 
the entry of tobacco in the territory of Croatia (notification also contains the details of the consignee, the consignor, 
the carrier, the product and the intended use).  
Czechia: all subjects handling tobacco must inform the tax administrator of all raw tobacco receiving / dispatching 
events. The notification must be sent electronically between 24 and 72 hours before the movement. 
Spain: all movements of raw tobacco through the Spanish territory (including cross-border movements) are subject to 
prior notification to the tax administration at least 24h ahead of transport.  

178 

 
 
 
 
 
ANNEX 16: CURRENT EXCISE DUTY RULES FOR MANUFACTURED 
TOBACCO 

1.  Excise duty structure 

EU legislation only sets harmonised minimum rates. Member States are free to apply excise duty 
rates above these minima, according to their own national needs. 
Harmonised excise duty rates for tobacco are either ‘ad valorem’284, ‘specific’285, or a combination 
of both. The overall excise duty has to represent a minimum percentage of the average retail selling 
price286 and at least a minimum fixed amount in euro. 

EU minima have two components: the fixed minimum and the relative minimum conditions. 

▪  The  minimum  rates  for  cigarettes  consist  of  two  conditions  that  must  be  simultaneously 
fulfilled: a fixed amount in  Euro (per thousand sticks); and a percentage of the weighted 
average price (WAP) of cigarettes in the country considered. The latter condition need not 
be met if the overall excise duty (specific plus ad valorem) levied at the WAP level exceeds 
a certain monetary amount. 

▪  For  tobacco  products  other  than  cigarettes,  the  Directive  leaves  Member  States  more 
freedom in establishing the applicable structure, which can be fully specific (per kg or per 
units, where relevant), fully ad valorem, or a mix thereof. Depending on the excise structure 
chosen, the Directive indicates the applicable minimum rates or amounts. The tax base of 
fine-cut tobacco and other smoking tobacco is per kg of product, while in the case of cigars 
and  cigarillos  the  excise  duty  is  typically  calculated  per  1  000  items  except  for  a  few 
countries where it is calculated per weight (or per ‘conventional kg’).  

▪  Article 8.6 of the Directive allows Member States to apply an optional minimum excise duty 
(MED), i.e. a sort of excise minimum ‘floor’. Nearly all Member States opted to apply the 
MED to cigarettes. The option of setting a MED is available also for products other than 
cigarettes, but is less frequently used there, because these products are often taxed with a 
fully specific structure.  

Table A16-1. Overview of the excise duty rates and structures applicable under the Directive 

Product 
category 

Cigarettes 

Tax structures and rates 

▪  Mandatory  mixed  structure  including  both  an  ad  valorem  excise  duty  and  a 
specific  excise  duty.  The  specific  component  has  to  respect  the  following 
thresholds: 

o  Upper threshold:  76.5%  of the total  tax burden (i.e. the sum  of  the specific 
component and the ad valorem component and VAT levied at the WAP level).  

o  Lower threshold: 5% (until the end of 2013) and 7.5% (since January 2014)   

284 Excise duties calculated as a percentage of the (maximum) tax-included retail selling price of a product.  
285 Excise duties calculated as a fixed monetary amount per volume of product, expressed ‘per weight’ (per kg) or ‘per 
unit’ (per 1 000 sticks).  
286 The average price is calculated as the weighted average retail selling price = value (based on retail selling price 
including all taxes) of cigarettes / total quantity released for consumption. 

179 

 
 
 
▪  Minimum  rates  for  the  overall  excise  duty  (not  including  VAT),  as  described 

below:  

o  Until the end of 2013: 57% of the WAP and not less than EUR 64 per 1 000 
cigarettes (irrespective of the WAP), or EUR 101 per 1 000 cigarettes at the 
WAP level. 

o  Since 1st January 2014: 60% of the WAP and not less than EUR 90 per 1 000 
cigarettes (irrespective of the WAP), or EUR 115 per 1 000 cigarettes at the 
WAP level. 

o  Certain Member States – namely Bulgaria, Estonia, Greece, Lithuania, Latvia, 
Hungary, Poland, Romania and Croatia – were granted a transitional period 
until the end of 2017 to reach the above minimum levels.   

▪  A  minimum  excise  duty  (MED)  may  apply  (i.e.  a  fixed  monetary  amount  per 
quantity applicable if the amount of the excise duty falls below a minimum floor), 
provided the ‘mixed structure’ requirement is respected.  

▪  Member States may opt for a fully specific (per kg) or a fully ad valorem excise 
duty (calculated on the maximum retail selling price of each product), or a mixture 
of the two. 

▪  The overall excise duty (not including VAT) must be no less than: 

o  40% of WAP or EUR 40 per kg (until end of 2012), 
o  43% of WAP or EUR 47 per kg (until end of 2014), 
o  46% of WAP or EUR 54 per kg (until end of 2017), 
o  48% of WAP or EUR 60 per kg (until end of 2019), 
o  50% of WAP or EUR 60 per kg (since 1st January 2020).  
If the structure chosen is fully ad valorem or mixed, Member States may establish 
a minimum amount of excise duty. 

▪ 

▪  Member States may opt for a fully specific (per kg or number of items) or a fully 
ad valorem excise duty (calculated on the maximum retail selling price287 of each 
product), or a mixture of the two. 

▪  The overall excise duty (not including VAT) must be no less than 5% of the retail 

▪ 

selling price or EUR 12 per 1000 items or per kg. 
If the structure chosen is fully ad valorem or mixed, Member States may establish 
a minimum amount of excise duty. 

▪  Member States may opt for a fully specific (per kg) or a fully ad valorem excise 
duty (calculated on the maximum retail selling price of each product), or a mixture 
of the two. 

▪  The overall excise duty (not including VAT) must be no less than 20% of the retail 

▪ 

selling price or EUR 22 per kg. 
If the structure chosen is fully ad valorem or mixed, Member States may establish 
a minimum amount of excise duty. 

FCT 

Cigars and 
cigarillos 

Other 
smoking 
tobacco 

287 Manufacturers or, where appropriate, their representatives or authorised agents in the EU, and importers of tobacco 
from third countries are free to determine the maximum retail selling price for each of their products.  

180 

 
 
 
Note:  Certain  special  treatments  applicable  to  specific  Member  States  or  specific  regions  or  territories  are  not 
displayed.  

EU  minima  are  currently  expressed  in  nominal  terms  for  the  specific  excise  duty  part.  Due  to 
substantial diversity in economic conditions in Member States (not only in income, but also in 
general price level), any nominal EU minima that is the same for all Member States will be too 
cheap for higher-income countries and too expensive for lower-income countries. 

Calculation of the tax for a pack of 20 cigarettes (example):  
Retail Selling Price (excluding taxes) : EUR 1.56 
+ Excise duty - specific: EUR 1.27 
+ Excise duty - ad valorem: EUR 5.5 (55% of RSP) 
Total excise duty: EUR 6.77 (68% of WAP) 
= Price (excluding VAT): EUR 8.33 
+ VAT 20%: EUR 1.67 
= Retail Selling Price (including all taxes): EUR 10.0 

2.  Relevance of the current excise duty structure 

Modifying the current structure of the minimum rates was not considered in the External study for 
several reasons.  

First, both components are needed to achieve the main objectives ‘to ensure the functioning of the 
internal market and at the same time a high level of health protection’. The relative minimum helps 
avoid  EU  levels  becoming  obsolete  too  quickly  and  that  they  maintain  some  relevance  also  in 
moderately  wealthier  EU  economies.  As  highlighted  in  the  literature,  including  recent  WHO 
guidelines, pure ad valorem taxes are less effective from a tobacco control perspective because 
they encourage the development of the low-price segment (manufacturers could be encouraged to 
refrain from increasing prices and rather seek margins through expanding volumes of sales of low-
price products). 

Moreover, differentiated tax regimes have been adopted for different products, which reflect major 
differences in the industry, the product, and the demand patterns and characteristics. Thus, it would 
alter competition in the internal market and it would be very complex and burdensome for Member 
States to alter the current structure.  

Finally, neither economic operators nor national tax authorities expressed the need to switch from 
the current approach. Related administrative procedures (accounting, tax declaration, calculation 
and other related information systems) are in place and function properly. 

181 

 
 
 
 
ANNEX 17: IMPACTS OF THE PROPOSED OPTIONS 

1.  Revision of EU minima for traditional tobacco products 

1.1. 

Impacts on fraud and tax evasion 

It is not possible to estimate in a quantitative manner the impact of the proposed policy options on 
ITTP as the independent literature does not support the existence of a direct, causal link between 
tax  policies  and  ITTP.  Among  others,  the  EU-funded  PPACTE  project  (Pricing  Policies  and 
Control of Tobacco in Europe)288 could not find statistically significant association between illicit 
trade and the price of cigarettes. As some of its authors suggested: ‘the supply of illicit tobacco, 
rather than its price, is a key factor contributing to tax evasion’.289 The results of the Evaluation 
Study290 were also consistent with these findings.   

High prices appear more as an enabler of ITTP rather than its determinant, or as a ‘pre-condition’. 
As Member States authorities confirmed, the price of illegal products is typically set in relation to 
the price of legal ones, and at about 50%-60% of it. In this sense, assuming production costs as 
fixed, the higher legal prices go the more profitable is ITTP business. For this reason, there is an 
economic  incentive  for  illegal  suppliers  to  focus  on  markets  where  the  level  of  price  is 
comparatively higher. On the other hand, there are other evident drivers behind the supply of illicit 
products, including (a) the permeability of borders and in general the capacity of local authorities 
to detect and prosecute ITTP (b) the severity of sanctions against offenders; (c) the geographical 
proximity to illicit production/distribution sites, which minimise the travel risks; (d) the ‘real’ price 
of legal products, in terms of consumer’s affordability etc. 

1.2. 

Impacts on inflation 

The increase in the price of tobacco products would virtually impact inflation rates in the Member 
States,  somehow  proportionally  to  the  extent  of  the  increase  and  of  the  weight  of  products  on 
consumer’s basket - as measured by Eurostat’s HICP.  

The methodology applied to assess the impact is the following: 

▪  Estimate the aggregate price increase of tobacco products in each EU country and for all the 
change  options  considered.  The  aggregate  price  increase  takes  into  account  the  different 
products’ weight in the specific national markets.  

▪  Extract  from  the  Eurostat’s  database  the  most  recent  (2025)  HICP  weight  for  tobacco 

products and for each EU countries.   

▪  Estimate the expected HICP increase in Member States (in percentage). This was obtained 
by applying the HICP weight to  the expected aggregate tobacco price increase under the 
various change scenarios. 

288 https://www.tri.ie/ppacte.html 
289 Joossens L, Lugo A, La Vecchia C et al. Tob Control 2014; 23:e17-e23 (cited from EA 2019).  
290 Study on Council Directive 2011/64/EU on the structure and rates of excise duty applied to manufactured tobacco, 
2019 

182 

 
 
 
The EU aggregate HICP would increase by 0.18 percentage points (weighted EU average) in the 
case of option 1, by 0.34 percentage points under option 2, and 0.55 percentage points under option 
3.  

Figure A17-1. Estimated increase of the HICP index caused by tobacco price increase  

Source: External study  
Note: The figures represent the HICP ‘rate of increase’. The estimates for Luxembourg appear inflated by cross-border 
flows. 

The additional inflation created by the tax increase has to be viewed in the light of the total inflation 
in a Member State. The additional inflation created by the tax change can be also viewed in the 
light of price increases of other items in the HICP basket.  

1.3. 

Public health impacts 

Reduction in smoking prevalence is the focus of the revision of the Directive as this represents the 
bulk of expected impacts on public health. Indeed, certain health risks are non-linear and do not 
vary  in  line  with  smoking  intensity.  In  certain  cases,  health  risks  are  triggered  by  the  act  of 
consumption itself and persist statistically unabated by subsequent smoking cessation.  

Any increase in taxation is always justified on public health grounds, provided that any year of life 
saved is priced in monetary terms irrespective of whether individuals are in their working life or 
not. The key assumption is that smoking is considered as an activity triggered by nicotine addiction 
and  therefore  not  a  willing  consumer  behaviour  of  which  the  consumers  themselves  bear  the 
related responsibility and cost. The existence of addiction, in fact, allows it to be considered as an 
externality and therefore a social cost that should be compensated for and would justify a taxation 
far exceeding current levels.  
The  first  dimension  examined  regards  the  reduction  of  smoking  prevalence.291  In  terms  of 
individuals concerned, the contribution of the revision of the EU minima could amount to between 

291 In Europe’s Beating Cancer Plan, the EU has endorsed the WHO objective of creating a ‘Tobacco-Free Generation’, 
where less than 5% of the population will use tobacco by 2040, compared to around 24% today.  . 

183 

 
 
 
 
5 and 12 million fewer smokers, depending on the option considered. This represents a one-off 
drop in smoking prevalence from the current 24% to 22.8 under scenario 1, 22% under option 2 
and 20.8% under option 3.  

 Table A17-1. Estimated impact on consumption and smoking prevalence in the EU 

Options 

Impact on consumption 

Baseline 
Option 1 
Option 2 
Option 3 

Billion 
items 
502 
-25 
-42 
-66 

in % 

-5% 
-8% 
-13% 

Impact on the no. of 
smokers* 
Million population   

Impact on smoking 
prevalence* 
in %  

92.1 
-4.6 
-7.8 
-12.1 

24.0% 
22.8% 
22.0% 
20.8% 

Source:  External  study.  Baseline  values  are  sourced  from  TEDB  /  Euromonitor  (unit  consumption)  and 
Eurobarometer (smoking prevalence and smokers’ population). Baseline values refer to 2023.  
Note: FCT and OST have been converted into items applying a 0.75g=1 stick equivalence. 
(*) The estimates for these variables are presented with a higher degree of granularity for the sole purpose of showing 
the possible different impact across scenarios. 

In Europe’s Beating Cancer Plan, the EU has endorsed the WHO’s long-term objective of creating 
a ‘Tobacco-Free Generation’, where less than 5% of the population will use tobacco by 2040. The 
revision of EU minima is expected to contribute to this goal, but evidently other measures would 
also be required, such as the periodical revision of EU minima, to maintain affordability at low 
levels;  Member  States  commitment  to  constantly  increase  rates  regardless  of  EU  minima 
obligations to do so; and various non-fiscal measures and policies. 

In the short run, the reduction in smoking prevalence is more than proportional to the reduction in 
the ultimate social costs of tobacco consumption. This is because tobacco consumption leaves a 
legacy  of  health  risks  that  are  usually  reduced,  but  not  completely  eliminated  by  smoking 
cessation. So smoking-related mortality and morbidity continue to apply to some extent also to 
former smokers, although on a declining trend over time. In fact, on average, epidemiological data 
show  that  over  a  generation’s  time  the  decline  in  the  share  of  smoking-related  deaths  on  total 
mortality does coincide with the parallel decline in smoking prevalence.292 

The impact of the revision on public health social costs has been estimated following a cost of 
illness approach.293 In this perspective, the economic consequences of smoking can be divided into 
‘direct costs’ – the expenses incurred because of the illnesses caused by smoking, and ‘indirect 
costs’ – the value of lost production because of reduced working time and early mortality from 
smoking-related diseases. 

Regarding  direct  costs,  healthcare  costs  attributable  to  tobacco  are  close  to  EUR  48  billion 
annually.  The  reduction  of  smoking  prevalence  associated  with  the  envisaged  revision  of  EU 
minima  would  generate  cost  savings  ranging  from  EUR  2  to  EUR  6  billion,  depending  on  the 
options considered. 

Regarding avoidable mortality, the Global Burden of Disease’s most recent estimates indicated 
that tobacco-attributable deaths in the EU amounted to nearly 0.5 million in 2021. In terms of years 
of life lost, the burden of tobacco is close to 11.3 million annually, which in economic terms may 
translate in EUR 587 billion for the EU on the whole. In addition to years of life lost, tobacco is a 
major cause of years of life with disability, which – according to the Global Burden of Disease’s 

292 External study. 
293 See ANNEX 4: section 8.1 on methodology for public health impacts. 

184 

 
 
 
 
 
 
estimates – currently amounts to around 1.9 million years in the EU. The policy options under 
consideration may reduce these impacts between 6% and 18%, possibly contributing to social costs 
savings ranging from EUR 29 to 77 billion, depending on the option. 

Indirect  costs  include  also  impact  on  employment  and  productivity  caused  by  tobacco-related 
health  conditions294,  which  is  estimated  to  amount  to  EUR  13.4  billion  (2023).  The  proposed 
revision of EU minima would deliver a benefit comprised between EUR 1 and 2 billion. 

2.  Holding, movement and control requirements under Horizontal Directive 

Inclusion of in  the scope of the Directive of e-cigarette liquids, heated tobacco products,  other 
manufactured tobacco and related products and raw tobacco would entail application of holding, 
movement and control requirements set out in the Horizontal Directive.295 They involve specific 
authorisation, holding and movement rules (see Table A17-2). 

Table A17-2. Monitoring rules and provisions applicable under Horizontal Directive  

Building blocks 
of the monitoring 
system 

Corresponding tools and provisions 

Economic  operators  engaged  in  the  holding  and  moving  of  excisable  goods 
would  be  subject  to  the  authorisation  requirements  set  out  in  the  Horizontal 
Directive, according to the different available profiles, namely: 

▪ 
the tax warehouse keeper (producing, processing, holding, receiving or 
dispatching  excise  goods  under  a  duty  suspension  arrangement  in  a  tax 
warehouse); 

Authorisation of 
involved 
operators 

the registered consignor/consignee (dispatching/receiving excise goods 

▪ 
moving under suspension arrangements); and 

the  certified  consignor/consignee  (dispatching/receiving  excise  goods 

▪ 
released for consumption via cross-border movements). 

The conditions for granting and managing authorisations are set up by Member 
States  competent  authorities  and  involve  technical,  financial  and  legal 
requirements to be fulfilled.  

Additionally,  all  authorised  traders  should  be  registered  on  the  System  for 
Exchange of Excise Data (SEED296).  

Monitoring of 
stocks 

Excise goods produced, processed, held, stored, received or dispatched under 
duty suspension arrangements must be kept in a tax warehouse. In addition to 
the authorisation requirements, warehouse keepers must keep accounts of stock 
and movements of excise goods and must consent to any monitoring and stock 

294 Comprising of workplace absenteeism and the resulting loss of income from the days off work, and premature 
retirement due to smoking-induced illnesses. 
295 Council Directive (EU) 2020/262 of 19 December 2019 laying down the general arrangements for excise duty 
(recast). 
296 SEED is a register of economic operators, involved in the movement of excise goods and is maintained by each 
Member State. Using this system traders can consult online, to see whether a given excise number is valid and what 
categories of goods the operator in question is authorised to trade. 

185 

 
 
 
checks  requested  by  authorities.  Tax  warehouses  are  also  subject  to  specific 
security requirements established by Member States. 

Record-keeping  and  stock-check  obligations  also  apply  to  registered  and 
certified consignees of excise goods. For movements of duty-paid excise goods 
(as  defined  under  Chapter  V  of  the  Horizontal  Directive),  there  is  no  tax 
warehouse  obligation,  which  makes  this  option  lighter  and  more  suitable  for 
small and/or occasional traders. 

Movements  of  excise  goods  in  the  EU  shall  take  place  under  the  excise 
movement and control system (EMCS). This includes both movements under 
duty  suspension  and  duty-paid  cross-border  movements  for  commercial 
purposes.  

The movement  of excise goods from  dispatch to  destination are documented 
under  EMCS  utilising  an  electronic  Administrative  Document  (eAD)  or  an 
electronic simplified administrative document (eSAD) in case of a business-to-
business  (B2B)  duty-paid  movement.  EMCS  allows  the  validation  of  eADs 
against SEED to determine if the traders involved in the transaction are indeed 
entitled  to  dispatch/receive  the  declared  products,  as  well  as  the  tracking  of 
every  stage  of  the  movement,  thus  facilitating  control  and  helping  prevent 
irregularities. 

The Horizontal Directive envisages two main types of financial guarantees that 
can be requested to operators to cover the fiscal risk inherent in duty payment 
suspension:  

▪ 
General guarantees for the production, processing, holding and storage 
of  excise  goods  on  duty  suspension  and  applicable  to  authorised  warehouse 
keepers. 

▪ 
Specific guarantees on movements under duty suspension and on cross-
border movements of duty-paid goods. In the first case, the financial security is 
typically covered by the consignor, while the guarantee is generally required 
from the consignee for duty-paid B2B movements.  

The  amount  and  management  of  financial  guarantees  are  established  by 
Member States, which can also waive this obligation in specific circumstances. 
The  guarantee  is  set  to  cover  inherent  fiscal  risk,  but  is  not  necessarily 
proportional to the excise duty value involved (i.e. in the case of raw tobacco, 
it could relate to the risk of diversion and tax fraud). 

Control and 
validation of 
movements 

Financial 
guarantees 
covering excise 
duty risks 

Monitoring procedures related to excise goods are supported by two pan European IT systems:297  

▪  EMCS: Excise Movement and Control System 

The Excise Movement and Control System (EMCS) is a computerised system for monitoring the 
movement of excise goods.  EMCS provides Member States with an electronic system to monitor 
the movement of these goods in real-time, in order to ensure the correct and timely collection of 

297 A pan-European IT system is a set of IT applications and components at the Commission, each Member State and 
each economic operator, integrated with each other in order to share information between all stakeholders 

186 

 
 
 
duties. Prior to the dispatch of the goods, each movement of goods is registered in EMCS by the 
economic  operator  (trader)  by  completing  the  (simplified)  Administrative  document  (eAD  or 
eSAD).  The  competent  authorities  of  the  Member  State  of  dispatch  assigns  to  the  (simplified) 
Administrative Document a unique reference number (ARC). The system provides the tools to the 
Member  States  to  monitor  the  movements  of  excise  goods  from  the  beginning  and  until  the 
completion  of  each  movement  after  ensuring  that  all  necessary  fiscal  formalities  have  been 
completed.  

▪  SEED:  System for Exchange of Excise Data  

This  IT system  is  a registry of all Economic Operators authorised to  trade excise goods and  is 
maintained  by  each  Member  State.  All  authorised  traders  must  be  registered  on  SEED  and  be 
issued with a SEED number. The SEED number is issued by the local Excise Control Officer and 
must be quoted on all e-ADs, i.e. each Economic Operator is uniquely identified in SEED by its 
‘SEED  number’.  Using  this  system  traders  can  consult  online,  to  see  whether  a  given  excise 
number is valid and what categories of goods the operator in question is authorised to trade. 

Both systems are crucial tool for information exchange and cooperation (including preventing tax 
evasion) between Member States. 

3.  Enlarging the scope to new products 

3.1. 

Impacts  on  the  market  and  excise  duty  revenue  of  enlarging  the  scope  of  the 
Directive to new products – Estimates derived from the standard methodology298 

For simulation purposes, it was assumed a pass-through factor equal to 0.7 (i.e. 70% of the tax 
increase, expressed in nominal terms, would be passed on to consumers, while the rest would be 
absorbed  by  manufacturers).299  As  presented  in  ANNEX  4:  section  8.2,  this  approach  has 
limitations  for  new  products,  this  is  why  it  has  been  adapted  and  the  results  according  to  the 
adapted methodology are presented in the main report (see section ANNEX 1:6.2.2.1). However, 
for completeness and comparison, the impacts estimated under the standard approach are presented 
for the different categories of new products below. 

298 See ANNEX 4: section 8.2. on methodology applied for new products. 
299 External study. 

187 

 
 
 
 
 
Table A 17-3. Estimated impact of proposed EU minima on HTP market price and demand  

Options 

Impact on price levels 

Market sales 

WAP (avg), EUR/1 000 

bn units  

% 

250 
329 
357 

Baseline 2023 
Option 1 
Option 2 
Source: External study 
Legend: avg =average value among Member States.  
Notes: Estimates refer to the EU aggregated market Belgium, Cyprus, Finland, Ireland, Luxembourg and Malta are 
not included as in the baseline year (2023) they did not have HTP products on the market. For tax-driven price increase, 
a  pass-through of 0.7 is assumed. The impact on demand is calculated assuming an elasticity coefficient of  -1.36. 
Figures are rounded. 

49 
-20 
-26 

-41% 
-53% 

Table A 17-4. Estimated impact of proposed EU minima on liquids e-cigarettes market price 
and demand  

Options 

Impact on price levels 

Market sales 

WAP (avg)/ EUR/ml 

million litres  

% 

Baseline 2023 
Option 2 
Option 3 
Source: External study 
Legend: avg = average value among Member States. 
Notes: Estimates refer to the EU aggregated market. Cyprus, Luxembourg and Malta are not included as market data 
are unavailable. The impact on demand is calculated assuming an elasticity coefficient of -1.36. A pass-through of 0.7 
is assumed. Figures are rounded. 

3.5 
- 2.2 
- 0.9 

1.32 
1.89 
1.47 

-62% 
-26% 

Table A 17-5. Estimated impact of proposed EU minima on nicotine pouches 
Impact on price levels 

Impacts on market sales 

WAP (avg),  EUR/ kg 

tonnes 

% 

293 
297 
437 
489 

Baseline 2023 
Option 1 
Option 2 
Option 3 
Source: External study 
Legend: avg = average value among Member States.  
Notes:  Estimates  refer  to  the  EU  aggregated  market.  In  Belgium,  Germany  and  Lithuania  nicotine  pouches  are 
currently  prohibited.  For  Bulgaria,  Cyprus,  Greece,  Spain,  Luxembourg,  Latvia,  the  Netherlands,  Portugal  and 
Slovenia no market data are available. The impact on demand is calculated assuming an elasticity coefficient of -1.36. 
Figures are rounded. 

4 400 
0 
- 3 700 
- 3 800 

-0% 
-78% 
-86% 

Table A 17-6. Estimated impact on tax revenues from the harmonisation of new products 

HTP 

Liquids for e-cigarettes 

OMT / TRP 

Baseline 2023** 
Option 1 
Option 2 
Option 3 
Grand total  
Change in total 
revenue 

EUR m 

Var. (in %) 

EUR m* 

Var. (in %) 

EUR m* 

Var. (in %) 

2 900 
2 800 
2 700 

-4% 
-9% 

370 
370 
450 
490 

0% 
21% 
30% 

150 
170 
130 
110 

27% 
-3% 
-17% 

Between EUR -150 million and EUR -50 million 

188 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Source: External study 
Notes: For Member Staes where the products concerned were not in the market in the baseline year, the tax revenue 
impact is assumed to be nil. For the ‘grand total’ estimation, it has been assumed that the HTP’s scenario 1 corresponds 
to both scenarios 1 and 2 of e-cigarettes and other manufactured tobacco and related products. (*) Estimates for these 
products are presented with a higher degree of granularity for the sole purpose of showing the possible different impact 
of scenarios.   (**) The baseline value used in the analysis has been reconstructed multiplying the volume of sales by 
the  applicable  duty,  and  it  might  not  coincide  with  the  values  officially  reported  by  Member  States.  Figures  are 
rounded. 

3.2.  Administrative costs and savings 

Economic operators 

The approach developed to estimate the impacts associated with obligations under the Horizontal 
Directive is based on the following considerations: 

▪  EU-level estimates have been developed aggregating Member State-level estimates. In many 
cases, Member States already have tax regimes in place involving obligations that are similar 
to those envisaged in the policy revisions. The economic operators based in those countries 
have been assumed as already compliant and no additional costs have been estimated. The 
estimated  regulatory  costs  refer  exclusively  to  additional  costs  with  the  exclusion  of 
business-as-usual costs.300 

▪  The bulk of additional costs would regard the e-cigarette segment and in particular SMEs, 
as large transnational tobacco companies operating in this market can be assumed already 
compliant with the EU requirements in relation to harmonised product activities.301 In the 
HTP and nicotine pouches segments, operators are considered already compliant, as they 
exclusively consist of large, transnational tobacco companies (and HTP is already taxed in 
all Member States where it is marketed). Regarding other smokeless products like chewing 
and nasal tobacco the information on industry is very limited so, considering that the market 
size is also negligible, this segment has been also excluded from the analysis. 

▪  It  was assumed that all Member States would apply the relevant obligations to economic 
operators, although Member States could actually derogate from the application of EMCS 
in domestic movements (and in cross-border movements subject to bilateral arrangements 
with another Member State). 

▪  Estimation also includes the costs of financial guarantees that Member States can require on 
duty-suspended movements. Financial guarantees are envisaged in the Horizontal Directive, 
but their amounts are established by Member States. In this sense, the corresponding costs 
are only indirectly attributable to the policy revision concerned. 

Bearing limitations presented in ANNEX 4: ANNEX 4:8.2 on administrative costs and savings for 
new products, the results of the cost analysis are reported in the Table A 17-7 below. 

300 The assumptions should be taken as purely indicative estimates.         
301 Minor adjustments to pre-existing systems would be required, but the bulk of costs (e.g. infrastructure, IT systems 
etc.) can be considered as ‘business-as-usual’ and excluded from the analysis.  

189 

 
 
 
 
 
Table A 17-7. Overview of regulatory costs for liquids for e-cigarettes operators 
Obligations 
Registration 
in  the  excise 
system  

Incremental costs  
One-off costs:   
EUR 0.5 million 

Brief description 
Operators  must  be  authorised  by  the  competent 
authority according to the relevant profile (warehouse 
keepers,  registered  or  certified  consignor/consignee). 
It  is  assumed  that  manufacturers  would  register  for 
duty-suspension  operations,  whereas  importers  may 
opt  for  duty-paid  operations.  Registration  for  duty-
suspension operations is deemed more costly.  
This  obligation  has  two  main  costs  components:  (1) 
the  investment  to  set  up  appropriate  premises  (one-
off); and (2) recurrent costs for operations, including 
keeping registers of in/out movements.  

up 

Set 
/ 
operate  a  tax 
warehouse  

Only Scenarios 2 and 
3:  

One-off costs: 
EUR  9.1  million 
0.6 
(annualised 
million) 

Recurrent costs: 
EUR 1.0 million 
Recurrent costs: 
EUR 5.4 million 

EMCS 
system  

GRAND 
TOTAL 

This  obligation  has  two  main  cost  components:  (1) 
adopting an IT system to operate the EMCS (assumed 
on annual subscription basis); and (2) recurrent costs 
for movements (inclusive of book-keeping, weighing 
of products, and all EMCS-related procedures). These 
costs  will  regard  all  EOs  including  from  countries 
where national taxes are already in place.  
Option 1: 

One-off costs: EUR 0.5 million   
Recurrent costs: EUR 5.4 million   

Options 2 and 3:  

One-off costs:  EUR 9.6 million 
Recurrent costs: EUR 6.3 million 

Source: External study 
Notes: one-off costs = costs applicable to the first year only; recurrent costs = costs incurred annually 

Member States public authorities 

The survey of tax and customs authorities confirmed that, where Member States have adopted ad 
hoc regimes for new products, these are accompanied by rules and obligations that are, in many 
respects, similar to the obligations currently imposed on harmonised products. In this sense these 
Member States would incur only minor additional costs, while in most cases it would be sufficient 
to adjust existing national procedures. 

As  

Figure  A17-2  shows,  the  regulatory  cost  increases  tend  to  be  higher  for  liquids  of  e-cigarettes 
compared to heated tobacco products (HTP). This relates to many factors, including the greater 

190 

 
 
 
 
 
 
 
 
number of economic operators to register and manage, the fact that HTP manufacturers are already 
in  the  excise  system  (as  conventional  tobacco  manufacturers),  and  the  intrinsic  difficulties  of 
controlling  cross-border  irregular  flows  of  e-cigarette  liquids.  Overall,  the  share  of  survey 
respondents reporting a significant or moderate increase in costs remains below 45% for electronic 
cigarettes  and  10%  for  HTP.  For  other  manufactured  tobacco  products  it  is  estimated  that  the 
number of economic operators would fall between the number of liquids for electronic cigarettes 
and HTP economic operators. 

Figure A17-2. Increase in administrative and enforcement costs following the introduction 
of ad hoc regimes in the Member States   

Source: External study based on tax and customs authorities survey 

In Member States authorities’ views (Figure A17-3), the benefits of harmonisation would clearly 
outweigh the risks. Coherently, only a minority of Member States authorities foresee a moderate 
or high increase of burden required to deal with a greater number of operators and products, and 
an even smaller number of Member States anticipate a substantial increase of burden linked to new 
‘borderline’ products or greater monitoring and enforcement efforts. 

Figure A17-3. Member States authorities’ expected administrative and enforcement impact 
from the excise harmonisation of new products 

A) Estimated beneficial impacts 

B) Estimated risks 

Source: External study based on tax and customs authorities’ survey 

191 

 
 
 
 
 
Where national tax regimes are already in place for new products, additional regulatory costs are 
assumed to be negligible. Total additional costs related to registration of economic operators and 
movement control would amount to less than EUR 10.0 million of one-off costs and approximately 
EUR 0.5 million recurrent costs in each subsequent year thereafter.302 

4. 

Impacts related to enlarging the scope of the Directive to raw tobacco 

The aim of introducing movement and control requirements to raw tobacco is to prevent illegal 
diversion  from  the  supply  chain.  Based  on  salient  features  presented  in  Box  A17-1  below, 
introducing movement and control requirements to raw tobacco would mean that all raw tobacco 
would fall in the scope of the Directive. However, agricultural products would be exempted from 
movement  and  control  requirements  under  the  Horizontal  Directive.  In  practical  terms,  raw 
tobacco  would  become  an  excise  good  in  this  initial  step,  but  the  associated  obligations  are 
postponed to the moment where the product is received by the first processor (buyer) who should 
be obliged to register under the relevant excise duty profile. 

Box A17-1. Salient features. Raw tobacco.  
No  evidence  was  collected  on  the  diversion  of  green  tobacco.  Typically,  fictitious,  unregistered 
companies acquire legitimate raw tobacco (i.e. legally imported or already processed) and divert it 
to clandestine factories. 

As presented in ANNEX 15: section 2 a number of Member States have already implemented in their 
national  legislation  monitoring  rules  and  obligations  applicable  to  the  tobacco  sector  under  their 
agricultural regulations.   

Furthermore, in the early stages, raw tobacco is  moved from  fields to  farms or collection centres 
and/or curing facilities in bulk, and it would be extremely complicated to perform control measures, 
such as weighing. Harvested tobacco is held by the farmer (or collection centres) provided that no 
processing other than drying  or curing is  carried out.  The weight of tobacco changes rapidly and 
unpredictably after harvesting, which would make record-keeping cumbersome and subject to large 
variations. In keeping with these facts, none of the national fiscal regimes for raw tobacco examined 
impose obligations involving tax warehouses or, at any rate, the weighing of green tobacco in the 
initial stage. Therefore, the proposed system does not involve the application of obligations involving 
excise duty determination, weighing or other control measures (tax warehouse, record keeping) while 
harvested tobacco is held by the farmer (or collection centres) provided that no processing other than 
drying or curing is carried out. 

4.1. 

Impact on illicit manufacturing and trade 

The  impact  of  the  introduction  of  movement  and  control  requirements  under  the  Horizontal 
Directive on the reduction of illicit manufacturing cannot be precisely quantified because (1) the 
magnitude of illicit manufacturing can only be roughly estimated and (2) the proposed measure is 
a radically new approach for which there is no benchmark and the impact of similar Member States 
regimes can only partly be leveraged to this end. 

302 The estimation does not include possible additional costs related to enforcing option 3, which involve differentiated 
rates for liquids exceeding 15 mg of nicotine per ml. In principle additional checks might be required to avoid and 
tackle abuses. On the other hand, it is worth noting that there is little economic rationale for operators to place on the 
market products with a nicotine content which differ from the label, as consumers would not be aware, and they would 
not only infringe the excise legislation but also the Tobacco Products Directive (External study).  

192 

 
 
 
Some useful indications can be drawn from the experience of Member States which introduced a 
fiscal regulation of raw tobacco and from competent authorities’ expectations about the effects of 
harmonisation at the EU level. In particular: 

▪  Member States that introduced a tax regime on raw tobacco frequently registered satisfactory 
results  regarding  diversion  of  both  illicit  manufacturing  and  direct  selling  to  consumers, 
although in many cases it is too early to draw conclusions and effects are difficult to measure 
(see Figure A17-4). National tax regimes help eliminate the raw tobacco trade ‘grey area’ 
(unregistered, occasional traders) that were deemed conducive to diversion. 

▪  The  majority  of  Member  States  expect  positive  impacts  from  the  prospected  EU-level 
harmonisation, especially in terms of the decline of illicit manufacturing (less so regarding 
direct selling of unmanufactured tobacco to consumers). 

Figure  A17-4.  Impact  of  raw  tobacco  tax  regimes  according  to  Member  States  tax  and 
customs authorities  
A) Perceived impact of national measures 

impact  of  EU-level 

tax 

B)  Expected 
harmonisation 

Source: External study based on tax and customs authorities survey. 
Note: ‘Don’t know’ answers are not displayed. 

Regarding the magnitude of the policy problem, as already mentioned, the illicit manufacturing in 
the  EU  can  amount  to  roughly  13  billion  cigarettes,  annually  (i.e.  around  30%  of  the  total 
consumption of illicit cigarettes in the EU). 

The expected impacts would vary across countries, and it can be assumed that for Member States 
that  already  have  a  tax  regime  for  raw  tobacco  benefits  would  be  more  limited  than  for  EU 
countries with no mechanism in place. 

Estimated  effects  of  the  proposed  measures  on  the  economics  of  illicit  manufacturing.  In  the 
context of the proposed policy review, it is worth separately examining the impact of the tax regime 
on the availability of raw tobacco for diversion to illicit manufacturing. The simulations presented 
here  are  purely  speculative,  since  neither  research  nor  empirical  data  allow  for  a  more  robust 
assessment.  The  assumptions  proposed  are  based  on  qualitative  discussions  by  the  external 
contractor with informed stakeholders and the review of law enforcement reports and studies.  
The price of illicit cigarettes is typically pegged to the price of legal products (i.e. 50% to 60%).303 
In this sense, producing illicit cigarettes in the EU is likely more costly than producing them in 

303 This estimate was confirmed by feedback gathered through the call for data (External study).  

193 

 
 
 
 
 
low-cost third countries, but the increase in black market prices (induced by the increase of legal 
products’  prices)  have  seemingly  created  economic  opportunities  to  establish  profitable  illicit 
businesses closer to end consumption markets, typically in Western Europe, Nordic countries and 
the  United  Kingdom.  At  the  same  time,  this  assumption  entails  that  any  increase  in  the 
manufacturing  costs  of  illicit  products  (in  the  form  of  increased  risks  and  more  difficult 
procurement of diverted raw tobacco) would erode the illicit trade margin.304 It can be expected 
that  an  increase  of  costs  beyond  certain  levels  would  make  illicit  manufacturing  in  the  EU  no 
longer profitable. To what extent the proposed measures would raise illicit manufacturing costs 
and trigger such beneficial effects is difficult to say. Analysing further, the assessment shows a 
drop in profitability under both a zero rate and a positive rate of excise duty scenarios. However, 
the  application  of  excise  duties  (namely  the  current  excise  levels  applied  to  OST)  to  seized 
products  would  further  accelerate  the  drop  in  illicit  profit  levels.    For  instance,  an  improved 
monitoring system that could potentially detect up to 20% of illicit raw tobacco movements (i.e. 
twice the current estimated detection levels) would lead to a reduction of illicit profit margins by 
less  than  20%  in  the  absence  of  excise  duty  and  by  35%  if  excise  duties  are  applied.    In  a 
hypothetical scenario where excise duties are applied and one-third of illicit raw tobacco is seized, 
illicit manufacturing activities would no longer be economically viable.  

The estimates outlined are merely indicative. However, the feedback collected from countries that 
have set up fiscal regimes for the control of raw tobacco (along with positive excise duties) would 
confirm  that  a  significant  reduction  of  the  grey  trade  deemed  conducive  to  diversion  can  be 
achieved. It seems plausible to assume, for analytical purposes, that the proposed measures could 
lead to increases in the current detection and seizures (or risks thereof) from the current estimated 
10% up to an estimated 20% to 30% of the volume of illicit manufactured cigarettes. Data on other 
products (i.e. fine-cut tobacco and waterpipe tobacco) are sparser, but it can be assumed that effects 
of similar magnitude would be registered on the illicit manufacturing of these products. 

4.2. 

Impact on revenue 

The expected reduction in the sale of illicit products manufactured in the EU would have direct 
positive effects on Member States tax revenues, as the losses caused by tax fraud will be partially 
recovered. A tentative assessment of the magnitude of such impact has been carried out, based on 
the estimated decline of illicit product volumes. The indicative results illustrated in Table A17-8 
below. 

Table A17-8. Indicative impact on forgone revenue associated to illicit manufacturing within 
the EU 
Product 

Baseline 

Reduction  under  Option  1 
(zero rate) 
Volume 

Reduction  under  Option  2 
(positive rate)  
Volume 

Volume 

Foregone 
revenue 
billion) 
EUR 3.1   

(in 

Foregone 
revenue 
billion) 
EUR 0.8   

(in 

Foregone 
revenue 
billion) 
EUR 1.6  

(in 

Cigarettes 

FCT 
WPT 
Total 

billion 

13 
sticks 
10 500 tonnes   EUR 1.6  
EUR 0.4  
3 000 tonnes 
EUR 5.1  

billion 

3.5 
sticks 
2 800 tonnes   EUR 0.4  
EUR 0.1  
800 tonnes 
EUR 1.3  

billion 

6.8 
sticks 
5 500 tonnes   EUR 0.8  
EUR 0.2  
1 600 tonnes 
EUR 2.6  

Source: External study 

304 Compared to legal products, where an increase in manufacturers costs (including tax charges) is passed on to the 
retail selling price, it can be assumed that the increase of costs for illegal products should be absorbed by the operator.     

194 

 
 
 
 
 
 
 
4.3. 

Impacts  on  administrative  costs  and  savings  of  enlarging  the  scope  of  the 
Directive to raw tobacco 

Administrative and compliance costs for economic operators  

The results of the analysis on costs incurred by economic operators (see Table A 17-9) inevitably 
present some degrees of uncertainty due to data gaps and the variability in the unit costs of required 
actions  for  different  types  of  operators  (by  country,  size,  efficiency  and  position  on  the  value 
chain).  

Table A 17-9. Regulatory costs for raw tobacco economic operators   

Obligation 

Brief description 

Operators  must  be  authorised  by  the  competent 
Member  State  authority  according  to  the  relevant 
excise duty  profile (warehouse keepers, registered 
or  certified  consignor/consignee).  Registration  for 
duty-suspension operations is deemed more costly. 
In  15  Member  States,  economic  operators  are 
already deemed compliant (national fiscal regimes 
are in place). Manufacturers and second processors 
to  be  already  compliant.  The 
are  assumed 
their 
that  growers  and 
simulation  assumes 
organisations are exempted. First processors would 
opt  for  duty-paid  authorisations  under  option  1 
(zero rate) and duty suspension authorisations under 
option  2  (positive  rate),  while  importers  would 
possibly  opt  for  duty-paid  transactions  in  both 
cases. 

This  obligation  would  regard  primarily  first  and, 
storage  warehouse  operators  while 
second 
processors  and  manufacturers  are  assumed 
compliant. It is applicable only where the proposed 
raw tobacco regime involves a positive excise duty 
rate  (option  2)  The  obligation  has  two  main  cost 
to  set  up 
components: 
appropriate  premises  (one-off);  (2)  the  recurrent 
costs of operations, including  keeping  registers  of 
in/out movements. 

investment 

the 

(1) 

Registration in the 
excise system 

Set up/ operate a tax 
warehouse 

Aggregated 
incremental costs 
(EUR million) 

One-off costs 

Option 1: EUR 0.1 

Option 2: EUR 0.1 

 One-off costs  

EUR 39.7   

Recurrent costs: 
EUR 2.4   

(only under Option 2) 

EMCS 

This obligation has two main cost components: (1) 
adopting  an  IT  system  to  operate  the  EMCS 
(assumed  on  annual  subscription  basis);  and  (2) 
recurrent costs for movements (inclusive of book-

Recurrent costs: 

EUR 2 

195 

 
 
 
 
  
 
 
 
 
keeping,  weighing  of  products,  and  all  EMCS-
related  procedures305).  These  costs  will  regard  all 
economic operators including from countries where 
national  fiscal  legislation  is  already  in  place. 
Manufacturers and second processors are assumed 
already compliant with the IT system obligation. It 
is assumed that growers and their organisations are 
exempted. 

Total 

Option 1: 

Option 2: 

One-off  costs:  EUR  0.1 
million   

One-off 
million  

costs:  EUR  39.7 

Recurrent  costs:  EUR  2 
million   

Recurrent  costs:  EUR  4.4 
million   

Source: External study 

Administrative and adjustment costs for Member States authorities 

The costs that Member States authorities would incur from the adoption of a harmonised excise 
category for raw tobacco are of two main kinds: (1) the costs for including new economic operators 
in the excise system, which relate to registration activities (one-off and periodical renovation); and 
(2) the costs related to operations, which include capital costs of adapting the IT infrastructure 
(EMCS interface, etc.) to the enlarged scope of the system, and the costs of individual transactions 
(verification and confirmation of movements under EMCS). 

The costs examined are incremental, i.e. they do not include costs already incurred in Member 
States  where  a  fiscal  regime  for  raw  tobacco  is  already  in  place.  Fiscal  registration  is  already 
envisaged in 15 Member States, in which no additional costs for registration have been estimated. 
For the IT infrastructure costs, it was assumed that all Member States would incur additional costs, 
as EMCS is not currently used for raw tobacco in any Member State. 

Overall, estimated costs would amount to: 

▪  One-off costs would be around EUR 9.7 million. The bulk of the estimated additional costs 

relates to the adjustment of the IT system and related training costs 

▪  Recurrent costs would  amount to  EUR 0.7 million  per year, mostly  in  relation  to  EMCS 

transactions. 

The different policy scenarios examined can influence the extent of the costs incurred by Member 
States authorities. In particular, the zero-rate option (Option 1) might prompt operators to use the 
duty-paid  procedure  instead  of  duty  suspension  where  feasible.  The  former  is  associated  with 
reduced costs regarding authorisation.  

305  The  estimation  of  the  number  of  annual  movements  have  been  assumed  based  on  the  volume  of  intra-EU 
movements of raw tobacco (by typology) and establishing a typical movement of 20 tonnes per large enterprise and 
of 2 tonnes per SME. The outcome of the analysis is indicative. 

196 

 
 
 
 
 
The costs incurred by specific Member State would vary depending on the number of operators 
and transactions. 

5.  Environmental impacts 

The first comprehensive assessment of the environmental footprint of tobacco was provided in a 
seminal report of the WHO FCTC Secretariat in 2018. This study concludes that every stage in the 
global tobacco supply chain involves considerable resource inputs, and results in the production 
of wastes and emissions. The environmental damage that tobacco causes makes it incompatible 
with  the  global  development  agenda.  Since  then,  the  interest  on  environmental  impact  of  the 
tobacco value chain has grown and, eventually, the topic gained prominence in the latest edition 
of the FCTC Conference of Party (COP10 - February 2024, Panama), which took the decision of 
urging Parties to consider the environmental impacts of the tobacco cycle  - from cultivation to 
waste disposal – and adopt national policies to protect the environment from the externalities of 
tobacco. 

The tobacco supply chain is characterised by intensive water and energy demand, especially for 
curing and the complex logistics and distribution. The output of tobacco supply chain includes 
solid waste, wastewater, and CO2 emissions. Based on a paper presented at the United Nations 
Climate  Change  Conference  (COP27),  the  key  environmental  impact  of  tobacco  can  be 
summarised as in Figure A 17-5.  

Figure A 17-5. Scale of global tobacco impact 

Source:  Prof.  Nick  Voulvoulis  (Imperial  College  of  London),  “Tobacco’s  global  environment  footprint” 
(presentation, 2022). 

The European Commission has identified tobacco filters among the top five most common pieces 
of  litter  found  on  beaches.  With  the  adoption  of  the  single  use  plastics  Directive306  and  the 
introduction of an Extended Producer Responsibility scheme, manufacturers are expected to cover 
the costs of waste management and clean-up, as well as awareness raising measures for tobacco 
products with filters (such as cigarette butts). The single use plastics Directive also foresees that 

306 Directive (EU) 2019/904 of the European Parliament and of the Council of 5 June 2019 on the reduction of the 
impact of certain plastic products on the environment (europa.eu) 

197 

 
 
 
 
Member States should promote a wide range of measures to reduce litter from post-consumption 
waste of tobacco products with filters containing plastic. 

The environmental impact of the proposed revision of the Directive cannot be estimated precisely. 
However, as the EU market consists of around 0.5 trillion stick-equivalent / year (i.e. one-sixth of 
global  market),  it  somehow  accounts  -  directly  or  indirectly  -  for  about  17%  of  the  global 
environmental impact of tobacco. The estimated reduction in consumption associated to increased 
EU minima ranges between 5% and 14% of the total EU market for traditional tobacco products. 
In this sense, if applied to the estimates put forward in Figure A 17-5, the revision of EU minima 
might reduce, inter alia, CO2 emissions by 4-12 mega tonnes (Mt), water depletion by 1 100-3 100 
Mt, and solid waste by 1.2-3.5 Mt. 

In conclusion, any reduction in tobacco consumption triggered by taxation would, in theory, reduce 
its  environmental  impact.  Also,  it is likely that  any reduction in tobacco  consumption would be 
associated with some reduction in the overall energy intensity and CO2 emissions of the economy as 
a whole, as well as water consumption. The closer the environmental impact takes place to the final 
act of tobacco consumption, the more likely the impact itself is to occur within the EU. This is fully 
in  line  with  the  EU  environmental  and  climate  policy  and  would  contribute  to  achieving  the 
objectives of the European Climate Law. 

198 

 
 
 
 
ANNEX 18: ELASTICITY 

1.  Market effects: elasticity 

The demand estimation model developed consisted of three-level estimations: 

1.  at the first level, the price elasticity of the demand for tobacco products was assessed i.e. 
how the expenditure of consumers on any kind of tobacco products varies in relation to the 
average price of tobacco products; 

2.  at the second level, the conditional demand for the different types of products was measured, 
i.e. how the above-mentioned expenditure  would  be allocated by consumers between the 
different products in relation to their relative prices, thereby measuring the conditional own- 
and cross-price elasticity between different products; 

3.  at the third level, the conditional demand for cigarettes belonging to different price segments, 
namely premium vis-à-vis low- and mid-price cigarettes was estimated, i.e. how the above 
expenditure  on  cigarettes  estimated  at  the  second  level  would  be  further  split  between 
different segments depending on the respective price levels, that is the conditional own- and 
cross-price elasticity between different market segments of cigarettes. 

The impact of the tax on prices was also estimated in a log-linear model and therefore the model 
actually measured the ‘pass-through elasticity’, i.e. the percentage increase in price levels that is 
associated to a percentage increase of taxes. An overall pass-through elasticity of 0.7 was applied 
for traditional tobacco products, which means that an excise duty increase of 10% translates, on 
average, into a price increase of 7%.  The effects on VAT were included in the overall price impact. 

Regarding the impact on the demand, the elasticity coefficient of -0.54 was used, which is broadly 
in line with the relevant economic literature on this matter (see section 2 below).  

Regarding the price elasticity of demand for HTP, liquids for e-cigarettes and nicotine pouches, 
the coefficient applied is -1.36.307 

2.  The price elasticity of the demand for tobacco products in the relevant literature 

The impact of tax increases on cigarettes demand worldwide is modelled in a seminal World Bank 
report published nearly 20 years ago (Jha & Chaloupka, 1999). Compiling point estimates from a 
range of country-level studies, the report assumed an elasticity of the demand for cigarettes of -
0.4 in  high income countries (based on UK and US  studies) and of  -0.8 in  low/middle income 
countries (averaging estimates from China, Brazil, South Africa etc).  

As  argued  by  Gallus  et  al.  (2006),  the  assumptions  on  which  that  model  is  based  are  highly 
conservative, therefore the results possibly underestimate the actual impact. A more recent meta‐
analysis, reviewing 86 different econometric studies on smoking, reported a mean price elasticity 
of -0.48 (Gallet & List, 2003). This encompassed various country-level studies, providing different 
estimates,  for  instance  the  UK  (-0.37)  (Townsend,  1996),  Finland  (-0.5  to  -0.95)  (Pekurinen, 
1989), Italy (-0.44) (Gallus et al., 2003), Spain (-0.2 to -1.25) (Fernandez et al., 2004), California 
(around -0.5) (Keeler et al., 1993; Sheu et al.,2004) and Canada (-0.52) (Gruber, 2003). 

307 External study. 

199 

 
 
 
As  regards  Europe  on  the  whole,  in  a  seminal  study  based  on  cross‐sectional  data  from  27 
European countries, Townsend (1988) reached a point estimate of price elasticity of -0.4 and of 
income elasticity of -0.5. In a more recent work on price and cigarette consumption in Europe, 
Gallus  et  al.  (2006)  concludes  that  ‘controlling  for  male  to  female  prevalence  ratio,  price 
elasticities for consumption were -0.46 (95% confidence interval (Cl)  -0.74 to -0.17) and -0.74 
(95% Cl -1.13 to -0.35) for local and foreign brand, respectively.’ 

The recent monograph published by the U.S. National Cancer Institute and the WHO confirmed 
the inelastic nature of the demand for cigarettes in high income countries: ‘nearly all empirical 
studies have found that the price elasticity of demand for tobacco products lies between zero and 
minus one.’  The study recognised the variability of the point estimates available in the literature, 
while confirming that the -0.4 average value laid down in the previous World Bank report can still 
represent a valid benchmark. 

The  econometric  estimates  elaborated  are  therefore  broadly  in  line  with  the  relevant  economic 
literature. In particular, both the range (from -0.39 to -0.64) and the retained point estimate (-0.54) 
of the price elasticity for tobacco products is rather consistent with the abovementioned results of 
previous keynote studies.308 

308 Economisti Associati, ‘Study on Council Directive 2011/64/EU on the structure and rates of excise duty applied to 
manufactured tobacco’, 2019. 

200 

 
 
 
 
 
ANNEX 19: EXPRESSING REVISED EU MINIMA IN NOMINAL TERMS 

1.  Traditional tobacco products 

The impacts of revising EU minima for traditional tobacco product in EUR expressed in nominal 
terms were also assessed. The options (limited, moderate and high increase) are the same as the 
ones described in section 5.2. 

1.1.  Economic impacts 

Table A19-1. The main impacts of the options expressed in nominal terms 

Current EU minima 

(EUR/1,000 for cigarettes; 

per kg for other products) 

Cigarettes 

FCT  

Cigars  

Cigarillos 

OST 

EUR 90 

EUR 60 

EUR 12 

EUR 12 

EUR 22 

Option 1: Limited increase of EU minima 

Fixed minimum 

155 

155 

Increase of the fixed minimum 
(%) 

72% 

158% 

107 

792% 

107 

386% 

14%  

12% 

14% 

23% 

13% 

Average increase of excise duty 
for Member states  
(%) 

Member States affected 

Market sales (%) 

Impact on revenues 

(EUR million) 

Increase of the fixed minimum 
(%) 

Average increase of excise duty 
for Member states 

(%)  

19 

-6% 

9 

-6% 

3 

-2% 

6 

-10% 

+ 4 700  

+ 700 

+ 50 

Option 2: Moderate increase of EU minima 

Fixed minimum 

179 

179 

143 

99% 

198% 

1092% 

7 

-9% 

+ 50 

143 

550% 

27%  

16% 

 27% 

42% 

28% 

Member States affected 

21 

Market sales (%) 

-10% 

12 

-7% 

8 

-5% 

8 

-13% 

Impact on revenues 

(EUR million) 

+ 8 900 

+ 800 

+ 90 

12 

-12% 

+ 80 

201 

 
 
 
 
Option 3: High increase of EU minima 

Fixed minimum 

215 

215 

143 

139% 

258% 

1092% 

143 

550% 

Increase of the fixed minimum 
(%) 

Average increase of excise duty 
for Member States 

(%) 

47%  

25% 

27% 

42% 

28% 

Member States affected 

21 

Market sales (%) 

-16% 

17 

-9% 

8 

-5% 

8 

-13% 

Impact on revenues 

(EUR million) 

+ 13 700 

+ 1 200 

+ 90 

Source: External study.  
Note: Estimates refer to the EU-wide aggregated market. Figures are rounded. 

12 

-12% 

+ 80 

As regards cigarettes the majority of Member States would be forced to increase their rates under 
all options (up to 21 Member States under option 3). The average rates increase in Member States 
would be respectively +14%, +27% and +47% under option 1’ (limited increase), 2’ (moderate 
increase) and 3’ (high increase). 

Price level increases would in turn reduce demand and sales of tobacco products. Based on the 
estimation model applied, such reduction would range from 2% to 10% under option 1, from 5% 
to 13% under option 2 and from 5% to 16% under option 3. The average weighted average price 
(WAP) for 1 000 cigarettes is estimated at EUR 322 in option 1, at EUR 343 in option 2 and at 
EUR 376 in option 3. For kg of FCT, it is estimated at EUR 279 under option 1, at EUR 285 under 
option 2 and at EUR 295 under option 3. 

The global impact on tax revenues would be an increase of EUR 5.5 billion for option 1, 9.9 billion 
for option 2 and 15.1 billion for option 3. 

Regarding impact on inflation, the increase in  the  price of tobacco products  would impact  on 
inflation rates in the Member States, proportionally to the extent of the increase and of the weight 
of products on consumer’s basket - as measured by Eurostat’s HICP. The results are reported in 
Figure  A  19-1  below.  Overall,  the  ‘rate  of  increase’  for  the  HICP  would  amount  to  0.21% 
(weighted EU average) in the case of option 1, to 0.38% for option 2 and reach 0.62% for option 
3. 

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 Figure  A  19-1.  Estimated  increase  of  the  HICP  index  caused  by  tobacco  price  increase

Source: External study.  

The  results,  summarised  in  Table  A  19-2,  show  that  the  increase  of  EU  minima  would  be 
associated with  a reduction of cross-border flows of cigarettes and FCT, however the impact 
would be very similar to the impact under the PPP approach (as presented in section 6) for FCT 
and slightly lower for cigarettes. 

Table A 19-2. Impact on cross-border flows of cigarettes and FCT  

Volumes 

Changes in volumes with respect 
to Baseline 

Baseline  Option 1 

Option 2   Option 3   Option 1  Option 2  Option 3 

Cigarettes (mln sticks) 

28 400 

26 800 

25 200  

22 800 

-5.6% 

-11.1% 

-19.7% 

FCT (t, lb) 

8 300 

8 100 

8 050 

7 800 

-2.2% 

-2.9% 

-6.1% 

FCT (t, ub) 

14 000 

13 700 

13 600 

13 150 

Source: External study.  
Note: lb and up stand for the lower and upper bound, respectively. Numbers were rounded with different precision 
applied to different products. 

1.2. 

Public health impacts 

As presented in  

Table A 19-3 all the options considered would contribute to reducing smoking prevalence among 
the general population (aged 15+) and to meeting the target of Europe’s Beating Cancer Plan goals. 

Table A 19-3. Estimated impacts on tobacco consumption 

Options 

Impact on consumption 

Baseline 
Option 1 
Option 2 
Option 3 
Source: External study. 

Billion 
items 
502 
-30 
-49 
-73 

in % 

-6% 
-10% 
-15% 

Impact on the number of 
smokers* 
Million population   

Impact on smoking 
prevalence* 
in %  

92.1 
-5.4 
-9.0 
-13.5 

24.0% 
22.6% 
21.7% 
20.5% 

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Notes: FCT and OST have been converted into items applying a 0.75g=1 stick equivalence. (*) The estimates for 
these variables are presented with a higher degree of granularity for the sole purpose of showing the possible different 
impact across scenarios. 

1.3.  Comparison of nominal versus partial PPP approach 

The proposal for the revision of EU minima is to adopt a partial PPP system where 2/3 of the tax 
is expressed in nominal terms and 1/3 in PPP terms.  

This  proportion  between  nominal  and  PPP  components  has  been  derived  from  the  increase 
scenario for the EU minima on cigarettes that corresponds to the average expectations of Member 
States, as emerged from the tax authorities’ survey. It strikes a good balance between increasing 
convergence and distributing the impact across Member States. 

Figure  A19-2.  Comparison  of  nominal  versus  partial  PPP  approach  in  case  of  cigarettes 
weighted average price (WAP in EUR) 

Source: Commission analysis based on External study 

Note: Figures in this figure represent ‘High’ value.  

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2.  New products 

As regards new products (heated tobacco products, liquids for e-cigarettes, other manufactured 
and  related  products),  the  possibility  of  applying  excise  duty  based  in  nominal  terms  has  been 
assessed. However, the impact would not essentially differ from the purchasing power values as 
presented in section 6.2. 

205