CELEX: 51989PC0525(01)
Language: en
Date: 1989-12-19
Title: AMENDED PROPOSAL FOR A COUNCIL DIRECTIVE ON THE APPROXIMATION OF TAXES ON CIGARETTES

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