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Tobacco Taxes in Europe: Challenges and Necessary Reforms for a Tobacco-Free Future

The European Union’s (EU) ambitious Beating Cancer Plan sets as a goal creating a Tobacco-Free Generation by the year 2040, with an intermediate target of reducing tobacco use to 20% by 2025.

A key element of the Plan involves revising the Tobacco Tax Directive (TTD) to decrease demand for tobacco. Although there are no official indications on the contents of the revisions and their date of implementation, the European Commission’s proposals have circulated unofficially, and their impact on product prices, market demand, and excise revenue have been analyzed here. The findings indicate that the Commission’s proposals would lead to retail price increases in all EU member states except for those with the highest current tax rates. The impact on market demand for these products is estimated to be modest, with yearly reductions in demand of about 3.5% and yearly excise revenue increases of about 7%.

These are welcome outcomes, but it is evident that the proposed reforms are not sufficient to reach the public health aims set out in the Beating Cancer Plan. One of the major hindrances to achieving these goals lies in the price disparities between cigarettes and fine cut tobacco (FCT) due to the continued asymmetric tax treatment of these products. FCT costs merely half as much as cigarettes, and this price gap seems to have widened in recent years. These products are highly substitutive, so a large difference in prices blunts the protective effect of taxes as consumers can easily trade down from cigarettes to FCT. Moreover, the revised TTD would not contribute significantly to reducing cross-border price disparities that drive some smokers to go to other nearby jurisdictions to purchase tobacco products, undermining tobacco control efforts of higher-tax countries. Finally, minimum taxes are inadequate in addressing the surge in affordability of tobacco in most EU member countries due to inflation and income growth, further compounding the challenge of reducing tobacco consumption.

More substantial progress in curbing tobacco consumption across the EU is possible. To achieve such progress, the new TTD needs to ensure the removal of differences in the tax treatment of cigarettes and FCT. Likewise, it should require larger increases in minimum taxes to reduce product affordability. In addition to these reforms at the EU level, member governments can play a vital role in prioritizing tobacco control by setting domestic taxes accordingly. Taking action now is crucial, given the uncertainty surrounding the timeline and content of the revised Directive. By implementing these vital reforms and proactively addressing the challenges, Europe can move closer to achieving its Beating Cancer Plan’s objective of creating a healthier, Tobacco-Free Generation.

Learn more about these findings and recommendations in the working paper and policy brief on Tobacconomics.org.

Read more about this in Taxes

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