Brussels, 15/03/2001 (Agence Europe) - On Thursday, the European Commission proposed a directive for revising the rate and structure of excise duty on tobacco. It mainly introduces a minimum amount of excise on cigarettes, which would have the effect of raising taxation on this product in five Member States (Spain, Portugal, Italy, Greece and Luxembourg). The European Executive bases its proposal on a study contained in its report on the structure and rates of tobacco taxation in the EU, published the same day, which notes that taxation on tobacco products is very inconsistent in Europe and upsets the functioning of the internal market. Spain and the United Kingdom, for example, have a difference of up to 400% on cigarettes. The Commission believes the application of the current rules on minimum excise duties on cigarettes does not make it possible to reduce these gaps, as the fact of applying the same percentage in no way changes the difference between the sales prices in each Member State. It above all proposes gradually adding a minimum fixed amount in euros to achieve greater harmonisation. Furthermore, the proposal provides for increases in the minimum amounts of tax on cigars, cigarillos and smoking tobacco to adjust for inflation. Finally, the directive increases from three to four years the period after which the Commission may review the excise regime. Commissioner Frits Bolkestein, responsible for taxation policy, declared that this legislation "would ensure a fair and reasonable level of taxation of all tobacco products sold in the EU. The proposal is necessary to narrow differences between Member States' tobacco taxation levels and so help to tackle fraud and smuggling".
As far as cigarettes are concerned, the proposal adds to the minimum excise rate, which is 57% of the retail sales price, a fixed minimum amount of 70 euros for 100 cigarettes, and this solely for cigarettes of the most popular price category. In order to avoid causing problems with Member States, it plans to reach this level gradually. In addition, the countries which already apply a high taxation rate (over 100 euros for 1000 cigarettes) will have a greater margin of manoeuvre in which to fix their rates and would not be compelled to respect the 57% rule.
Cigarette rolling tobacco, which benefits from a minimum rate below that of cigarettes will be progressively (over three years) and partially (up to two-thirds) brought into line with the rate of 57% fixed for cigarettes. The Commission considers that the toxicity of such tobacco is similar to that of ordinary cigarettes. The minimum amounts of taxes on cigarettes, cigarillos and other tobacco will only be adjusted in relation to inflation and will be increased by one euro from 1 January 2003. In addition, the Commission proposes to modify the definition of cigars and cigarillos in order to restrict the application of the lower minimum rate (5%) of cigars to the labour intensive products to which it originally was meant to apply. This decision is taken following the appearance on the market of a cigarette whose colour is that of a cigar and which is sold, because of this similarity, with the same excise rate as cigars and cigarillos, sometimes reaching a price three times lower. "This measure is important for the health of young people, who are particularly targeted by this product, and for the taxation receipts", specified an official at the European Commission.
We recall that the current rates of products other than cigarettes are:
- Rolling tobacco: 30% of the retail selling price inclusive of all taxes, or 25 euros per kilogram.
- Cigars and cigarillos: 5% of the retail selling price inclusive of all taxes, or 10 euros per 1000 units or per kilo.
- Other tobacco products: 20% of the retail selling price inclusive of all taxes, or 19 euros per kilogram.
Like all taxation issues, the proposal of directive must be adopted by unanimity by the Council. According to an expert close to the Commission, "one can expect difficulties mainly from Spain which will be the country most affected, but adoption will be facilitated by the fact that several Member States already have the intention to raise taxes on tobacco". Regarding the impact that this directive will have on health, the same expert stresses that, although health protection associations will probably not find it sufficiently ambitious, this proposal has the merit of being the first that aims to increase taxation on tobacco.