A leaked report from the European Commission has revealed plans to tax the pants off e-cigarettes, nicotine pouches and other life-saving substitutes for cigarettes. It is in the process of reviewing its Tobacco Excise Directive which sets a minimum tax rate for cigarettes. It was last set in 2010 and its impact, which was never very significant, has been completely eroded by inflation. Every EU country taxes cigarettes at a higher rate than the EU minimum. Across the bloc, the average tax rate is twice as high and in some countries it is many times higher.
The obvious conclusion to draw from this is that member states are more than happy to raise tobacco taxes and need no encouragement from Brussels. This, however, would imply that there is no room for the European Commission to get involved and that would never do. The report acknowledges that citizens who responded to its consultation were opposed to higher taxes but academics and NGOs “almost universally agreed that taxation had to be increased”. And so the Commission has proposed a complicated and bureaucratic system which would give each country its own minimum tax level based on its level of GDP. In practice, it would mean higher taxes in most member states, but not in places like Ireland and France where tobacco duty is already sky high.
This is presented as “market harmonisation”, but it isn’t. The perceived problem is that cigarettes are much cheaper in countries like Bulgaria than they are in Belgium or Finland, thereby encouraging cross-border shopping. Encouraging cross-border shopping is exactly what the Single Market was designed to do, but apparently only if academics and NGOs approve of the products being bought. The EU can’t whack up the minimum tax on cigarettes to Scandinavian levels because that would make cigarettes unaffordable in Romania, so it is proposing different tax rates based on each country’s income levels. You can see the logic behind this, but it won’t lead to tax harmonisation because the Commission would never dream of setting a maximum tax rate — and without a maximum tax rate there will still be a huge difference in prices between Dublin and Dubrovnik.
The idea that the Commission is driven by health concerns goes for a Burton when the report moves on to vapes, heated tobacco and nicotine pouches. It wants to tax all these too, even though various member states do not. The case for leaving them alone is simple: they are much less dangerous than cigarettes and if you tax them, fewer people will use them to give up smoking.
On the other hand, governments lose tobacco duty revenue when people quit smoking and that is what really worries the European Commission. The leaked report openly states that one of its “specific objectives” is to “discourage tax induced substitution between different tobacco products and their substitutes”. This is an extraordinary admission. They know that price is one of the factors that leads people to switch from smoking to vaping and they think that this is a bad thing!
The report proposes a minimum tax on vape juice of €3.60 per 10ml bottle. To put this in context, a bottle of e-cigarette fluid in the UK typically costs £2 or £3 and can sometimes be as cheap as £1. The Commission is proposing that the cost of vaping should at least double. It expects a €3.60 tax to reduce sales by 40 per cent which would be the ruin of many independent vape shops but a boon to the cigarette business.
From governments everywhere, the message is the same: “Keep smoking, we need the money!”
Nicotine pouches do not contain any tobacco but the Commission says that they “can be considered as substitutes to tobacco products from a fiscal perspective”. In other words, smokers are switching to them and governments are losing tax revenue. Something must be done. Won’t somebody think of the fiscal perspective! Plenty of EU countries do not have a specific excise tax on nicotine pouches, but in the name of “harmonisation” the Commission proposes a minimum rate of around €2 per can.
If you are reading this, the chances are that you live in Britain and none of this will affect you. What do we care if Johnny European wants to tax smoking cessation? But the UK will have its own tax on vape juice from next October, thanks to the great Brexiteer Rishi Sunak, albeit at the slightly lower rate of £2.20 (plus VAT) a bottle. Nicotine pouches have so far gone unscathed but are unlikely to go below Rachel Reeves’ radar for long. From governments everywhere, the message is the same: “Keep smoking, we need the money!”
