Brussels proposes EU tax hike on cigarettes
The European Commission has suggested that the EU's current minimum excise duties on cigarettes and tobacco should be increased to reflect inflation, in a move aimed at helping to cut consumption as well as narrow price differences across the bloc's 27 member states.
"Substantial differences in tax and price levels of tobacco products lead to considerable cross-border shopping and intra-community smuggling," EU tax commissioner Laszlo Kovacs told journalists as he was introducing the proposal on Wednesday (16 July).
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"These differences undermined the budgetary and health objectives of the Member States and resulted in a distortion of the functioning of the Internal Market," he added.
According to the current rules dating back to 1970s, the EU's excise duties levied on cigarettes must account for at least 57 percent of the price, and must be at least €64 per 1000 cigarettes of the "most popular price category" - the prevailing brand in a country.
Under the commission's blueprint, the duties would be 63 percent of the weighted average price for the rate of €90 by 2014 and applying to all cigarettes, as the concept of most popular brand has proved outdated with much more dynamic markets now than in the past.
The EU executive predicts that the proposed tax rise would contribute to a 10 percent decrease in tobacco consumption in most member states within the next five years, quoting the World Bank's studies which argue that "price increases in tobacco products are the most effective single intervention in preventing smoking."
"In countries like Denmark or Finland, the price increase will be around 6 percent, and in countries like Poland it will be 46 percent. There is a huge difference," pointed out commissioner Kovacs, admitting that Brussels' move will mainly create a "problem" for the member states that joined the EU most recently.
While the "old" EU countries in Western Europe would mostly be affected by the increased proportional element of the excise duty, the "new" member states in central Europe would be more affected by the increased monetary minimum of the excise duty.
"What the commission offers in this proposal is an extended time frame for these [new] countries that have difficulties. Let's say one or two year's extension of the deadline which will go up not to 2014 but to 2015 or even 2016," Mr Kovacs suggested.
Apart from cigarettes, Brussels also wants higher duties on roll-your-own tobacco to bring them in line with tax on cigarettes, stressing that they are "equally harmful for health".
The EU's top regulator points out that in some countries hand-rolled cigarettes are taxed 30 percent less than ordinary cigarettes, adding that while consumption of cigarettes decreased by over 10 percent between 2002 and 2006 in the EU (excluding Romania and Bulgaria), use of fine-cut tobacco rose by around 10 percent.
It is expected that the proposal will be subject to heated debate among member states, and to see the light of the day, it will have to be approved unanimously.