Tobacco Taxes in the European Union: An Evaluation of the Effects of the European Commission’s Proposals for a New Tobacco Tax Directive on the Markets for Cigarettes and Fine Cut Tobacco [Working Paper Series]

This Working Paper was written by Professor Ángel López-Nicolás at the Universidad Politécnica de Cartagena (UPCT) in Spain. It assesses the effect of an unofficial draft of the European Commission's revised Tobacco Tax Directive, which was expected to launch in December of 2022 but has been postponed indefinitely. The Commission's proposal would lead to small retail price increases in all members of the European Union except Denmark, Belgium, Finland, France, the Netherlands, and Ireland, the six countries with the highest current tax rates. The findings suggest that the proposal would have a modest impact on price convergence among member states and broader affordability of these products, although it would not reduce the gap between the price of cigarettes and fine cut tobacco (FCT), which is substantial. This means that many smokers are still likely to switch down to the cheaper FCT. The proposals would reduce demand for the two products in the EU by between 3.3% in 2025 (the first year of implementation) and 4.1% in 2028 (the last year of the simulation). Excise tax revenue, on the other hand, would increase by between 8.5% and 6.4% in 2025 and 2028, respectively. These results demonstrate the importance of the Commission's proposals, the possibility of making it more ambitious for both public health and revenue generation, as well as the need to restart the legislative process as soon as possible. The working paper concludes with recommendations on ways to further enhance the positive impact of the next Tobacco Tax Directive.

A Policy Brief based on working paper can be found here.