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 Cigars, Cigarillos, Pipe Tobacco, Electronic Cigarettes, Heated Tobacco Products, and Nicotine Pouches [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 revision of the European Commission's Tobacco Tax Directive, which was postponed in late 2022, on the market for cigars, cigarillos, pipe tobacco, electronic cigarettes, heated tobacco products (HTP), and nicotine pouches. The proposals would have a minimal impact on the excise yield of cigarillos, cigars, or pipe tobacco. Importantly, though, the proposals include the creation of separate tax categories for HTP, liquids for electronic cigarettes, and nicotine. This would significantly increase the excise yield for HTP in most countries. Despite this progress, the revised TTD would allow the excise tax to be a fraction of the retail selling price. Further, the proposals fail to create an effective tax floor for tobacco products other than cigarettes. These results demonstrate the importance of closing these loopholes that would allow industry undervaluation and encourage substitution between products. The working paper concludes with recommendations for ways to improve the next iteration of the Tobacco Tax Directive.

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