The European Commission’s primary intent to enforce an EU-wide excise tax on new products like vapes, heated nicotine, and tobacco pouches has split key players as to whether it will achieve its intended outcomes.
Some argue that high taxes will discourage smokers from shifting to new products, whereas other research findings purport are much less harmful than conventional cigarettes.
Other people argue that the step is necessary, because the damage is still damaged, and taxation is a means of deterring individuals, especially the young, from intaking these items absolutely.
There is currently no EU-wide excise standard framework, as there is for conventional nicotine products. The EU single market is extremely fragmented, with member countries taxing heated nicotine products and e-liquids at varying rates.
The EU executive is now attempting to control the industry by imposing a minimum tax rate on new products. When asked if the Commission was exploring delaying its bid to raise tobacco taxes in the face of the most severe inflation downturn since the 1980s, an EU representative responded:
“The Commission publishes online the ‘Liste des points prévus,’ which is a reflective agenda of subjects that will be debated at the College of Commissioners’ weekly meetings.” Nevertheless, this is a tentative agenda that is prone to revision.”
Most advocates for public health seek to promote the highest rate possible, whereas the nicotine market and supporters of novel tobacco products promote the lowest possible excise tax.
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Unfamiliar health consequences
The World Health Organization (WHO) as well as the European Union (EU) have advocated for higher taxes on nicotine and novel products to discourage their use.
When questioned if the Commission is particularly worried that a potential new increased excise tax on novel products will force individuals back to smoking, an EU official responded, “We have no comment at this stage.”
According to Cornel Radu-Loghin, a public health advocate for the European Network for Smoking and Tobacco Prevention (ENSP), the cigarette sector is trying to hide behind the reasoning that because novel brands are less detrimental, they should be required to pay fewer taxes.
“All doctors promoted tobacco in the 1950s, and two decades later all transformed; who anticipates what will transpire in 20 years?” “Perhaps everybody will concur that such new products are extremely hazardous and cancerous […] therefore we cannot estimate this in terms of taxation,” Loghin explained.
Loghin went on to say that authorities are looking for cash although the sector promotes the loss-revenue debate.
“The cigarette companies always claim to be a primary driver to the national budget […], however, the funds come from people who smoke, not them,” he stated “.
“However, if an individual quits consuming tobacco products, he will use the funds on other goods, and the taxes will return to this national budget,” he added.
“So, all of this debate regarding whether or not to tax at the same level is just about business and commercial affairs, as well as a method for manipulating governments into showing that they’re a great major contributor.”
A taxation strategy based on risk
The EU must therefore prevent the “mistake” of taxing less hazardous alternative options to traditional cigarettes, according to David Sweanor, a Canadian lawyer and professor at the University of Ottawa.
“It’s like simply stating we would really like to shift away from combustion engines, however since we will make a loss on gasoline taxes that we must have revenue from, we’ll tax electric vehicles, which hinders individuals from switching,” he informed EURACTIV on the verge of the 5th Scientific Summit on Tobacco Harm Reduction convention in Athens.
According to critics, EU governments are cash-strapped and looking for new revenue in the aftermath of the pandemic crisis as well as the conflict in Ukraine.
“If we raise the prices of novel products significantly, customers will begin to step back from them.” A few vapers would return to smoking,” said Emanuele Bracco, an associate professor of economics at the University of Verona.
Bracco stated that the scientific proof is still weak since these items are new, but added that the health status of new products is very distinct from that of conventional tobacco products.
“We have conclusive proof that these new cigarettes are significantly less hazardous,” he said.
Likewise, Frederic de Wilde, leader of Philip Morris International (PMI) in the European Union Region, informed EURACTIV that so many member countries had implemented differentiated taxation, recognizing that smoke-free brands, including vapes and heated tobacco, are distinct from cigarettes.
“And it makes good sense to approach them differently, to motivate non-quitters to shift to good products.” Differentiated treatment as well incentivizes businesses to innovate and devote themselves to transform,” he stated “, adding that cigarette smoking is steadily decreasing in nations where this distinction has been made.
De Wilde also mentioned the Tobacco Excise Directive (TED) open consultation, stating that 81 percent of those surveyed, which include experts and scientists backed risk-based tax differentiation.
“The Council issued a recommendation in June 2020 that any cigarette excise audit at the EU level must consider the best case scenario among member countries, keeping in mind products’ different features and utilization,” he said.
Black markets are just around the corner
De Wilde also emphasized that equitable taxation doesn’t really inspire tobacco users to purchase in the illegal market, as it did in France, “where increased taxation brought illegal trade up by 30 percent in 2021 to much more than a third of overall usage.”
“A latest KPMG report strongly suggests that excessive taxation encourages illegal trade in European nations,” he said.
Following a major increase in taxes, nearly three times the Eu Commission’s minimum threshold, the clandestine market in France rose to 29.4 percent in 2021 from 13.1 percent in 2017.
This is expected to result in a €6.2 billion loss in tax income in 2021, according to French news accounts, and the government is planning a new tax hike to account for rising inflation.
In the EU as a whole, unlawful consumption rose by 3.9 percent, or 1.3 billion tobacco products, in 2021, particularly in comparison to 2.3 percent in 2020.
“Had these tobacco products been legally acquired in the nations where they were noted, an extra €10.4 billion in taxes would’ve been advanced in the EU,” according to the industry-funded Report by KPMG.
An illegal market has also emerged in Ukraine, stripping the nation of much-needed funds for its battle against the Russian invasion.
The illegal cigarette market cost the Ukrainian government roughly €180 million, prompting President Volodymyr Zelenskyy to mediate and close a production plant held to account for the illegal manufacturing.
