European law report - Taxing tobacco
We have seen over the years a systematic increase on tobacco taxation worldwide. Such tax increases are earmarked for good causes: the generation of revenue for public health and possibly fewer smokers. Taxation is generally perceived as a deterrent...
We have seen over the years a systematic increase on tobacco taxation worldwide. Such tax increases are earmarked for good causes: the generation of revenue for public health and possibly fewer smokers.
Taxation is generally perceived as a deterrent to smokers, with higher taxes known to induce quitting, preventing relapse, reducing consumption and preventing starting. It is this theory that the European Commission is seen to adopt in its attempt to increase the current EU excise duty legislation on tobacco. In a bid to further the EU objective of discouraging tobacco consumption, the Commission has adopted a proposal for a directive that foresees a gradual increase in the EU minimum taxation levels on cigarettes and other tobacco items up to 2014. Up to that year, the gradual tax increases are predicted to reduce tobacco consumption by 10 per cent.
Indeed, the proposed directive envisages quite high increases for cigarettes from the current minimum of 57 per cent of the price to two thirds the price of cigarettes. Not only cigarettes will be hard hit but also other tobacco products, such as hand-rolled cigarettes, will be subject to higher duty since they are considered as substitutes to cigarettes and, therefore, equally harmful to health and equally consumed. Currently, hand-rolled cigarettes are taxed much lower than ordinary cigarettes. Cigars and cigarillos will also go up in price, as will pipe tobacco.
Through its draft directive, the Commission is proposing the harmonisation of the minimum taxes on tobacco products. Cigarette prices currently vary widely across the 27-member bloc‒from an average of €0.06 cents per cigarette (or €1.20 for a packet of 20) in Latvia to €0.40 cents (or €8.10 per packet) in England.
The harmonisation process will enhance cross-border trade in the internal market by narrowing the differences in price levels of tobacco products within the EU and thus ensuring a level playing field for producers and retailers. Closer approximation of rates is also intended to prevent illicit trade by cutting down on the smuggling of tobacco products. The draft directive is intended to be adopted by the end of 2009. Naturally, many views from various quarters will be voiced before the directive can obtain the requisite unanimous vote to see the light of day. Once adopted, the proposed directive will ensure the smooth operation of the internal market as well as contribute to the Community objectives of creating a high level of health protection.
jgrech@demarcoassociates.com
• Dr Grech is an associate with Guido de Marco & Associates and heads its European law division.
Taxation is generally perceived as a deterrent to smokers, with higher taxes known to induce quitting, preventing relapse, reducing consumption and preventing starting. It is this theory that the European Commission is seen to adopt in its attempt to increase the current EU excise duty legislation on tobacco. In a bid to further the EU objective of discouraging tobacco consumption, the Commission has adopted a proposal for a directive that foresees a gradual increase in the EU minimum taxation levels on cigarettes and other tobacco items up to 2014. Up to that year, the gradual tax increases are predicted to reduce tobacco consumption by 10 per cent.
Indeed, the proposed directive envisages quite high increases for cigarettes from the current minimum of 57 per cent of the price to two thirds the price of cigarettes. Not only cigarettes will be hard hit but also other tobacco products, such as hand-rolled cigarettes, will be subject to higher duty since they are considered as substitutes to cigarettes and, therefore, equally harmful to health and equally consumed. Currently, hand-rolled cigarettes are taxed much lower than ordinary cigarettes. Cigars and cigarillos will also go up in price, as will pipe tobacco.
Through its draft directive, the Commission is proposing the harmonisation of the minimum taxes on tobacco products. Cigarette prices currently vary widely across the 27-member bloc‒from an average of €0.06 cents per cigarette (or €1.20 for a packet of 20) in Latvia to €0.40 cents (or €8.10 per packet) in England.
The harmonisation process will enhance cross-border trade in the internal market by narrowing the differences in price levels of tobacco products within the EU and thus ensuring a level playing field for producers and retailers. Closer approximation of rates is also intended to prevent illicit trade by cutting down on the smuggling of tobacco products. The draft directive is intended to be adopted by the end of 2009. Naturally, many views from various quarters will be voiced before the directive can obtain the requisite unanimous vote to see the light of day. Once adopted, the proposed directive will ensure the smooth operation of the internal market as well as contribute to the Community objectives of creating a high level of health protection.
jgrech@demarcoassociates.com
• Dr Grech is an associate with Guido de Marco & Associates and heads its European law division.