Taxation of tobacco and nicotine products: raising of European minimum thresholds

In a tense budgetary and health context, the European Commission unveiled, on July 16, 2025, a revision proposal[1] in-depth review of the directive governing excise duties on tobacco and nicotine products. This text, awaited for more than ten years, marks a decisive step for the European Union, which intends to make taxation a central lever for public health. By harmonizing minimum tax rates, fully integrating new nicotine products into the European tax framework and strengthening anti-fraud tools, this reform aims to significantly reduce tobacco consumption, particularly among young people, to reduce inequalities between Member States and to contribute to the objective of a tobacco-free generation by 2040. Welcomed by public health stakeholders, this proposal will however have to face pressure from the industry and be subject to a rapid and ambitious legislative process to keep its promises.

Aligning taxation with public health objectives

The revision of the European directive is part of a desire to strengthen the link between taxation and public health. It aims to correct the shortcomings of the current framework, which is more than 10 years old, by adapting tax rates to contemporary health issues and new consumption practices. Since 2011, cumulative inflation has significantly reduced the real scope of excise duties, with their effectiveness declining by 20 to 40% depending on the Member State. Furthermore, economic disparities between countries undermined the consistency of preventive measures. To address this, the Commission is proposing an innovative mechanism for the three-yearly revaluation of minimum excise rates, based on two-thirds fixed nominal values and one-third indexed to purchasing power parity. This system aims to maintain tax pressure while taking into account income inequalities within the Union.

Beyond manufactured tobacco products, the directive includes alternative nicotine products: e-liquids, heated tobacco, nicotine pouches, and oral tobacco. Until now, only 23 Member States taxed e-liquids, often at very unequal levels, and several countries had no tax framework for nicotine pouches or nicotine-free vaping devices. This situation not only encouraged the circumvention of national policies, but also the trivialization of the use of these products among young people. In France, according to the ESCAPAD 2022 survey, 56.91% of 17-year-olds in high school have already tried e-cigarettes, and 6.21% are daily vapers.

The reform now provides for a minimum rate of €0.30 per milliliter for vaping liquids, whether or not they contain nicotine, €140 per kilogram for heated tobacco, and €45 per 1,000 nicotine pouches. These levels were established based on the industry's profit margin, actual consumption, and the price sensitivity of young people. The directive also specifies that Member States retain the option to exceed these thresholds. It recalls that, although often presented as harm reduction tools, vaping and heated tobacco products have not demonstrated sufficient effectiveness on a general population scale as a smoking cessation method. Moreover, these products pose growing environmental challenges, particularly with single-use devices, whose impact is added to that already known from cigarette filters.

The ambition is clear: to make taxation an active lever for prevention, aligned with the objectives of the European Beating Cancer Plan, which aims to reduce smoking prevalence to below 5% by 2040. To date, 24% of Europeans aged 15 and over still smoke regularly, or around 80 million people. By targeting all nicotine products, this directive aims to send a dissuasive, consistent, and lasting price signal throughout the European Union.

Partially reduce tax disparities and combat parallel markets

One of the major weaknesses of the current tax framework is the significant disparity in rates between Member States. In 2023, the price of a pack of cigarettes ranged from €3.20 in Bulgaria to over €13 in Ireland. These differences create an environment conducive to cross-border purchases, which account for up to 30 billion of consumption in some border regions, with tobacco manufacturers deliberately oversupplying less heavily taxed markets. Added to this is the existence of illicit tobacco markets in countries where taxation is low but supply chain control is weak. These markets currently represent approximately 10 billion of the volumes consumed in the Union, depriving Member States of revenue estimated at €13 billion per year. The products most affected are cigarettes, but also rolling tobacco, untaxed e-liquids, and cigarillos, used by the industry to circumvent the thresholds.

The directive aims to reduce these disparities by introducing a mixed calculation method: two-thirds of excise duties will remain expressed in nominal euros, while one-third will be adjusted according to purchasing power parity, in order to ensure a degree of fairness between Member States. The minimum rate for cigarettes will thus be raised to €215 per 1,000 units, and that for rolling tobacco will gradually increase to €143 per kilogram, compared to €90 today. Specific rates are also defined for pipe tobacco, chewing tobacco, and heated tobacco products.

The effects of these measures will not be felt in the same way in every country. A country like France, which already has a strong tax policy, will not see its situation fundamentally change; the effects of the revision are more likely to be seen in terms of reducing cross-border purchases.

Another step forward concerns the strengthening of the traceability of raw tobacco, which has so far been excluded from the scope of the directive. The text now provides that these raw materials must be registered via the European EMCS system, even if they are not subject to their own excise duty (€0 rate). This measure aims to reduce the risk of clandestine cigarette manufacturing, particularly in border or rural industrial areas, and to better control the flow of raw tobacco within the internal market. The Commission estimates that this measure alone could recover between €1.3 and €2.6 billion in tax revenue per year.

Finally, the directive clarifies the legal definitions of certain product categories often used to avoid taxation, such as cigarillos and water pipe tobacco. By standardizing these definitions, it limits the industry's room to artificially position its products in less restrictive tax niches.

A powerful lever for reducing smoking and health inequalities

In addition to generating additional tax revenue each year, its main contribution lies in its potential to reduce smoking. The WHO and the World Bank estimate that a 10% increase in tobacco prices leads to a 4% decrease in consumption in high-income countries and an 8% decrease in low- and middle-income countries.

Tobacco remains the leading cause of preventable premature mortality in Europe, with nearly 700,000 deaths annually. Its total social cost is estimated at €779 billion in 2024, including healthcare, lost productivity, and environmental impacts. The prevalence of smoking remains socially significant: in France, it reaches 30.8% among people without a diploma, compared to 17% among university graduates. By increasing the price of all nicotine products, the directive aims to strengthen the protection of vulnerable groups and prevent alternative products from becoming a gateway to addiction.

A decisive political battle against industry interference

Welcomed by public health stakeholders, the reform is not immune to political tensions. Adopted on the basis of Article 113 of the Treaty on the Functioning of the European Union, it must obtain unanimity from the Council, making the text particularly vulnerable to lobbying. Between 2018 and 2023, major tobacco multinationals invested more than €20 million in lobbying efforts in Brussels, according to the European Transparency Register. In 2021, the European Court of Auditors already warned about the power of lobbying networks during the previous revision attempt. The European Parliament, whose role is solely advisory on tax matters, has nevertheless expressed strong support for tax harmonization for public health purposes.

The Commission stresses the need to ensure a transparent legislative process, in line with Article 5.3 of the WHO Framework Convention on Tobacco Control, which requires protecting public policies from industry interference. It also recalls that the proposed thresholds are floor levels and encourages Member States to go beyond them, depending on their ambition in combating non-communicable diseases.

The timetable is tight: the Commission is aiming for adoption before the end of 2025, so that the directive can enter into force on 1 January 2028. A four-year transitional period is planned for certain products, notably rolling tobacco, to allow Member States to adjust their taxation without any sudden disruption. Furthermore, the reform is part of a broader budgetary strategy: from 2028, 15 % of tobacco excise revenue will be allocated to the European budget as an own resource (TEDoR – Tobacco Excise Duty own Resource), for an estimated amount of €11.2 billion annually. Amply justified by the significant cost of smoking for all European citizens, it is important that these taxes systematically integrate public health objectives of reducing consumption and creating a tobacco-free generation.

©Generation Without Tobacco

AE

[1] Taxation and Customs Union, Revision of the Tobacco Taxation Directive (proposal), published July 16, 2025, accessed July 17, 2025