On 6 June 2014, DG Taxation and Customs Union (TAXUD) invited representatives from EU Member States’ tax administrations, relevant business federations, interest groups and non-governmental organisations to a round table conference on tobacco taxation. The event presented and discussed the draft study on the impacts of tobacco taxation on economic operators and tax authorities. EPHA contributed to the debate highlighting that tobacco taxation is a key element to cutting consumption, stemming take-up and helping people give up and it also helps to reduce health inequalities.
As part of the transparency process, the meeting gave the opportunity to receive the first findings of the study carried out by Ramboll Management Consulting entitled “Study on the measuring and reducing of administrative costs for economic operators and tax authorities and obtaining in parallel a higher level of compliance and security in imposing excise duties on tobacco products”.
The purpose of the study was to evaluate the current EU legislation imposing excise duties on tobacco products (mainly the Council Directive 2011/64/EU on the structure and rates of excise duty applied to manufactured tobacco) and to study its practical implementation. However, representatives from Ramboll Management Consulting highlighted that the study did not look at health issues related to excise duties on tobacco products. This study is part of the ongoing evaluation of Directive 2011/64 and the related consultation process. It intends to provide the Commission with the economic information to adopt a policy and assess the likely impact of this future policy for revising Directive 2011/64/EU between 2014 and 2016.
The study addressed four main questions:
- What are the current arrangements for the collection of excise duty on tobacco products in the Member States?
- To what extent do the current arrangements for tobacco excise duty on tobacco products safeguard Member States’ budgetary objectives?
- To what extent do the current arrangements for tobacco excise duty on tobacco products ensure the proper functioning of the Internal Market and avoid distortions in competition?
- To what extent are the current arrangements for tobacco excise duty on tobacco products implemented in a cost-effective way?
As part of the findings, the study partly refuted the causality link which is often made between tax level and illicit market. Referring to the existing literature, the study highlights that excise duties cannot be the sole determinant of the level of smuggling. Other factors (e.g. the ease and cost of operating in a country, industry participation, how well organised crime networks are, corruption levels [[Joossens L, Merriman D, Yurekli A, Chaloupka F. Issues in the smuggling of tobacco products]]) influence the consumers decision to turn to an illicit market. The link between increasing excise duties and changes in the illicit market has not been formally established.
These are factors that are worth bearing in mind while tobacco industry claims that excise tax may encourage tobacco smuggling. [[Pricing and tax:
Striking the right balance is crucial, http://www.bat.com/tax]]
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EPHA’s contribution to the debate on tobacco taxation
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Europe pays a hefty price for its slow action on tobacco, both in economic costs and harm to its’ citizens’ health and wellbeing. Tobacco is a major risk factor of cancer, [After circulatory diseases, cancer was the second most common cause of death in 2006, accounting for two out of ten deaths in women and three out of ten deaths in men, equating to approximately 3.2 million EU citizens diagnosed with cancer each year.]] [cardio-vascular disease [Each year cardiovascular disease (CVD) causes over 4 million deaths in Europe and over 1.9 million deaths in the European Union (EU). CVD causes 47% of all deaths in Europe and 40% in the EU]] and other chronic diseases such as [Chronic Obstructive Pulmonary Disease (COPD) [[The primary cause of COPD is tobacco smoke (through tobacco use or second-hand smoke). In Europe 4-10% of adults have COPD.
The total COPD related expenses for outpatient care (= not in hospital) in the EU is approximately €4,7 billion per year for inpatient care (=in hospital) generating costs of €2,9 billion followed by expenses in pharmaceutical of €2,7 billion per year.]]
EPHA has pointed out that the health dimension was not strong enough in the presented report and took the opportunity to speak up for the need for higher taxes on tobacco to raise retail prices.
In high-income countries, a 10% increase in tobacco prices should reduce consumption by about 4%. The effect of higher prices on reducing consumption is likely to be greater in low- and middle-income countries. [[When tobacco prices go up, consumption goes down. http://www.who.int/tobacco/mpower/publications/en_tfi_mpower_brochure_r.pdf]]
In light of World No Tobacco Day 2014 (which called on countries to raise taxes on tobacco), EPHA referred to its earlier press release and highlighted that increasing tobacco taxation was key to achieving better public health outcomes. This is a crucial element to cutting consumption, stemming take-up and helping people give up. Additionally, it also reduces health inequalities.
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Next steps
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The final version will include elements raised during the meeting and any comments received through the DG TAXUD website in July. The study report has been published on the DG TAXUD website here.
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EPHA related articles
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