The Cypriot presidency of the Council of the European Union has maintained, almost until its final days at the helm of the institution, the will to forge a consensus on the pending revision of the tobacco taxation directive. However, after noting the lack of alignment among Member States at the diplomatic level, it has decided to withdraw this file from the agenda of the next meeting of the Twenty-Seven's Economy Ministers (Ecofin).
In recent months, Cyprus has made intense efforts through bilateral consultations and working group meetings. The objective was to clarify the text and explore different options to bridge the differences between the capitals, trying to find compromise solutions acceptable to all delegations. Although certain rapprochements were detected during these discussions, ultimately not all delegations have been in a position to lift their vetoes.
"As presidency, we have done everything possible to reach a consensus in the Council on the tobacco taxation directive," a spokesperson for the presidency acknowledged this Wednesday. In fact, a final proposal was presented which, according to the Cypriots, "took into account the different and divergent positions of the Member States."
"Unfortunately, despite our efforts over the past few months, it has not been possible at this stage to reach a consensus on this important file," diplomatic sources admit, just as the countdown begins for Ireland to take over the leadership of the institution.
Radiography of the draft: a comprehensive refoundation of the market
The latest draft that has been on the table of the Twenty-Seven, and which Demócrata had access to, proposed a genuine refoundation of the rules of the game for the sector in Europe. The proposal, firmly aligned with Brussels' plan to fight cancer, sought a dual objective: to safeguard public health and to stifle illicit trade.
To achieve this, Community regulators opted for homogenizing legal definitions, setting higher tax floors, and applying automatic update clauses linked to inflation; a regulatory cocktail designed to redefine the market over the next decade, but which has ultimately clashed with the national realities of the partners.
Goodbye to Legal Loopholes: New Products Under the Radar
One of the main priorities of the failed reform was to end the legal dispersion affecting the latest generation of products, stabilizing the single market and closing the regulatory gaps that certain manufacturers exploit. The proposed classification distributed products into three main blocks:
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Manufactured Tobacco: In addition to traditional cigarettes, rolling tobacco, and pipe tobacco, this category definitively absorbed heated tobacco, a segment whose rapid expansion is raising alarms in several capitals.
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Related Products: Liquids for vapes (with or without nicotine) and popular nicotine pouches were no longer in limbo but were formally integrated under this regulatory umbrella.
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Raw Tobacco: To prevent this product from being diverted to clandestine factories, a specific category was created. It had a minimum tax of zero euros, allowing Member States to control its administrative traceability without financially burdening legal producers.
The New Fiscal Map: A Floor of 200 Euros per Thousand Cigarettes
The proposal led by the Cypriot delegation advocated for a progressive tightening of fiscal pressure in the medium term. For the traditional format, the aim was to maintain the current mixed system (a fixed amount per unit, an ad valorem percentage of the sales price, and the corresponding VAT), but introducing much stricter requirements:
The total tax would have to reach, at a minimum, 60% of the weighted average retail price, also setting an absolute floor of 200 euros per 1,000 cigarettes.
This minimum limit aimed to reduce the enormous price gap that currently exists between different EU partners, a factor that the European Commission identifies as the main driver of smuggling and shopping tourism within the EU borders.
Spain, in the Moderation Bloc for Fear of Losing Revenue
The content of this text explains why the veto of all countries could not be lifted. The Spanish government has consolidated itself in this process as one of the voices calling for greater prudence and restraint in the pace of tax increases.
Madrid's fear in the negotiations has been purely strategic: too aggressive an increase or an accelerated convergence of prices would drastically cut the fiscal gap that currently exists with neighboring countries like France. If smoking in Spain were no longer notably cheaper, current trade flows in border areas would plummet, dragging with them the millionaire tax revenues that the Spanish state collects thanks to these cross-border purchases.