Week after week, and especially at the technical level, discussions about new tobacco regulations are intensifying in the European legislative epicenter. As Demócrata has learned, the Cypriot presidency of the Council of the European Union maintains its intention to reach a political agreement among Member States that was previously impossible due to deep fiscal, health, and commercial divergences existing between the Community capitals. European lawmakers now face the challenge of updating legislation considered outdated to include emerging products such as liquids for electronic cigarettes, nicotine pouches, and heated tobacco.
The latest draft being studied by the Twenty-Seven, which this media outlet has accessed, represents a true comprehensive refoundation of current legislation, prioritizing public health and the fight against illicit trade within the framework of the Community's anti-cancer strategy promoted by Brussels. Harmonized technical definitions, new minimum tax levels, and automatic formulas to update rates according to inflation are some of the key points of a text that could completely redefine the European market for tobacco and its derivatives over the next decade.
Members of the presidency confessed to Demócrata before Wednesday's meeting their willingness to maintain "an open, transparent, inclusive, and constructive dialogue with all Member States." Thus, they reveal that, in order to dissuade critics and bridge divergent positions, they are working to "allow discussions to advance with a view to reaching a consensus".
One of the most tangible innovations that negotiators are working on is the introduction of new legal definitions for products that until now were not regulated homogeneously at the Community level, with the aim of avoiding distortions in the internal market and closing possible regulatory loopholes. According to the latest proposal put on the table, manufactured tobacco products will include cigarettes, smoking tobacco, water pipe tobacco, and, especially, heated tobacco, whose commercial expansion increasingly worries several European governments.
For their part, e-cigarette liquids, regardless of whether they contain nicotine or not, as well as nicotine pouches and other derivatives, will be included in the category reserved for tobacco-related products. On the other hand, raw tobacco will be specifically defined to prevent its diversion to illicit manufacturing circuits, establishing a minimum tax rate of zero euros that allows for administrative control without increasing the tax burden on legal production.
A new European fiscal framework
Cyprus is pressuring its counterparts to establish a minimum tax rate structure that can be progressively increased in the coming years. For traditional tobacco, Brussels is committed to maintaining a mixed taxation structure that combines a specific component—per unit of product—and an "ad valorem" component, proportional to the retail sale price, in addition to the corresponding VAT.
However, the draft establishes that the total tax must represent at least 60% of the weighted average retail price and cannot be less than 200 euros per thousand cigarettes. The objective is to limit the enormous fiscal differences existing between the different Member States, considered by the European Commission as one of the main incentives for cross-border trade and contraband within the single market.
As Demócrata has been able to confirm, the Spanish Government is one of the countries calling for moderation in future tax increases due to the risk that too drastic an increase could eliminate the price differential with neighboring countries such as France. Madrid fears that an accelerated price convergence could significantly alter current trade flows and negatively affect Spanish tax revenue derived from cross-border purchases.
In data
The "minimums" of the draft
1. Traditional (Manufactured) Tobacco
- Cigarettes:
- Minimum of 60% of the average price (WAP) AND at least €200 / 1,000 units.
- Exception: If the tax is €255 / 1,000 units, the 60% requirement is optional.
- Hand-rolling tobacco (fine-cut): 60% of the average price or €200 / kg.
- Cigars and cigarillos: 30% of the selling price or €80 / 1,000 units or per kg.
- Water pipe tobacco (shisha): 50% of the selling price or €107 / kg.
- Other smoking tobaccos: 50% of the selling price or €143 / kg.
2. Nicotine Products and New Products
- Heated tobacco: 55% of the selling price or €255 / kg (or €85 / 1,000 units).
- Vaping liquids (with/without nicotine): 30% of the selling price or €0.36 / ml.
- Nicotine pouches: 50% of the selling price or €80 / kg.
3. Others
- Raw tobacco: €0 / kg (only for fraud control).
This concern also affects what is known as "hand-rolling tobacco", technically called "fine-cut tobacco", a product that has historically been cheaper and is particularly sensitive to tax changes. Spanish authorities believe that an excessively rapid increase could encourage a shift towards illicit markets or purchases outside official channels.
The proposal also stipulates that Member States that already apply a tax of at least 255 euros per thousand cigarettes will not be obliged to comply with the 60% requirement, thus introducing some flexibility for countries with higher taxation.
In the case of heated tobacco, the consulted drafts mention a final minimum rate of 255 euros per kilogram or 85 euros per thousand units, in addition to a minimum equivalent to 55% of the selling price. The liquid for electronic cigarettes will face a minimum tax of 0.36 euros per milliliter, regardless of whether it contains nicotine or not. For their part, nicotine pouches will bear a final minimum rate of 80 euros per kilogram.
Automatic adjustments linked to the CPI
Diplomatic teams particularly value the incorporation of an automatic fiscal update mechanism to prevent taxes from becoming obsolete due to inflation or differences in purchasing power between Member States. In this way, from 2035, minimum European rates will be automatically updated every three years according to Eurostat's Harmonised Index of Consumer Prices, with a maximum increase limit of 6% per period.
Furthermore, within two years, the applicable minimum rates in each Member State will be adjusted according to their respective price level index, allowing the tax burden to be more proportional to the economic situation of each country. Brussels considers that this formula would allow progress towards progressive tax harmonization without imposing an identical model for all national markets.
Spain has conveyed to the European Commission its concern that affordability indicators based on average income could be biased by differences between urban and rural areas. The Government argues that this would justify a more moderate application of certain tax increases to avoid a disproportionate impact on price-sensitive consumers.
Furthermore, within the Council, there is growing concern that unprecedented tax increases on historically cheap products may end up incentivizing illicit trade, especially in countries with external borders or large logistics ports, as is the case in Spain.
Consulted sources warn that overly abrupt changes could destabilize national markets. Therefore, the Council is working on a gradual and staggered implementation. The harmonization of definitions and the inclusion of raw tobacco aim precisely to drastically reduce contraband and illegal manufacturing.
At the same time, Brussels believes that the progressive increase in the price of substitute products such as electronic cigarettes and heated tobacco could contribute to reducing consumption among young people, especially among those profiles who use these products as an entry point to conventional smoking.
Transition Calendar
The drafts handled by the European delegations contemplate a progressive application calendar:
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2028-2029: first tranche of minimum rates, with references close to 140 euros per 1,000 cigarettes.
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2030-2031: second tranche of increase, which would raise the threshold to approximately 170 euros per 1,000 cigarettes.
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Special derogation ("2.8% rule"): Member States that must increase their national rates by more than 2.8% annually to meet the new requirements may request additional transition periods until 2033.
The debate on cross-border trade
Regarding the cross-border movement of tobacco products, sources indicate that there are still “considerable differences between Member States” in terms of prices and taxation levels, which continues to disrupt the functioning of the internal market. Brussels' ultimate goal is to move towards a greater degree of fiscal convergence to reduce smuggling and limit the economic incentives associated with cross-border purchases.
The Spanish delegation also calls for more ambitious regulation regarding the personal use of excise duty products when transported by individuals between different countries of the Union. Currently, only purchases of traditional products are specifically regulated, despite the fact that flows of heated tobacco and e-cigarette liquids are becoming increasingly relevant.
Spain, by generally maintaining lower prices than other EU partners, has become one of the main points of origin for this type of purchase. For this reason, the Government considers it necessary to establish clearer legal limits that allow defining what quantities can truly be considered intended for “personal use”.
However, the European Commission is also aware of the legal and operational difficulties involved in controlling a concept as abstract as “personal use”. The Community Executive's proposal expressly recognizes that the lack of price uniformity between countries, coupled with the ease of transport within the European area, continues to incentivize cross-border trade and can even undermine national public health policies by facilitating access to cheaper products in neighboring countries.