Discreetly, negotiations on new tobacco taxes, as well as on its “little brothers”, such as vapes or heated tobacco, seem to begin to bring positions closer. One of Cyprus's priorities is to reach an agreement before its mandate at the head of the Council of the Union ends, something that was not achieved under the Danish presidency. With that spirit, according to what Demócrata has learned, this very week a “consensus” document would have been sent to the diplomats.
This Tuesday, the delegations of the Twenty-Seven met again to assess the latest proposals from the Cypriot presidency on the tobacco tax directive, after, in July, the European Commission presented its revision proposal.
Brussels proposes raising taxes and expanding the scope
The Community Executive then proposed to increase the minimum tax rates to reduce the disparity of taxes applied by the Member States. “The EU minimum rate would be adjusted according to the economic situation of each individual Member State, based on general price levels,” they explain in Brussels.
Furthermore, the scope of the directive will be extended to new products, such as electronic cigarettes, heated tobacco and nicotine pouches, which will be covered by new minimum taxes. This extension responds to the need to adapt the regulations to the evolution of the market and to the growing popularity of these alternative products.
Cautious but positive reception from Member States
This week's is the third meeting of the working group on this matter under the Cypriot presidency. In the room, the latest shared texts were received with cautious satisfaction by the diplomatic teams of the different States, which, cautiously, are beginning to recognize a constructive basis to advance in the negotiations, despite some chapters still remaining open.
Throughout the meeting, several capitals expressed their concern about achieving a balanced harmonization, as well as their willingness to reach a compromise that takes national sensitivities into account. This balance will be key to avoiding blockages like those recorded in previous phases of the debate.
Members of the presidency confess to Demócrata their willingness to maintain “an open, transparent, inclusive, and constructive dialogue with all member States”. Thus, they reveal that, with the interest of dissuading critics and bringing divergent positions closer, they are working to “allow discussions to advance with a view to reaching a consensus”.
In this regard, the latest compromise text presented to the delegations “takes into account the different positions and concerns of all Member States”. Among the Cypriot ranks, they are confident, as they consider that the drafts currently under study reflect the position of a considerable number of countries, “as expressed during our consultations”.
For this reason, they insist on their interest in continuing to advance in the technical work with the aim of achieving substantial progress, recalling that "the political agreement will be adopted by consensus".
Political division in the European Parliament
However, this consensus is not yet reproduced in the European Parliament. The socialist group advocates for a more ambitious revision of the fiscal framework, while the European People's Party warns that an increase in taxes could have undesirable effects, such as the growth of the black market.
These differences reflect a broader debate on the balance between public health, tax collection, and collateral economic effects, especially in regions where smuggling has a strong presence.
The truth is that this is one of Cyprus's priorities during its current mandate. In January they presented a draft position on which to start working, after, under the presidency of Denmark, discussions remained frozen. Consulted sources indicate that the previous texts failed to overcome the existing discrepancies among the Member States.
With the aim of combating the black market, the Commission wants to strengthen control measures related to raw tobacco. In this way, the existing electronic system for registering and controlling the movement of goods subject to excise duties within the EU (EMCS) will also be applied to this product.
According to what Demócrata has learned, the texts now being debated include a reduction of the minimum levels of the excise tax and the introduction of a transitional period with gradual application, in order to facilitate the adaptation of the Member States. Nicosia would have proposed that the new minimum levels for electronic cigarettes, nicotine pouches, and heated tobacco products be set slightly below those initially proposed.
Economic and revenue impact
Currently, tobacco taxes generate a revenue of more than 6.5 billion euros, a figure that rises to 10 billion if the entire value chain is taken into account. The sector states that a European tax framework “updated and coherent, like the one proposed by Cyprus,” would provide an additional guarantee for the collection of State coffers in Spain.
However, one of the major concerns for Spanish negotiators is that the country loses close to 900 million euros annually due to illicit tobacco trade. Therefore, some experts warn that a prolongation of negotiations could cause a resurgence of the black market in a country where the production and distribution of these products has a significant weight in the GDP.
Public health objectives: new consumption habits
Brussels considers that the prevalence of smoking in Europe is not decreasing quickly enough to reach the objectives of the European Cancer Plan, which sets as a goal that less than 5% of the population consumes tobacco by 2040. Currently, that percentage stands at around 24%.
Added to this challenge is the growing presence in the market of vapes, electronic cigarettes and heated tobacco products. To improve control over these products, while granting flexibility to Member States to adapt their tax rules to market developments, the Commission proposes greater harmonization. "The increase in the tax will also help reduce their attractiveness as tobacco substitutes," community sources point out.
Nevertheless, the working group has committed to holding two new meetings in the coming months, with the aim of continuing to steer the negotiations and finalize a definitive text by summer. The progress of these meetings will be key to determining if Cyprus manages to successfully complete one of the most relevant fiscal reforms in public health matters of recent years in the European Union.