European Commission expected to revise tobacco excise Directive

The European Commission is reviewing Directive 2011/64/EU (“Tobacco Tax Directive”) on the structure and rates of excise duty applied to manufactured tobacco. Last June (2020) the Council of the European Union issued the Outcome of Proceedings containing its conclusions concerning the Directive. The Council believes that amendments to the Directive are “needed for the proper functioning of the internal market and a high level of health protection across the EU.”

Five years ago, the Council issued its conclusions in response to the Commission Report on the REFIT evaluation of the Directive. At that time the Council requested the Commission to offer a legislative proposal to amend the Directive which the Commission opted not to do. The Council’s current conclusions reiterate the urgent need to upgrade the EU regulatory framework, “in order to tackle current and future challenges in respect of the functioning of the internal market by harmonizing definitions and tax treatment of novel products (such as liquid for e-cigarettes and heated tobacco products).”

The illicit trade in tobacco products and the need to improve the definitions of certain manufactured tobacco products are also addressed on the Council’s conclusions. The apparent sense of urgency in the recommendation to harmonize definitions and tax treatment of novel products is noteworthy. In recent years some Member States have argued vociferously in favor of a Community-wide approach to taxing these products, while others maintained that the need was not yet apparent. Perhaps the increasing consumption of e-cigarettes and HTPs across Europe signals a change in sentiment among legislators and fiscal policymakers.

Preparing a proposal

Although the Council cites the many reasons for modernizing Directive 2011/64/EU there is no guarantee that the Commission will concur that a legislative change is required and prepare its own proposal. Nevertheless, there are signs that the Commission is taking the necessary steps to satisfy the Council’s request.

The Commission has identified the three key focus areas of its review of the Directive – 1) minimum excise duty rates, 2) harmonization of the taxation of new products, and 3) the fight against contraband.  An economic consultancy has been hired by the Commission to undertake a review to collect data and analyze the impact of different policy options with respect to product definitions and excise rates and structure. In the spring of 2021, the Commission will launch a consultation with the public and stakeholders during the process of the evaluation of the Tobacco Tax Directive. The Commission has indicated a legislative proposal to revise the Directive could be presented in the fourth quarter of 2021.

Excise tax rates in the European Union

As the Commission takes steps to review the Tobacco Tax Directive, offers its assessment of the current state of taxation of novel products in the European Union. Many followers of taxation policies applied to novel vapor products find it helpful to compare the excise burden on e-cigarettes and heated tobacco products to the excise yield of conventional cigarettes.  To enable such a comparison, we assume the following product equivalencies from a consumer perspective: 1 ml of e-cigarette liquid = 10 heated tobacco units = 10 cigarettes.

We have chosen to show the current level of excise tax on a pack of 20 cigarettes as our benchmark for comparisons. So that we may have a common basis for comparison we have selected a premium priced brand, Marlboro, which is commercially available in all of the markets of the EU shown in the table below. The amount of excise tax shown is the current yield, expressed in euros per pack of 20 cigarettes, for example € 3.31 in Austria

In most EU markets, the excise tax on heated tobacco products is based on the weight of the tobacco. More than half of Member States have created new categories of heated tobacco and levy a specific amount per kilogram of tobacco. A few, including Germany and Sweden, apply the same rate that is applied to other smoking tobacco. For our analysis, we have chosen the most sold brand in each market with an average weight of 5.3 grams per pack of 20 units.

Referring once again to Austria as an example, the statutory rate of excise tax applied to tobacco used for heating is EUR 123 per kilogram. Thus, the excise yield per pack of 20 sticks weighing 5.3 grams is € 0.65 (123/1000*5.3=0.65).

The table below shows that in every country where heated tobacco products are sold an excise tax is collected. This may be the result of a separate tax category for heated tobacco, or the application of a previously existing tax established for other smoking tobacco. This is not the case for liquid used in e-cigarettes. Numerous EU markets have not yet introduced a tax on e-liquid and no previous existing tax is suitable for application. Thus, in several markets, including Austria, where no excise tax has been adopted for e-liquid, no amount of tax is shown in the table below. 

Most jurisdictions that levy a tax on e-liquid have set a rate per milliliter of liquid volume. To identify the tax yield on a comparable basis as the tax on a pack of 20 cigarettes we have doubled the statutory tax rate per ml to indicate the tax yield per 2ml. For example, in Slovenia the Law on Excise Duties has set the excise tax rate at € 0.18 per ml. Thus, the excise yield per 2ml, which is the consumer equivalent of a pack of 20 cigarettes, is € 0.36, as shown in the table below.

The bottom row of the table shows the arithmetic average tax levied on each product category. The numbers are not weighted by volume. As might be expected, the results indicate that conventional tobacco cigarettes are the most heavily taxed of the three product categories. The average tax yield per pack of 20 cigarettes (€ 3.12) is more than three times the tax on an equivalent amount of heated tobacco product (€ 0.90) and more than ten times greater than the tax on an equivalent volume of e-cigarette liquid (€ 0.29).

The range of tax yields observed is consistent with the continuum of health risk in which the most harmful product (cigarettes) is situated on one extreme and the potentially least harmful (e-liquid) is on the other extreme. As noted in an evidence review commissioned by Public Health England in 2018, “the available evidence suggests that heated tobacco products may be considerably less harmful than tobacco cigarettes and more harmful than e-cigarettes”.

Excise tax differentials

The two columns on the right-hand side of the table provide another way to look at the differentials in tax yields between cigarettes, heated tobacco products and e-cigarette liquid. The second column from the right shows the tax differential between e-cigarette liquid and cigarettes expressed as a percentage discout in the e-liquid tax rate compared to the tax yield on cigarettes.

For example, in Greece, where the tax on cigarettes is € 2.85 per pack of 20 units, the tax on an equivalent volume of e-liquid is € 0.20, a discount of 93%. For an equivalent number of heated tobacco sticks (20), the excise tax applied is € 0.80, differential of 71%.

Similarly, the cigarette excise tax in Poland is currently € 2.31 per pack of 20 cigarettes. Heated tobacco products are taxed at a discount of 84% compared to combustible cigarettes. A comparable amount of e-liquid is subject to a tax of € 0.25, a differential of 89% relative to the tax on cigarettes. 

For all the EU markets analyzed, the average discount in the excise tax levied on heated tobacco products relative to the tax on traditional cigarettes is 72%, as displayed on the right hand side in the bottom row of the table. For e-cigarette liquid, the average differential is 95%. However, this calculation is somewhat distorted by the absence of an e-liquid tax in several markets, such as Austria, where the differential vis-à-vis the cigarette excise tax is necessarily 100%. If we exclude those markets which do not tax e-liquid, the average arithmetic differential is 89%.

The tax differentials among the three product categories observed in the Member States are significant and should not be considered random.


Looking at the current state of excise tax policy for cigarettes, e-liquid and heated tobacco products a clear trend emerges. Acting independently in the absence of a legislative mandate from the Commission, Member States of the EU have chosen to tax cigarettes the most heavily and e-liquid the least. The tax yield on heated tobacco products falls in between the tax on the other two products but in all cases more closely approximates the tax on e-liquid. This pattern reflects the potential risk profile of the three product categories and should be a useful guide to the Commission as it considers its options for amending the Tobacco Tax Directive.


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Categorised in: Electronic cigarettes, Excise tax, Heated tobacco, novel products

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