EU takes steps toward e-cig tax regime – but nothing is certain

The European Union (EU) is still some way from introducing a pan-European tax regime for e-cigarettes, despite recent media reports suggesting it is imminent.

The contemplation of e-cigarette tax rules at an EU level arises from a typically long and complex process of policy review.

At the end of last month the secretariat of the Council of the EU (known as ECOFIN, and including economics and finance ministers from all member states) published its draft conclusions on a European Commission (EC) report known as REFIT.

It recognised that differing tax structures are a threat to the internal market and free movement, while saying that taxation of e-cigarettes and other novel tobacco products should “be practical and foresighted, and strike the right balance between the revenue, expenses of tax administration and public health objectives”.

ECOFIN recommended the Commission to examine possible ways forward toward the introduction of new product categories or definitions into directive 2011/64/EU on excise duties.

The Commission’s original REFIT report on the tobacco and related products industry was issued late last year.

It outlined market distortion caused by not taxing substitutes of tobacco, arguing that “excluding e-cigarettes from the scope of excisable products might have significant long term budgetary implications for Member States. Some Member States have begun to levy a national tax on these products. This might in time jeopardize the proper functioning of the internal market if other Member States decide to do likewise in an uncoordinated way which would result in differentiated treatment across the EU.”

That report therefore recommended considering the possibility of including e-cigarettes in the scope of excise duty on tobacco products, and the Commission agreed with this.

As a first step, the Commission has been discussing the recommendations with representatives of member states in the Fiscalis Project Group on Tobacco (FPG 050) since last year, and continues to do so.

 

What This Means: This is a step toward a tax regime but not the introduction of one. It does look like such a regime will likely arrive, possibly as early as next year, but the decision still depends on the Commission’s findings.

Any tax has to be proportional, reduce the administrative burden on businesses and competent authorities, and simplify compliance requirements. The particular circumstances of small and medium enterprises (SMEs) are also required to be borne in mind.

 

– Pablo Cano Trilla and Barnaby Page ECigIntelligence staff

 

Photo: momius / dollarphoto.com

 

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