Price shock for smokers

Die Tabak Zeitung // Thanks to the “Bild” newspaper, consumers have long since gotten the scare message: “Pack of fags soon at 12 euros? EU wants to drastically increase taxes”, wrote the paper. The reason: Brussels is planning to drastically increase taxes.

And that’s what’s behind it: On July 16, the European Commission presented its proposal to revise the Tobacco Tax Directive. The plan is to harmonize the taxation of new types of products and, above all, to drastically increase and harmonize the minimum tax rates for all tobacco and nicotine products.

Specifically, the minimum tax rate for cigarettes is to be increased to 215 euros per 1000 cigarettes; the current rate is 90 euros. For fine cigarettes, the rate is to rise from 60 to 215 euros per kilo. The EU bureaucrats also want to levy a “purchasing power surcharge”, which will increase prices in relatively affluent countries such as Germany.

“Bild” calculates that a pack of cigarettes would then cost more than 12.00 euros – “a price jump of more than 40 percent compared to the current price of 8.50 euros”.

The cigar industry is also affected. Bodo Mehrlein, Managing Director of the Federal Association of the Cigar Industry (BdZ), complains: “The EU Commission’s proposal for a new tobacco tax directive provides for a 1093 percent increase in the minimum tax on cigars and cigarillos.” The industry has been waiting for years for the EU Commission to revise the Tobacco Tax Directive. However, the draft that has now been presented has turned out to be a massive threat to medium-sized manufacturers and importers of cigars and cigarillos. In Germany, more than 1600 employees are affected, especially in North Rhine-Westphalia, Hesse and Baden-Württemberg. In addition, there are tens of thousands of employees in third countries. Mehrlein: “Specialist retailers, as the central sales channel, are also likely to feel the consequences.”

There is a tangible financial interest behind the planned increase: Because in order to finance its excessive expenditure, the EU needs higher revenues. This should also come from tobacco tax: According to the plans, 15 percent of the tobacco tax revenue from the member states is to be transferred to Brussels; Germany would have to expect an additional burden of around two billion euros per year.

This does not take into account the fact that tobacco and nicotine products are not infinitely price-elastic either. To put it plainly: the more expensive cigarettes and other tobacco products become, the more consumers will switch or at least buy them from other sources where they can avoid tobacco tax. Jan Mücke, Managing Director of the Federal Association of the Tobacco Industry and Novel Products (BVTE), warns that such a price shock would fuel the illegal trade and represent an economic stimulus program for the black market. Will the German government go along with this? The plans have certainly met with criticism in Berlin. So there are likely to be some more negotiations. There is still time: the EU’s next “long-term financial framework” and thus the planned tobacco tax directive are not due to come into force until 2028.