home page ← Buzz@Bruss! Edition #7 ← Why the TED proposal risks more harm t han good
In mid-July, the European Commission released its proposal to revise the Tobacco Excise Directive (TED), aiming to modernize the framework in response to evolving market dynamics. The Directive seeks to establish consistent and effective tax structures for tobacco and nicotine products across the EU – an approach intended to support public health goals, ensure fiscal stability, and provide clarity for consumers and industry alike. In this interview, JTI’s Ksenija Barysiene (EU Affairs Lead) and Federico Severgnini (Fiscal Strategy Director) share their views on the proposal’s promising steps forward, its shortcomings, and the importance of a more balanced approach to avoid unintended consequences.
The Tobacco Excise Directive (TED) is an EU law that sets minimum excise tax rates for tobacco products across Member States. Last revised in 2010, the directive has become outdated due to market changes and the emergence of new products like heated tobacco, e-cigarettes, and nicotine pouches.
On 16 July 2025, the European Commission proposed a major revision to modernize the framework.
• Higher minimum excise rates for traditional tobacco products
• New minimum taxes for novel products
• Measures to reduce disparities in tax levels between Member States
• Enhanced controls to combat illicit trade.
1. Ksenija, you’ve closely tracked the preparations for the latest proposal to revise TED.
What are your thoughts about its objectives?
K.B. Both the industry and EU governments have long awaited a revision of the Tobacco Excise Directive (TED). With years of delay, the absence of reform has led to a fragmented EU Single Market, where Member States have developed their very own national excise regimes. Now that the Commission has launched its proposal, it’s a welcome step – but to be honest, we struggle to understand some elements which seem to contradict each other.
On the one hand, the proposal emphasizes the importance of aligning tax rates and prices upwards. It calls for a significant increase in the minimum excise tax for most countries – but without fully considering the wide differences in income levels across these nations.
On the other, it rightly attempts to consider consumer purchasing power, accepting that it is normal to have tax and price divergencies across the 27 EU countries.
Overall, the proposal ignores the fact that, if you do not simultaneously impose a cap on Member States with the highest nominal excise tax rates, the “EU-wide gap” will continue widening and thus making approximation impossible. This lack of an upper excise threshold is why the last two TED updates actually led to wider tax and price gaps whilst punishing lower income countries.
If this contradiction is not addressed, less wealthy countries and lower-income consumers are likely to facenotable disadvantages once again.
2. Federico, as a tax expert, what do you think about the proposed increases in tobacco tax rates?
Where do you see the main issues?
F.S. Our primary concern with the proposal is that the recommended increases are clearly excessive, with minimum rates translating into an average retail price rise of more than EUR 1.50 per pack of cigarettes. Such steep increases risk triggering a range of unintended consequences, including pushing more consumers toward cheaper, unregulated, or illegal products.
For combustible products, proposed minimum excise increases of +139% for cigarettes and +258% for smoking tobacco would disproportionately impact both lower-income countries and lower-income consumers. It undermines government tax sovereignty and their need to set tax levels based on national priorities, and risks pushing consumers further into illicit markets. With the EU economic slowdown, we have seen significant growth in illicit volumes over recent years.
On top of this, the Commission acknowledges the reform could add +0.5 percentage points to EU-wide inflation, a significant figure at a time when Member States are still struggling with fragile growth and wage pressures.
The proposal includes one ineffective measure which is to raise the minimum level of excise tax as a percentage of the final retail price, from 60% to 63% (so-called ‘excise incidence’). By ignoring the link between this measure and VAT and trade margins rates – which are also based on final retail price and differ significantly between Member States – it creates an unnecessarily complex and discriminatory structure which does not support price harmonization.
A modernized TED should aim for simplicity and clarity by removing outdated rules such as ‘excise incidence’. It should focus on setting clear and comparable minimum tax rates to help protect government revenues, limit inflation, and avoid unnecessary disruption for consumers and businesses.
JTI advocates for a balanced and equitable approach to tobacco taxation—one that is predictable, stable, and fair. We believe excise tax policies should support a sustainable business environment, contribute to government revenues, and avoid disproportionate impacts on consumers and society.
Excessive or poorly designed taxation structures often lead to unintended and undesirable consequences, by stifling innovation, reducing consumer choice, and encouraging the proliferation of unregulated, illicit products.
3. For the first time, TED also covers novel nicotine products.
Ksenija, do you see this as a positive development? Can you tell us why?
K.B. As consumers and as businesses we need taxation policies that differentiate potentially reduced-risk, non-combustible products from combustible tobacco. This would foster innovation and sustainable growth within thereduced-risk products sector and lower excise rates would create a meaningful financial incentive for consumers to explore such options
In this sense, we welcome the proposal’s recognition of the harm-reduction potential of non-combustible products through tax rates set below those for combustibles. However, we believe the rate for Heated Tobacco Products is still too high. Even more concerning, the proposed rate for nicotine pouches – an emerging category – is seven times higher than in Sweden, the leading market for such products. This disproportionate approach raises significant concerns.
4. Federico, you mentioned illegal tobacco products. Is it a real issue and does the proposal address it?
F.S. Yes, it remains a very serious issue. In 2024, almost 39 billion illicit cigarettes were consumed across the EU. This represents over 9% of total consumption, and costs Member States nearly €15 billion in lost tax revenues. The problem extends beyond cigarettes: the number of illegal vapes is reportedly enormous, and there is a resurgence of counterfeit products often manufactured in hidden illegal factories within the EU.
Unfortunately, the Commission tends to downplay the issue suggesting that illicit trade is due to poor enforcement rather than high taxes. Yet in countries like France and the Netherlands, where tobacco taxes have increased the most sharply in recent years, 49% and 39% of cigarette consumption respectively comes from abroad. Is this merely a coincidence?
The proposal also focuses heavily on curbing cross-border purchases – where consumers buy tobacco products in neighboring countries at lower prices. This approach risks undermining one of the EU Single Market’s core principles: the free movement of goods and people.
At the same time, the proposal misses an opportunity to define what realistic harmonization should look like across a highly diverse 27-member market. Are small-scale cross-border purchases by low-income consumers or holiday travelers truly a critical issue today? A more balanced and pragmatic approach is needed – one that addresses illicit trade effectively without penalizing legitimate consumer behavior or distorting the Single Market.
5. Your final remarks and what should happen next?
F.S. It is not easy to agree on a fair excise framework that spreads across all 27 Member States. Future negotiations in the Council need to fully consider the effects of the proposed changes on consumers, governments and society, i.e. illegal trade, revenue generation, industrial footprint and the potential for harm reduction.
K.B. The process for approving the final TED proposal will require unanimous agreement from all Member States. While common rules on product definitions are beneficial for the EU as a whole, the setting of rates for products should take into account market dynamics, fiscal realities, and policy objectives for each Member State. In the end, we hope that countries will use their powers to ensure that any EU intervention leaves the Single Market in a better place.
Buzz@Bruss!
#7
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