End to cheap cigarettes with tax hike across EU

IRISH smokers could soon find their regular consignment of cheap cigarettes from holiday destinations will dry up following proposals to dramatically increase the tax on tobacco throughout the EU.

The plan could see the price of cigarettes in Spain and Italy increasing by almost 20% while those visiting eastern European countries would find increases of 30% — and close to 50% for Poland.

Ireland, Britain, France and Germany will not be affected by the proposals as these countries already have high excise duties on tobacco.

The plan is an effort to reduce the level of smoking, because research by the World Bank shows that smokers respond very much to any increase in price.

The experts say that the proposed price increase would cut the number of smokers by an average of 10% over the next five years. The biggest drop would be in Poland where they expect more than 20% to give up as result of price increases.

The proposal outlined by Taxation Commissioner, Laszlo Kovacs, is for a gradual increase in EU minimum taxation levels on cigarettes and fine-cut tobacco up to 2014.

It would also remove loopholes that allow some cigarettes or fine-cut tobacco to be presented as cigars, cigarillos or pipe tobacco and so benefit from a lower tax rate.

The plan would narrow differences between member states’ tobacco taxation levels, which can be as high as 600% and so help tackle intra-EU tobacco smuggling, especially in the new member states.

The level of smuggling varies across the EU and accounts for up to 9% of the EU tobacco market. But in some major markets this is as high as 20%. The countries most susceptible to illegal tobacco are those closest to Russia and other markets that do not impose high tax on cigarettes.

Mr Kovacs said it would also make the taxation rules more transparent, and create a level playing field for manufacturers and give flexibility to member states to set minimum taxes.

“This proposal supports the EU policy to reduce tobacco consumption and narrow the differences in price levels of tobacco products within the EU.

“It will help reduce illicit trade and cross-border shopping, which undermine the revenue and the health objectives of member states which impose high taxes to deter smoking.

“It will give more flexibility to member states on setting minimum tax levels and will modernise the current rules so as to ensure a level playing field for producers and retailers,” he said.

Currently, excise duties levied on cigarettes must account for at least 57% of price, and must be at least €64 per 1,000 cigarettes, for products falling under the “most popular price category” in that country. The proposal is to increase this to 63% of the weighted average price and the rate of €64 will rise to €90 for all cigarettes by 2014.

The commission also wants to give member states more flexibility in tobacco taxation by abolishing the existing rule that bans member states from setting a minimum excise tax higher than 100% of the total excise on the most popular price category.

The commission also wants to widen the excise duty band from 5% — 55% to 10% — 75%.

Ireland currently levies excise duty amounting to 61.3% on cigarettes that gives the state coffers €227.32 per thousand cigarettes from the total price of €372.50.