July 11, 2006

Tobacco taxation in the European Union

Later this year, the European Commission has to submit a report to the Council of Ministers and the European Parliament with its views on tobacco tax policy in the EU.

A 2004 publication issued by the Commission expressed the beliefs that tobacco consumption should be controlled by increasing tobacco excises and that harmonisation should proceed on the basis of specific rates. This paper reviews and evaluates EU tobacco tax policies. It supports the move towards specific taxation, but notes that there are conceptual and empirical limits to excessively high tobacco taxes. Smokers appear to pay their way and cigarette smuggling is a growing menace to health and revenue objectives.