PURPOSE: to amend
provisions relating to the structure and rates of excise duty applied to
manufactured tobacco.
PROPOSED ACT:
Council Directive.
BACKGROUND:
smoking remains the biggest single form of avoidable death in the Community
and one of the leading causes of morbidity and morality in the EU. The
Community records around 650 000 smoking-related deaths every year. Taxation
forms part of an overall strategy of prevention and dissuasion. According to
the World Bank price increases of tobacco products are the single most
effective intervention preventing smoking. A price increase of 10% decreases
consumption, on average, by about 4% in high income countries among adults.
A number of EU
tax provisions, dating back to 1993, exist that seek to reduce the amount of
smoking. In accordance with these provisions the Commission has held a
four-yearly review of existing legislation. In July the Commission presented
a fourth such report suggesting a number of significant amendments to
existing Community legislation in order to modernise the existing rules and
to ensure a level playing field for tobacco manufacturers and operators.
In accordance
with the current system established by Council Directive 92/79/EEC on the
approximation of taxes on cigarettes and Council Directive 92/80/EEC on the
approximation of taxes on manufactured tobacco other than cigarettes, the
European Commission is required to examine every four years the smooth
operation of the single market, the real value of excise-duty rates and the
wider objectives of the Treaty.
CONTENT: this
proposal for a Directive suggests a number of important amendments to
existing Community legislation in order to modernise and simplify the
existing rules, make them more transparent and better integrate public health
concerns. In addition, it also deals with the alignment of excise duties for
fine-cut smoking tobacco ("roll-your-own") with excise duties for
cigarettes.
The proposed
amendments are the result of an in-depth examination conducted by the
Commission. The conclusions of this examination are set out in the attached
Commission report.
Based on the
above, the Commission makes the following proposals:
- to
abolish the "most popular price category” (MPPC) as a reference
point for EU minimum requirements on excise duties and for measuring the
importance of specific excise duty within the total tax burden: currently, excise duties levied on cigarettes must account
for at least 57% of price, and must be at least EUR 64 per 1000
cigarettes, for products falling under the "most popular price
category" in that country. The Commission proposes replacing
the most popular price category with a weighted average price of all
cigarettes for determining the tax base. In order to underscore health
objectives it will be combined with a monetary minimum tax applicable to
all cigarettes;
- to
increase gradually the minimum requirement for cigarettes in line with
internal market objectives and health considerations: the current percentage of 57% will be increased to 63% of
the weighted average price and the rate of €64 will rise to EUR 90 for
all cigarettes by 2014, under the new proposal. It is estimated that
this will contribute to a 10% decrease in tobacco consumption in most
Member States within the next 5 years;
- to allow
Member States greater flexibility to apply specific duties and to levy
minimum excise duties on cigarettes: the
Commission proposes to abolish the existing rule which forbid Member
States to levy a minimum excise tax higher than 100% of the total excise
on the most popular price category. Furthermore, the Commission proposes
to widen the band of the specific component of the excise duty from 5% -
55% to 10% - 75%;
- to bring
gradually the minimum rates for fine-cut tobacco intended for the
rolling of cigarettes into line with the rate for cigarettes: it is proposed to introduce a compulsory monetary and
ad-valorem minimum requirement for fine-cut tobacco. In order to respect
a two thirds relationship between fine-cut and cigarettes, the monetary
minimum requirement should be fixed at EUR 43 per kilogram and the
proportional minimum requirement at 38%;
- to adjust
for inflation the minimum requirements for tobacco products other than
cigarettes and fine-cut tobacco intended for the rolling of cigarettes: the rate of inflation between 2003 and 2007 can be
estimated at around 2% a year or at 8% over the period as a whole.
Applying this percentage to the minimum specific amounts and rounding up
to the nearest unit gives EUR 12 for cigars and cigarillos and EUR 22
for other smoking tobacco;
- to amend
the definition of cigarettes, cigars and other tobacco products and
monitoring the arrangements for tobacco taxation: for cigars and cigarillos, the proposal amends the
definition of these products, so as to ensure that the lower minimum
rate is restricted to "traditional cigars and cigarillos". The
definition of pipe tobacco will also be adapted to better differentiate
between pipe tobacco and fine-cut tobacco, as a number of Member States
have reported tobacco being sold as pipe tobacco when its primary
purpose is for hand-rolling or tubing of cigarettes.