It’s now all but certain that the European Union will impose a tax on vaping products in the future, after the Council of the EU on Tuesday “approved conclusions setting out political guidance and priorities” on tobacco taxation, and asked the European Commission for legislative proposals.
The Council of the EU, or EU Council, is a forum in which ministers from EU member states plan legislative priorities. The European Commission (EC) is the executive branch of the EU. It carries out the wishes of the EU Council.
The Council says that it is “urgent and necessary to upgrade the EU regulatory framework, in order to tackle current and future challenges in respect of the functioning of the internal market by harmonising definitions and tax treatment of novel products (such as liquids for e-cigarettes and heated tobacco products), including products, whether or not containing nicotine, that substitute tobacco….”
Harmonizing means that countries agree to adopt the same product standards and minimum tax levels for each kind of product. A harmonized taxation system is intended to reduce or eliminate incentives for smuggling or illegal manufacture. Theoretically, if all governments (and businesses) operate with the same rules and standards, businesses in some countries won’t gain advantages over the others.
Vapers weighed in on the taxation issue in large numbers, with most strongly opposed to a tax.
The European Union included vapor products in its Tobacco Products Directive (TPD) in 2016, regulating (and harmonizing) product standards and advertising rules. The decision was made at that time to leave taxation up to individual countries for the time being, until an overhaul of the Tobacco Excise Directive (TED) was done.
In January 2018, the EC announced it would further delay a decision on taxing vapes until a major review of the TED, which hadn’t been updated since 2011, was completed. The commission said it needed more data on the vaping market before making further decisions about taxes. From May to September of that year, the EC’s taxation policy arm, the Taxation and Customs Union (DG TAXUD) opened a public consultation to gather opinion on imposing an EU-wide tax on vapes, and soon after began studying the issue in earnest.
Vapers weighed in on the taxation issue in large numbers, with most strongly opposed to a tax. Of more than 11,000 public comments, 96 percent were from individuals, and the Commission notes that “The high rate of response among individual citizens is primarily due to the massive participation of e-cigarettes consumers.”
The February 2020 EC evaluation, released less than a month after the United Kingdom left the EU, noted that “the widespread concern among e-cigarettes stakeholders and consumers about the possible adverse effects of e-cigarettes taxation should be noted, although a significant share of operators would seemingly support a harmonised definition with no minimum rate attached to it.”
As it stands now, only two of the 10 biggest individual economies in the EU—Italy and Sweden—have a tax on vaping products.
The EC recommended updating the policy to include novel nicotine products like vapes in the “harmonized” EU-wide tobacco taxation scheme. That brings us to now, with the Council of the EU asking the European Commission to draft actual legislative proposals for harmonized taxation of all tobacco products, including vapes.
Twelve of the 27 EU member states currently have some kind of tax on vaping products. Additionally, Poland is scheduled to begin collecting a tax on July 1, and Croatia has a tax on the books, but it’s currently set to zero. Most countries have per-milliliter e-liquid levies, ranging from Italy’s €0.08 (€0.04 for zero-nicotine e-juice) to €0.30 in Finland and Portugal. (One Euro—€1—is currently equal to $1.13.)
The countries of the EU, even without the U.K., collectively make up the second-largest economy in the world. “Harmonizing” EU vaping taxes means, above all, extracting new revenue from vapers in the large EU countries that have no existing tax.
As it stands now, only two of the 10 biggest individual economies in the EU—Italy and Sweden—have a tax on vaping products (Poland is set to institute a tax on July 1). And while Italy does have a modest e-liquid tax, most of the largest, most economically powerful countries in the EU have no tax at all. That includes four of the five biggest EU economies—Germany, France, Spain, and the Netherlands. Those four countries make up nearly half of the entire 27-country EU’s gross domestic product.
It would be a farsighted politician indeed who is willing to trade the substantial revenue of cigarette taxes now for the promise of reduced medical costs much later—decades in the future.
The large EU countries have successful vaping markets. The EU is watching a significant portion of its cigarette tax revenue disappear as smokers turn to vaping, and in most cases go on to contribute nothing to the balance sheet except VAT (value added tax, which is sales tax) and their improved health. From a tax collector’s point of view, this is a problem to be remedied.
But from a harm reduction standpoint, the only tax on low-risk products that makes sense is no tax—or at least a tax that is so low it’s barely noticed by the consumer. Anything larger would create a financial roadblock to widespread vaping adoption by price-sensitive smokers. The value to the state of differential taxation—which rewards consumers who choose less harmful products with lower taxes—is the future savings in healthcare costs when large numbers of citizens trade cigarettes for vaping products.
That would be a wise choice, but it seems unlikely. It would be a farsighted politician indeed who is willing to trade the substantial revenue of cigarette taxes now for the promise of reduced medical costs much later—decades in the future. It’s more likely the European Commission will cover its bets by choosing a significant minimum tax that, while lower than the levy on cigarettes, will still be painful to many consumers—and may discourage many from vaping. Of course, individual countries are allowed to have a higher tax than what the EU imposes—but not a lower one.
The answer is probably many weeks or months away, as the EC studies the issue further and deliberates. One thing is certain: once a tax is imposed, vapers in the EU will never again not pay a tax.
Smokers created vaping without any help from the tobacco industry or anti-smoking crusaders, and vapers have the right to keep innovating to help themselves. My goal is to provide clear, honest information about the challenges vaping faces from lawmakers, regulators, and brokers of disinformation. I recently joined the CASAA board, but my opinions aren’t necessarily CASAA’s, and vice versa. You can find me on Twitter @whycherrywhy
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