Several wealthy European Union member states have called on the European Commission to revive previously shelved plans to introduce a minimum tax threshold for electronic cigarettes and nicotine pouches, and to significantly raise excise duties on cigarettes, cigars, and cigarillos, according to the international media outlet Financial Times.
The newspaper notes that the proposals, originally considered in 2022, involved dramatic tax hikes: a 100% increase for cigarettes, 200% for roll-your-own tobacco, and even up to 900% for cigars and cigarillos.
One of the main advocates for this idea is EU Commissioner Wopke Hoekstra, who is pushing for a swift revision of the Tobacco Tax Directive. His initiative is mainly supported by the EU’s wealthier countries, where excise taxes on tobacco and nicotine products are already relatively high and which are suffering from rising smuggling and cross-border trade.
Proposal Faces Resistance
According to the European media outlet Euractiv, the proposal to raise tobacco taxes has met with criticism from countries with lower current tax levels, as well as from those that have made significant investments in the tobacco sector and are developing innovative, less harmful tobacco products. The Italian government stresses that the EU should not “deter investment in an innovative and fast-growing sector.” This position is supported by Greece, Romania, Luxembourg, and Hungary.
At the same time, many industry experts warn that sharp and inconsistent tax hikes could not only aggravate already high inflation but also drive up smuggling across Europe. Several analysts agree that Commissioner Hoekstra’s approach risks undermining unity among EU member states, as wealthier nations attempt to solve their fiscal challenges at the expense of less affluent countries.
Particularly contentious is the idea of significantly increasing taxes on new tobacco and nicotine products—e-cigarettes, heated tobacco, and nicotine pouches—which currently lack harmonized EU-level excise regulation.
Italy’s Deputy Prime Minister Antonio Tajani recently sent a letter to Commissioner Hoekstra requesting clarification on his tax-related initiatives. In the letter, obtained by Euractiv, Tajani argues that alternative tobacco products should not be taxed at the same rate as traditional cigarettes. He also calls for “constructive dialogue” with the European Commission to avoid creating the impression that the EU is hindering investment in a growing and innovative industry that also plays an important role in employment in several member states.
Notably, in the Netherlands—Commissioner Hoekstra’s home country—such changes would not significantly alter the situation, as tobacco taxes have already been raised substantially, and the country is already experiencing the negative consequences. Similar experiences are reported in Belgium and France, where recent sharp tax hikes have led to the highest levels of illegal tobacco sales in the EU—up to 33%. Residents in these countries frequently purchase tobacco products in neighbouring states and express dissatisfaction with government policies. This is one reason why the Netherlands, France, and Belgium strongly support similar tax increases in other EU countries.
Concerns Over Rising Smuggling
Latvia currently ranks among the leading EU countries in terms of illicit cigarette consumption. According to a study by the research agency Nielsen, the illegal tobacco market in Latvia remains one of the highest in the EU, with illicit cigarettes accounting for 19.1% of the market.
Now may not be the right time to consider such measures, says Dr. Māris Jurušs, Professor of Economics at Riga Technical University (RTU). He notes that both Europe and Latvia currently face more urgent priorities. “Such a significant tax increase will undoubtedly cause additional pressure on society and on the administration and collection of taxes. It is highly questionable whether this would bring any positive outcome in Latvia, as it would increase risks related to tobacco distribution. We must consider that the market has already changed significantly, and, for instance, Latvia is currently struggling to enforce all existing restrictions. New measures will only raise tax collection risks,” says Jurušs.
“When it comes to tax hikes, the biggest beneficiaries are smugglers and illegal traders, as they gain additional profit opportunities. Law enforcement capacity in Latvia is very limited. We also do not have customs borders with EU countries, making it impossible to restrict cross-border trade, which is substantial. Moreover, cigarette production and distribution are much easier to control than those of alternative products, so the illegal trade in these newer products cannot be tackled using the same methods,” he explains. “Together with RTU students, we have studied the role of social media and networks in the illegal market. Distribution channels have become more sophisticated, versatile, and cunning. Under these conditions, catching illegal traders is virtually impossible. That’s why it would be unwise for Latvia to further crack down on alternative products,” says Jurušs.
He also emphasizes that the EU currently lacks a unified policy on alternative tobacco products, and this should be the primary focus—not the introduction of universally high excise tax rates. Instead, taxes should reflect the specific context of each country and the actual purchasing power of its residents.
A more forceful EU-wide crackdown on cigarettes—the most harmful tobacco product—is needed. However, in Latvia the situation is inverted: alternative tobacco products bear a heavier burden than traditional cigarettes. The explanation, Jurušs says, lies in the government’s drive for higher revenue. But in reality, this approach isn’t working, as the costs of control and enforcement continue to rise.