Europe is preparing for a new increase in tobacco taxes: an expert spoke about the consequences for Ukraine
Discussions regarding the revision of the tobacco taxation system in the European Union have been going on for more than a year. From 2022, the process of preparing new rules continues, designed to adapt the outdated Directive 2011/64/EC to the modern market, where new nicotine-containing products have appeared, and the fight against smoking is increasingly linked to fiscal instruments. The discussion of these changes is caused not only by the need to equalize the level of tax burden between countries, but also by the need to unify the rules for all tobacco products, both traditional and electronic.
Tax and customs policy expert Vyacheslav Cherkashin considers, that the European Union is close to adopting a new edition of the Tax Directive, which provides for significant changes in rates and approaches to taxation of tobacco products. He notes that, in addition to the revision of the basic Directive 2011/64/EU, point amendments to Directive 2020/262/EU are also being prepared. The main innovation is a significant increase in the minimum excise tax on cigarettes. If today the minimum rate is 90 euros for 1,000 cigarettes, then in the new version of the document it is proposed to set the bar at the level of 215 euros. This means an increase of 139%.
Cherkashin emphasizes that the changes will affect not only ordinary cigarettes. The European Union intends to expand the scope of tax regulation to all new nicotine-containing products that have appeared on the market in recent years. These are electronic cigarettes, tobacco heating systems, and nicotine packets. All these products will be subject to the new minimum tax rates. At the same time, Swedish snus will remain outside the scope of the updated Directive, which already raises some questions in terms of legal symmetry.
According to Vyacheslav Cherkashin, a separate item that deserves attention is the inclusion of raw tobacco in the system of electronic control of the movement of excise goods within the EU. He explains that such a step will make it possible to strengthen control at the level of the production chain, prevent the use of unaccounted raw materials and partially limit the illegal market. For the absolute majority of EU countries, the proposed changes will mean a significant increase in retail prices for cigarettes. Only five countries – Belgium, Finland, France, the Netherlands and Ireland – will not be significantly affected, as they still have rates that exceed the new European “minimum”. In other member states, according to the expert, the retail price of cigarettes may increase by 1-2 euros per pack. This will significantly change consumer behavior and require business to adapt to new conditions.
The expert noted that according to the calculations of European officials, the projected increase in rates will allow to collect up to 15 billion euros of additional taxes every year, as well as to save about 6 billion euros of budget funds on the health care system. This argument plays an important role in the political justification of the changes, but it is not sufficient in itself for the uniform implementation of the new rules in all member states.
The expert pays special attention to the situation in Ukraine. He points out that according to Law No. 4115, our country plans to reach those minimum excise rates that were in force in the EU before the start of the current revision only by 2028. This means that reforms in the European Union pose a new challenge to the Ukrainian tax system. Cherkashyn predicts that the revision of European rates will be a factor of additional pressure on Ukrainian lawmakers and will lead to an even more intense increase in excise taxes in Ukraine in 2026-2028.
According to Vyacheslav Cherkashin, such a development will have a direct impact on the structure of the tobacco market in the country. First of all, we are talking about the risk of a new jump in cigarette prices. Given the purchasing power of the population and growing fiscal pressure, the expert predicts a significant revival of the shadow segment — in particular, in the border regions, where consumers are already switching to illegal products on a large scale. In the future, this may have not only economic, but also criminogenic consequences.
Vyacheslav Cherkashin emphasized that it is extremely important for Ukraine to take these factors into account when planning the excise policy for the coming years. Synchronization with European regulation should not be reduced to mechanical copying of rates. It is important to take into account the specifics of the national market, real incomes of the population, and existing infrastructural problems in the field of tobacco control. Without this, tax increases will not have the desired fiscal effect, but will only exacerbate the challenges that the state already faces.
