E-cigarette tax sets scene for EU lobbying war

EU countries are preparing to tax e-cigarettes under the same regime as normal cigarettes, in a move likely to increase prices and to prompt a fight among corporate lobbyists in Brussels.

Last Friday (26 February), member states’ ambassadors agreed to take the first step by asking the European Commission to draft an “appropriate legislative proposal” in 2017.

The project is to be endorsed without further discussion when the bloc’s finance ministers meet on 8 March.

The ministers’ draft conclusions said that e-cigarettes, as well as other “novel” products that use steam instead of smoke to put nicotine into people’s lungs, could cause “inconsistencies and legal uncertainty” in the single market if they remained exempt from excise tax.

They also said excise duties or some “other specifically designed tax” on novel tobacco could help meet “public health objectives”.

They added that work on the new tax regime should be “intensified” if “the market share of such products show a tendency to increase”.

Prices 'will rise'

Global e-cigarette sales were about €7.5 billion last year. But analysts predict they will grow to €46 billion by 2025 or 2030.

Under existing rules, all EU countries must impose an excise tax of at least 57 percent on tobacco products, but most impose only VAT on e-cigarettes at a level of about 20 percent.

In the UK, where it is known as “sin tax” because it targets people’s bad habits, the excise and VAT burden sees the state collect £6.17 every time someone pays the recommended retail price of £7.98 for a pack of 20 premium-brand cigarettes.

The excise income alone is worth €15.5 billion a year.

One EU official said on Monday (29 February) it was “self-evident” that the price of e-cigarettes would go up if the commission went ahead. A second official said it was “too early to say what effect the review” of excise rules might have on prices.

The draft conclusions noted that the commission was not obliged to go ahead. But the draft text said they would want “reasons” if it did not act.

With several EU capitals still struggling to balance the books, the commission in a report in December also said e-cigarette taxes could have “significant long term budgetary implications” for national treasuries.

Lobbying war

One of the EU officials said the next steps would be “to undertake studies, carry out impact assessments, [and] a public consultation”, setting the stage for a new lobbying war in Brussels.

The last time the EU regulated e-cigarette sales, in 2014, big tobacco firms led by Philip Morris International (PMI) tried to dilute legislation on grounds that they help people to quit smoking.

They did it because they were buying up e-cigarette makers to protect their profits.

E-cigarette firms joined them in what Olivier Hoedeman, from Corporate Europe Observatory (CEO), a Brussels-based pro-transparency NGO, called an “angry” campaign with “very strong emotions”.

One MEP at the time got an email saying she would be “finished” if she talked down e-cigarettes.

EUobserver received emails saying it would be responsible for smokers’ deaths if it published stories giving credence to claims that e-cigarettes are bad for your health.

On the other side, pharmaceutical giants such as GlaxoSmithKline lobbied for tougher EU rules on the grounds that e-cigarettes encouraged young people to start smoking.

They did it because they make nicotine gums and patches, which compete with e-cigarettes for people trying to give up. But gums and patches are regulated under more exacting EU medical product standards.

They were joined by companies such as Trierenberg-Gruppe, the world’s top producer of cigarette papers.

More research needed

Public health advocates such as Cancer Research UK and the European Heart Network accused the corporate lobbyists of ignoring science.

Most health NGOs do not have a position on e-cigarettes because they are too new for conclusive research on long-term benefits and risks.

The European Network for Smoking and Tobacco Prevention, a Brussels-based group, is calling for tougher EU rules.

But its spokesman, Dominick Nguyen, on Monday told EUobserver: “This is not about being for or against e-cigarettes, but [about] encouraging research and provision of evidence on e-cigarettes in order to make the right informed decisions.”

Commenting on the “public health objectives” of the excise tax project, CEO’s Hoedeman said: “It would be quite awkward to put e-cigarettes in the same category [as normal cigarettes] if the science isn’t there yet”.

PMI was not available for comment on Monday. GlaxoSmithKline declined to comment.

According to their public declarations, PMI spent up to €1.5 million lobbying EU officials in 2014. GlaxoSmithKline spent up to €2 million.