Pöördumine

Dokumendiregister	Rahandusministeerium
Viit	5-1/4884-2
Registreeritud	12.11.2025
Sünkroonitud	13.11.2025
Liik	Sissetulev kiri
Funktsioon	5 RIIGI MAKSU- JA TOLLIPOLIITIKA KAVANDAMINE JA ELLUVIIMINE
Sari	5-1 Kirjavahetus maksu- ja tollipoliitika ning riigilõivu osas (Arhiiviväärtuslik)
Toimik	5-1/2025
Juurdepääsupiirang	Avalik
Juurdepääsupiirang
Adressaat	British American Tobacco
Saabumis/saatmisviis	British American Tobacco
Vastutaja	Erle Kõomets (Rahandusministeerium, Kantsleri vastutusvaldkond, Finants- ja maksupoliitika valdkond, Maksu- ja tollipoliitika osakond)
Originaal	Ava uues aknas

Dokument on kokkuvõtte tegemiseks liiga mahukas (60165 tm).

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British American Tobacco_TED consultation_response_2025.pdf

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British American Tobacco_TED consultation_response_2025.pdf

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British American Tobacco_TED consultation_response_2025.pdf

Submission to the consultation on the European Commission’s proposal for revising the EU Tobacco Excise Directive We appreciate the Commission’s recognition of emerging nicotine product categories and their inclusion in the

European Commission’s proposal for revising the EU Tobacco Excise Directive (the ‘TED’), adopted on 16th July

2025.

There are, however, several serious flaws in the proposal.

First, the proposed increases to existing minimum duty rates are excessive and would be disproportionately

harmful to Member States in the eastern and southern regions of the EU.

Second, the proposal critically fails to reflect the reduced risk profile of heated tobacco, e-cigarettes and nicotine

pouches when compared to combustible tobacco, such as traditional cigarettes; a glaring omission given the

purpose of the Directive is to promote a high level of health protection in addition to ensuring the proper

functioning of the Internal Market.

Third, the approach proposed for heated tobacco and vapour products is overly complex. It would bring an

unnecessary burden and cost to Member States in the administration of the taxes on those products.

And, last but very much not least, the Commission’s proposal would, in several areas, significantly infringe on the

sovereignty of Member States to retain the right to set taxes as they see fit in their own countries. To address

these shortfalls, material revisions to the current proposals are needed.

–––––––––––––––––––––––––––

The Tobacco Excise Directive (the ‘TED’) defines and classifies various traditional tobacco products, such as

cigarettes, and lays down the relevant minimum rates and structural requirements Member States must abide

by in their national legislation.

Its purpose is to ensure the proper functioning of the Internal Market and a high level of health protection.

The European Commission adopted a proposal for a recast of the TED on 16th July 2025.

There are several fundamental flaws in the European Commission’s proposal for revising the TED.

The proposal will, as such, require substantial revisions before it is enacted:

1. Tax rates do not need to be equalised across the EU to enable the effective functioning of the Internal Market.

2. The minimum excise duty on cigarettes proposed by the Commission, of €215 per 1,000 pieces, is excessive.

It will damage excise revenues in several Member States. It would substantially increase the risk of a massive

increase in illicit tobacco from outside the EU. And it would infringe the sovereign right of Member States

in the east and south of the EU to set domestic excise duty rates at an appropriate level.

3. The proposal to increase the minimum excise incidence on cigarettes from 60% to 63% will make no positive

contribution to harmonizing excise rates across Member States. The minimum excise incidence requirement

on cigarettes should either be kept at 60% or, better still, dropped from the TED entirely.

4. The proposal to adjust the increased excise rates by only a third of each Member State’s cost of living index

is arbitrary and, consequently, fundamentally flawed. Excise rates should be either adjusted in full for each

country’s relative purchasing power (with individual Member States being able to opt out of the adjustment),

or no PPP adjustment should be made at all.

5. We support the Commission’s proposal for a harmonized excise on heated tobacco1, vapour products2 and

nicotine pouches. But the rates should reflect the reduced risk profile of these products compared to

combustible tobacco.

6. While we support the Commission’s proposal for a harmonized excise for heated tobacco in the EU, the

proposal for the minimum excise to be levied per KG or per stick or as a percentage of the price is unduly

complicated. It would be much simpler to impose a minimum excise only on the weight of tobacco in the

product, at €110 per KG.

7. A harmonized excise for vapour products is needed in the EU. However, the Commission’s proposal for

excise rates to be tiered by nicotine strength is unenforceable in practice, will lead to unjustifiable complexity

in excise administration, and will create an additional illicit vapour problem in the EU.

8. The Commission’s proposal for a minimum excise for nicotine pouches of €143 per KG is excessive. It fails

to take proper account of the reduced risk profile of this product compared to combustible tobacco. And,

critically, it would overrule the sovereign right of Member States – including Sweden, the EU’s most

successful country in achieving a smokefree status – to set excise rates in a way they consider appropriate

to continue to achieve their policy objectives.

9. The proposed product definitions are vague and open to interpretation. They would, if included in EU

legislation, create legal uncertainty for economic operators. This ambiguity would, in turn, create a material

risk of an inconsistent excise treatment of the same products by customs and excise authorities across

different Member States.

10. We recognise the importance of implementing a monitoring system to improve oversight of raw tobacco

flows. However, the definition proposed by the Commission is ambiguous. To effectively differentiate

between green leaf (which should not be subject to a harmonized monitoring system) and semi-processed

tobacco (which should be monitored), the different forms of semi-processed tobacco should be clearly

defined. Additionally, no minimum excise requirements should be established solely for the purpose of

monitoring raw tobacco flows.

11. The delegated powers to the Commission should either be deleted or be limited to non-essential elements

of the Directive (i.e. inflation adjustments mechanism only) in line with Article 290 of the Treaty on the

Functioning of the European Union (‘TFEU’).

12. The Commission fails to assess the impact of its proposal on a range of stakeholders in its Impact Assessment,

such as retailers and tobacco growers.

In the rest of this document, we provide further details to explain each of these points.

1 Throughout this submission, ‘heated tobacco’ means tobacco (or reconstituted tobacco) that is heated (other than via a waterpipe) to produce an emission containing inter alia nicotine which, given its properties and normal consumer expectations, is intended to be inhaled by user(s) without any combustion process. Products which consist in part of substances other than tobacco but otherwise fulfil these criteria would also be treated as tobacco for heating in the context of the TED. This is aligned to the approach currently taken for cigarettes and fine cut tobacco in the TED. 2 Throughout this submission, we use the terms ‘e-cigarettes’ and ‘vapour products’ interchangeably, in line with common descriptions of these products.

1. It must be recognised that tax rates do not have to be equalised across the EU to enable the effective

functioning of the Internal Market.

The European Commission thinks that a large increase in the minimum excise rates on cigarettes and other

tobacco products is needed to facilitate convergence in the tax rates applied in Member States.

However, differences in the taxes on products and services between Member States are not a sign that the

Internal Market is not functioning properly. There is no doubt, as shown in Figure 1, that the excise on cigarettes

currently varies considerably across EU Member States.

Figure 1 – Average cigarette excise burden across the EU, based on the average price of cigarettes

Source: European Commission’s Taxes in Europe Database, October 2025

Because of these cross-border tax differences, the average price of cigarettes in Ireland is c.160% higher than the

EU average (€207 per 1,000 units), whilst cigarette prices in Bulgaria are c.50% lower than the EU average.

However, this is not a signal that the Internal Market is somehow failing to operate effectively or that tobacco

taxes are interfering with its effective operation.

Critically, cigarette prices and taxes vary across EU Member States in much the same way as the prices of all

consumer goods and services and the taxes levied on them. For example, Eurostat3 reports that the price levels

of consumer goods and services in Denmark are 43% higher than the EU average, whilst the prices of all

consumer goods and services in Poland are 30% lower than the EU average.

Figure 2 – Comparative price levels of consumer goods and services in the EU (EU=100)

Source: Comparative price levels of consumer goods and services, Eurostat, October 2024.

3 Eurostat, Oct 2024, Comparative price levels of consumer goods and services (https://ec.europa.eu/eurostat/statistics- explained/index.php?title=Comparative_price_levels_of_consumer_goods_and_services#Overall_price_levels).

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Differences in income levels and economic conditions across EU Member States can be – and, indeed, are –

reflected in large differences in prices of goods and services. These price differences across EU Member States

in no way undermine the effective operation of the EU Internal Market. Rather, it demonstrates how a

competitive and well-functioning EU Internal Market does not require the price of any goods or services to be

equalised across EU Member States.

It follows that with such large differences in the price of goods and services throughout the EU Internal Market,

there is no reason for taxes to be equalised across the EU either.

In Figure 3, we apply the current standard VAT rates in each EU Member States to Eurostat’s comparative price

levels of consumer goods and services. This calculation provides an estimate of how the VAT levied on the

consumer goods and services typically bought in each EU Member States varies.

Figure 3 – Index of PLI adjusted VAT rates on consumer goods and services in the EU

Source – Calculated by applying current standard VAT rates as reported by the European Commission to Eurostat’s October 2024 comparative price levels of

consumer goods and services, EU average = 100.

It is clear from this chart that there is substantial variation in the VAT paid on consumer goods and services

typically bought in each EU Member States, as well as variation in the price of products and services across

countries.

Given current price and VAT rate differentials across EU Member States, people in Denmark pay 65% more VAT

(in Euros) for the goods and services they purchase than the EU average. People in Romania, in contrast, pay 47%

less VAT in Euros for the goods and services they purchase than the EU average.

The variation in the VAT burden on different EU Member States does not mean that certain countries (especially

those in Eastern Europe) somehow ‘under-tax’ goods and services compared to other EU countries. Neither is it

an indication that there is a problem with the effective operation of the EU Internal Market. Rather, it is simply

a reflection that differences in the prices of goods purchased across an economic union, and the taxes levied on

them, is entirely consistent with a properly functioning Internal Market.

We should not, then, be in any way surprised to observe a similar pattern when it comes to cross-country

differences in cigarette prices and taxes across the EU Member States. In short, there is no economic rationale

for the excise burden on tobacco products in nominal terms to be equalised across the EU.

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As Figure 4 shows, there is a strong positive correlation between the excise yield on cigarettes and the average

price levels of consumer goods and services in the EU.

Figure 4 – There is a strong positive correlation between the excise yield on cigarettes and the average price

levels of consumer goods and services in the EU

Source: European Commission’s Taxes in Europe Database, October 2025; PPP index based on Eurostat’s October 2024 comparative price levels of consumer

goods and services.

Cigarette taxes and prices tend to be higher in countries which the price of all products and services are higher.

And cigarette taxes and prices tend to be lower in the countries in which the price of all products are services

are lower.

Figure 5 shows the same information as in Figure 4 but with PPP adjusted, average excise rates.

Figure 5 – Comparison between nominal and PPP adjusted cigarette excise rates in the EU

Source: European Commission’s Taxes in Europe Database, October 2025; PPP index based on Eurostat’s October 2024 comparative price levels of consumer

goods and services.

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It is apparent that:

• when cigarette excise yields are PPP adjusted to account for cross-country differentials in the price of all

goods and services4, the excise on cigarettes in the Eastern European countries is in line with the EU average);

and

• even after a PPP adjustment, there remains a minority of countries – notably, Ireland, Netherlands, France,

and Finland – that set excise rates well above the rates set by most other EU Member States (and, in doing

so, substantially distort the EU average).

The evidence demonstrates that because differences in incomes and other socio-economic factors between EU

Member States result in large cross-country price differentials for all consumer goods and services, there is no

economic rationale for the excise burden on cigarettes in Euros, or their prices, to be equalised across the EU.

It is critical, in light of the fundamental economics of indirect taxation in the EU, and what this means vis-à-vis

the operation of the Internal Market, that the Commission’s proposed revisions to the TED respects the

sovereignty of Member States to retain the right to set taxes as they see fit in their own country.

In particular, it is essential that:

1. the power to tax remains primarily in the hands of the Member States;

2. EU tax policy is geared only towards the smooth running of the Internal Market and reflects the evidence

shown above – otherwise, the power to introduce, remove or adjust taxes must remain in the hands of the

Member States and provided it complies with EU rules, each Member State should be free to choose the tax

system it deems most appropriate;

3. there should be no requirement that the level of taxes (i.e. tax rates) should be equalised across the EU

(since this is, in no way, required to facilitate the effective functioning of the Internal Market);

4. there should not be a policy of upwards harmonization policy of the duties on tobacco and alcoholic products,

through the constant raising of minimum taxation levels – it is not appropriate for the highest taxed Member

States to demand that lower income Member States increase their taxes to keep up with the likes of Ireland,

France, the Netherlands, Finland and Belgium; and

5. differing policies regarding the setting of levels of duties do not in themselves constitute a barrier to the

internal market.

2. The minimum excise duty on cigarettes proposed by the Commission – of €215 per 1,000 pieces – is

excessive. An increase to €155 per 1,000 cigarettes would be more acceptable.

Consumers in lower income Member States in the east and south of the EU would be especially hard hit by the

Commission’s proposal.5

Workers in Bulgaria earn two-thirds less than the EU average wage. The average salary of employees in Greece,

Hungary, Poland, Romania and Slovakia is less than half of what the typical EU worker earns. And Czechian,

Estonian, Croatian, Latvian and Portuguese consumers earn thirty to forty per cent less than the EU average.

In stark contrast, consumers in higher income countries can earn more than double the European average.

4 Which is generally aligned to differences in income levels and other economic conditions between Member States. 5 This analysis assumes full tax pass-through to estimate the impact of excise changes on EU prices. The analysis uses official EU data at an aggregate level and is for analytical purposes only - Taxes in Europe Database v4 - Search Tax (Simple). It does not reflect any manufacturer’s future pricing intentions or any other change other than tax impact. .

Figure 6: TED impact on current cigarette prices if the min. excise on cigarettes is increased to €215 per 1,000

units, with a partial 1/3 PPP adjustment

Source: European Commission’s Taxes in Europe Database (WAP refers to year 2024) and BAT estimates (see footnote).

The Commission’s proposal is an excessive increase in tax rates that will place unnecessary strain on millions of

EU consumers at a time they are still recovering from the cost-of-living crisis triggered by spiralling global food

and energy prices.

An increase to €155 per 1,000 cigarettes – in line with figures in the Commission’s own calculations – would be

far more acceptable to the less affluent Member States in the east and south of the EU, and their consumers.

These EU countries must be allowed to continue to set domestic excise duty rates at a level appropriate to their

own economic and social conditions.

It is wrong for higher income EU countries to attempt to infringe the sovereign right of lower income countries

and force them to align to tax rates suitable for consumers in the west of Europe with much higher household

income levels. It is not the purpose of the Internal Market or the Tobacco Excise Directive to force all other

Member States to catch up with countries that have increased their own excise duty rates so rapidly that they

have become out of step with the majority of the EU. A more balanced, and fair, approach to the TED revision is

called for.

Not only that, the proposed minimum excise on cigarettes would certainly fail to deliver the extra tax revenues

projected by the Commission. This is, not least, because its forecasts are based on erroneous assumptions that

contradict not only the analysis undertaken by its own economic consultants, but also the evolution of tax

revenues since the TED was last revised.

The Commission proposal has suggested that the proposed increase in the minimum rates would generate €13.9

billion in additional revenue.

The key parameter underpinning this calculation is the Commission’s assumption about ‘the price elasticity of

demand’ (or ‘PED’) for cigarettes6.

The Commission’s calculations are based on a flawed assumption about the PED for cigarettes in the EU.

6 The own-price elasticity of demand for a product is defined as: the percentage change in demand for product X divided by the percentage change in the price of product X. Since demand tends to fall when prices rise, the own-price elasticity of demand for any product or service can be expected to be a negative number. When the own-price elasticity is between zero and minus one, the product is said to be price inelastic – that is, demand is relatively unresponsive to price. For example, an own-price elasticity of minus zero point five means that a 10% increase in price would lead to a 5% reduction in demand, all else equal. When the own-price elasticity is below minus one, the product is said to be price elastic – that is, demand is relatively responsive to price. For example, an own-price elasticity of minus two means that a 10% increase in price would lead to a 20% reduction in demand, all else equal. The price elasticity of demand for cigarettes is, therefore, a key parameter for understanding whether a tax rate increase on cigarettes is likely to increase in tax revenues.

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Current WAP, per pack of 20 units TED Impact on RSP, per pack of 20 units

The Commission’s economic impact assessment estimated7 that the PED for the tobacco market as a whole in

the EU is around -0.54. This was based on an econometric study by Economisti Associati, apparently bolstered

by a review of several external papers.

This price elasticity estimate was used to calculate the likely economic impact of the Commission’s proposed

increase in the minimum excise on cigarettes.

But this is flawed for several reasons.

The -0.54 estimate relates to tobacco products as a whole, not to cigarettes. Economisti Associati modelled the

demand for cigarettes as part of a wider study of tobacco demand.8 They report estimates of the PED for

cigarettes in the EU range between -0.962 and -1.093.9 Using an estimate PED of -0.54 will inevitably, therefore,

substantially overstate the positive revenue impact of the EC proposal.

In addition, with a PED of -0.54 it fails to reflect the evolution of the EU cigarette market since the TED was last

revised.

As reported by a recent paper by Frontier Economics ‘The price elasticity of demand for cigarettes in the EU’, the

EC’s own data show that a total of €64.9 billion in excise revenues was generated from the sale of 548 billion

cigarettes across the whole of the EU in 2011. In 2023, €70.0 billion of excise revenues were collected from a

much smaller 393 billion cigarettes sold.

On the face of it, 7% more excise revenues were collected in 2023 than they were a decade before but from 29%

fewer cigarettes sold.

But it is well accepted good practice to look at any economic data in ‘real terms’ i.e. by adjusting prices and

revenues for inflation. When this adjustment is made, EU cigarette excise revenues, in fact, fell in real terms by

around 20% between 2011 and 2023. The 29% decline in the number of cigarettes released for consumption

between 2011 and 2023 more than offset the increase in the average excise on cigarettes (in real terms).

It would, then, appear counterintuitive to assume that cigarette demand in the EU is price inelastic. Consistent

with the Economisti Associati estimate of the PED for cigarettes in the EU of between -0.962 and -1.093.

The Commission’s Impact Assessment, therefore, massively overestimates the additional tax revenues that

would be collected from its proposed increase in the minimum excise on cigarettes. If the evolution of tax

revenues since the last revision of the TED is repeated – which followed a smaller tax hike than the one currently

being proposed – Member States will lose tax revenues, not find their tax revenues increases by over €13.9 bn

annually.

This is, not least, because the Commission’s proposed massive tax increases on cigarettes would elevate the risk

of a significant increase in illicit trade from outside the EU. A new KPMG report finds that one in ten cigarettes

consumed in the EU are counterfeit or contraband, evading domestic duties in the Member States in which they

are consumed, costing €15 billion in lost tax revenues. The Commission’s proposal would make this situation

even worse.

For all these reasons, we consider the evidence strongly shows that minimum excise duty on cigarettes proposed

by the Commission – of €215 per 1,000 pieces – is excessive.

7 Volume 1 of the European Commission’s study on revising the Tobacco Excise Directive published in 2019. 8 European Commission (January 2019) – ‘Study on Council Directive 2011/64/EU on the structure and rates of excise duty applied to manufactured tobacco, Final Report, Volume 3 – Annexes’. 9 Depending on the model specification used, Economisti's reported estimates of the price elasticity of demand for tobacco products in the EU range between -0.39 and -0.64 instead.

An increase to €155 per 1,000 cigarettes would be more acceptable given prevailing economic conditions in the

Member States.

Between January 2014 and the time of writing, consumer prices have increased by c.33% (as measured by

Eurostat’s Harmonised Index of Consumer Prices, or ‘HICP’, for all items) for the EU 27 Member States10.

If the minimum excise on cigarettes of €90 per 1,000 units that became applicable on January 2014 were

increased in line with the price of all goods and services in the EU, then the rate at the time of writing would be

just under €120 per 1,000 units.

2014 2025 2028

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According to the Commission’s proposed timetable, it will not be until 2028 that any new minimum excise on

cigarettes becomes applicable11 . Consumer prices in the EU will continue to go up between now and then.

Assuming consumer prices in the EU rise in line with the European Central Bank’s projections for the euro area12,

then adjusting the minimum excise on cigarettes by inflation would result in a rate of around €127 per 1,000

units.

Therefore, setting the minimum excise on cigarettes of €155 per 1,000 units would more than fully adjust for the

increase in prices between January 2014, when the last EU minimum excise rate was implemented, and the time

at which the new rate is intended to come into force.

It would do so in a way that places less stress on those Member States (especially in the east and south of the

EU) with lower excise rates now, and with greater risk of illicit trade from outside the EU.

But, at the same time, it will continue to allow those Member States that already levy a higher excise to exercise

their fiscal sovereignty by setting higher rates if they so wish.

This would represent a fair approach, aligned to the effective operation of the Internal Market (the fundamental

objective of the TED itself).

10 Eurostat, All-items HICP, HICP - monthly data (index) [PRC_HICP_MIDX__custom_3381903] data. 11 The European Commission’s proposal was published in December 2022. However, as with all Tax Directives in the EU, the Commission’s proposal must be agreed unanimously by all 27 Member States. In the previous revision to the TED, after the Commission made its proposals in July 2008, it took a further two- and-a-half years for the Member States to unanimously agree on the final document and for it to then be transposed into domestic law. 12 https://www.ecb.europa.eu/pub/projections/html/ecb.projections202209_ecbstaff~3eafaaee1a.en.html#toc7 for the period 2022 to 2024 and then assuming that HICP inflation reverts to the 2% target thereafter.

3. The Commission’s proposal to increase the minimum excise incidence on cigarettes from 60% to 63% will

make no positive contribution to harmonizing excise rates across Member States.

The Commission proposed increasing the minimum excise incidence from 60% to 63% of the price of cigarettes.

However, the evidence clearly shows that setting a minimum excise incidence plays absolutely no role in

facilitating tax harmonization in the EU.

Some countries with a similar excise incidence have a fundamentally different excise per cigarette in Euros. Both

Ireland and Greece have an excise incidence of c.66% of the price of cigarettes, on average. But Ireland’s excise

per cigarette in Euros is four times higher than it is in Greece.

Aligning excise as a % of the retail price plays no part in harmonising taxes paid in currency terms.

Similarly, there is a group of countries with similar levels of cigarette excise in Euros but with very large

differences in the excise when expressed as a percentage of the retail price.

There is, in short, no compelling rationale for maintaining a minimum excise incidence at all.

Increasing the minimum excise on cigarettes will, thus, play absolutely no role in harmonising excise across the

Internal Market.

Figure 7: There is no relationship between the excise incidence and excise yield on cigarettes

Source: EU Commission Excise Duty Tables for Manufactured Tobacco

The Commission’s proposed increase from 60% to 63% will, however, have a disproportionate negative impact

on Germany, Hungary, Luxembourg, Sweden, Cyprus and Croatia, forcing them to substantially change their

existing fiscal policies on tobacco products (with no corresponding benefits arising from making them do so).

This cannot be justified and minimum excise incidence requirement for cigarettes should be either removed from

the TED or retained at the current 60% level.

4. The Commission’s proposal to adjust the increased excise rates by a third of each Member State’s cost of

living index is fundamentally flawed. Excise rates should be either adjusted in full for each country’s relative

purchasing power (with individual Member States being free to opt out of the adjustment), or no PPP

adjustment should be made at all.

The Commission acknowledges that the massive increase in excise rates it has proposed would

disproportionately hit lower income Member States in the east and south of the EU.

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Countries with a similar excise incidence but varying excise yield

To compensate, it has also proposed that the minimum excise duties in the TED should be adjusted by a third of

each Member State’s cost of living index.

But this proposal is fundamentally flawed and does not go far enough.

It would not – by a long way – address the problem of lower income Member States being disproportionately

affected by the increase in cigarette excise duties. Countries including Bulgaria, Greece, Hungary, Poland,

Romania, Slovakia, Czechia, Lithuania, Estonia, Croatia, Slovenia, Spain, Italy and Portugal would still be forced

to implement massive tax increases that would damage tax revenues and accelerate an illicit trade problem.

There are two choices that, in principle, would make logical and economic sense.

One, that EU minimum rates applicable in each Member State are adjusted in full for that country’s purchasing

power.

The other, there is no PPP adjustment and EU minimum rates are set at a level that is appropriate for all Member

States (including those in the east and south of the EU with lower incomes and price levels).

Both approaches have an economic logic. We have a preference for the second approach, of no adjustment and

the right minimum rates to be set, since a full PPP adjustment would introduce unnecessary administrative

complexity and uncertainty.

5. We support the Commission’s proposal for a harmonized excise on heated tobacco, vapour products and

nicotine pouches. But the rates should reflect the potential reduced risk of these products compared to

combustible tobacco.

Any amendments to the Directive should reflect how certain emerging alternative tobacco and nicotine products

potentially have a reduced risk compared to traditional combustible tobacco products.

The Commission’s current proposed rates fail to reflect this concept for heated tobacco, vapour products and

non-tobacco nicotine pouches, all of which have a potentially reduced risk compared to combustible tobacco.

While heated tobacco, e-cigarettes and nicotine pouches are not risk-free, they are increasingly considered less

risky than combustible cigarettes based on the weight of evidence and assuming a complete switch from

cigarette smoking.

The primary harm from combustible cigarettes arises from the toxicants in the smoke produced when tobacco is

burned, not the nicotine.13, 14, 15, 16, 17

Nicotine products which do not involve combustion are associated with a reduction in risks compared to

combustible cigarettes. This reduction in comparative risk underscores the potential of these products as

effective tools in tobacco harm reduction, aiming to reduce the future incidence of tobacco-related morbidity

and mortality at a population level for adult smokers who switch completely to smokeless products.18

13 U.S. Department of Health and Human Services, The Health Consequences of Smoking: A Report of the Surgeon General. Atlanta, GA: U.S. Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Chronic Disease Prevention and Health Promotion, Office on Smoking and Health, 2004. Available at: https://www.ncbi.nlm.nih.gov/books/NBK44695/ (Accessed: 20 October 2025) 14 U.S. Food & Drug Administration, Nicotine is Why Tobacco Products are Addictive. Available at: https://www.fda.gov/tobacco-products/health- effectstobacco-use/nicotine-why-tobacco-products-are-addictive (Accessed: 20 October 2025) 15 Royal College of Physicians, Nicotine without smoke: Tobacco harm reduction. London: RCP, 2016. Available at: https://www.drugsandalcohol.ie/25448/1/Nicotine%20without%20smoke_0.pdf (Accessed: 20 October 2025) 16 U.K. National Health Service (NHS), Vaping myths and the facts. Available at: https://www.nhs.uk/better-health/quit-smoking/vaping-to-quit- smoking/vaping-myths-and-the-facts/ (Accessed: 20 October 2025) 17 World Health Organization and International Agency for Research on Cancer, IARC Monographs on the Identification of Carcinogenic Hazards to Humans. Available at: https://monographs.iarc.who.int/agents-classified-by-the-iarc/ (Accessed: 20 October 2025) 18 Royal College of Physicians, E-cigarettes and harm reduction: An evidence review. RCP, 2024. Available at: https://www.rcp.ac.uk/media/t5akldci/ecigarettes- nd-harm-reduction_executive-summary_0_0.pdf (Accessed: 20 October 2025)

The aerosols of products that do not combust tobacco contain significantly fewer toxicants compared to

combustible cigarettes. Cigarette smoke from combustible cigarettes contains over 7,500 individual chemicals,

including 150 known harmful chemicals and more than 60 carcinogens.19, 20, 21

In contrast, products which do not involve combustion, have much simpler chemical profiles:

• Heated product aerosols contain approximately ten times fewer chemicals than cigarette smoke, with

significantly reduced concentrations of toxicants.22, 23, 24

• Vapour product aerosols are over 100 times less complex than cigarette smoke, consisting predominantly of

high-quality e-liquid ingredients.25, 26

• Oral tobacco products have lower levels of chemicals in their extractions compared to cigarette smoke,

though more complex than non-tobacco oral nicotine pouches.27

• Non-tobacco oral nicotine pouches have the lowest number of chemicals.

Analysis of BAT's products shows that on average, the World Health Organization’s nine priority toxicants for

reduction in cigarette smoke28 are reduced by29:

• 90-95% in heated products30;

• 99% in vapour products31; and

• >99% in non-tobacco oral nicotine pouches32.

Since the Commission’s stated purpose of the TED is to ensure a high level of health protection, as well as its

primary goal of ensuring the proper functioning of the Internal Market, it would be appropriate that the

minimum rates for heated tobacco, e-cigarettes and nicotine pouches reflect the potential role of these

products in tobacco harm reduction.

19 Rodgman, A. and Perfetti, T.A., The chemical components of tobacco and tobacco smoke. CRC press, 2008. DOI: 10.1201/9781420078848 20 Jenkins, R.A., et al., Mainstream and sidestream smoke. In The chemistry of environmental tobacco smoke: composition and measurement (2nd ed.). CRC Press, 2000. p 49-75. DOI: 10.1201/9781482278651 21 IARC Working Group on the Evaluation of Carcinogenic Risks to Humans, Tobacco smoke and involuntary smoking (No. 83). World Health Organization and International Agency for Research on Cancer, 2004. Available at: https://www.ncbi.nlm.nih.gov/books/NBK316407/ 22 Forster, M., et al., Assessment of novel tobacco heating product THP1.0. Part 3: Comprehensive chemical characterisation of harmful and potentially harmful aerosol emissions. Regul Toxicol Pharmacol, 2018. 93: p. 14-33. DOI: 10.1016/j.yrtph.2017.10.006 23 Savareear B., et al., Non-targeted analysis of the particulate phase of heated tobacco product aerosol and cigarette mainstream tobacco smoke by thermal desorption comprehensive two-dimensional gas chromatography with dual flame ionisation and mass spectrometric detection. J Chromatogr A, 2019. 1603: p. 327-337. DOI: 10.1016/j.chroma.2019.06.057 24 Savareear, B., et al., Headspace solid-phase microextraction coupled to comprehensive two-dimensional gas chromatography–time-of-flight mass spectrometry for the analysis of aerosol from tobacco heating product. J Chromatogry A, 2017. 1520: p. 135-142. DOI: 10.1016/j.chroma.2017.09.014 25 Margham, J., et al., Chemical composition of aerosol from an e-cigarette: a quantitative comparison with cigarette smoke. Chem Res Toxicol, 2016. 29(10): p. 1662-1678. DOI: 10.1021/acs.chemrestox.6b00188 26 Pinto, M.I., et al., Chemical characterisation of the vapour emitted by an e-cigarette using a ceramic wick-based technology. Sci Rep, 2022.12(1):16497. DOI: 10.1038/s41598-022-19761-w 27 Azzopardi, D., et al., Chemical characterization of tobacco-free “modern” oral nicotine pouches and their position on the toxicant and risk continuums. Drug Chem Toxicol, 2022. 45(5): p. 2246-2254. DOI: 10.1080/01480545.2021.1925691 28 The nine specific toxicants are: CO, formaldehyde, acetaldehyde, acrolein, 1,3-butadiene, benzene, benzo[a]pyrene, N-nitrosonornicotine ("NNN"), and 4- (methylnitrosamino)-1-(3-pyridyl)-1-butanone ("NNK"). See Burns D.M., Dybing E., Gray N. et al., (2008) Mandated lowering of toxicants in cigarette smoke: a description of the World Health Organization TobReg proposal. Tobacco Control 2008;17:132-141. Available at https://tobaccocontrol.bmj.com/content/17/2/132. 29 Comparison with smoke from a scientific standard reference cigarette (approximately 9 mg tar). 30 Forster, M., et al., Assessment of novel tobacco heating product THP1.0. Part 3: Comprehensive chemical characterisation of harmful and potentially harmful aerosol emissions. Regul Toxicol Pharmacol, 2018. 93: p. 14-33. DOI: 10.1016/j.yrtph.2017.10.006. 31 Pinto, M.I., et al., Chemical characterisation of the vapour emitted by an e-cigarette using a ceramic wick-based technology. Sci Rep, 2022. 12(1):16497. DOI: 10.1038/s41598-022-19761-w. 32 Azzopardi, D., et al., Chemical characterization of tobacco-free “modern” oral nicotine pouches and their position on the toxicant and risk continuums. Drug Chem Toxicol, 2022. 45(5): p. 2246-2254. DOI: 10.1080/01480545.2021.1925691.

This would imply that:

• the minimum excise on heated tobacco, vapour products and non-tobacco oral nicotine pouches should all

be lower than the minimum excise on cigarettes, fine cut tobacco and other combustible tobacco products

covered by the TED;

• the minimum excise on vapour products should be lower than the minimum excise on heated tobacco; and

• the minimum excise on non-tobacco oral nicotine pouches should be lower than the minimum excise on

both heated tobacco and vapour products.

It may not be realistic, in practice, to set the minimum excise duty on heated tobacco, vapour products and non-

tobacco oral nicotine pouches only in proportion to levels of the WHO’s nine priority toxicants in cigarette smoke

in these products33. However, this should be a part of the process of agreeing appropriate minimum rates for

these products. Other considerations will include, for example, ensuring excise duties cover the costs of

collecting and administering the tax.

6. We support the Commission’s proposal for a harmonized excise for heated tobacco in the EU. But the

proposal for the minimum excise to be levied per KG or per stick or as a percentage of the price is unduly

complicated. It would be much simpler to impose a minimum excise only on the weight of tobacco in the

product, at around €110 per KG.

A harmonized excise for heated tobacco will provide consistency and certainty in the way this rapidly growing

tobacco product is excised in the Internal Market.

The proposal for the minimum excise to be levied per KG or per stick or as a percentage of the price is unduly

complicated, would introduce administrative uncertainty and fail to achieve the harmonized approach to excise

that the Member States are seeking.

It would, instead, encourage more disparity in the way heated tobacco is taxed in the EU than currently exists.

Since there is no standardised product format for heated tobacco (yet), the minimum excise should be levied

only on the weight of tobacco in the product, at around €110 per KG.

This approach would be fair, simple and future proof.

7. A harmonized excise for vapour products is needed in the EU. But the Commission’s proposal for excise

rates to be tiered by nicotine strength is unenforceable in practice, will lead to unjustifiable complexity in

excise administration and will create an additional illicit vapour problem in the EU.

It would be much better to levy a simpler minimum excise of 25 cents per ml for e-liquids regardless of nicotine

strength, rather than a tiered system based on nicotine content.

The recent example from the UK is a timely example of why.

In its Spring Budget 2024, the UK Government announced the introduction of an excise duty on e-cigarettes.

An initial proposal for a three-tiered tax structure based on nicotine strength (£1.00–£3.00 per 10ml) was tabled

but secured virtually no support during a three-month consultation involving industry stakeholders and public

health bodies.

33 That would mean that the minimum excise duty on cigarettes were set at €155 per 1,000 units, the minimum excise would be between €1.55 to €7.75 for an equivalent amount of smokeless products.

Concerns were raised, inter alia, about the complexity and significant cost associated with administering a tiered

system.

It was also considered that an overly complex system that is difficult to enforce in such a fragmented market

would result in a large degree of non-compliance and tax evasion (e.g. with unscrupulous e-cigarette product

suppliers intentionally mis-declaring the nicotine content of their products in order to evade paying the right

taxes).

After an extensive consultation process, in which the Government assessed the detailed costs and benefits of

different approaches to levying an excise on e-cigarettes, it was decided, instead, to implement a simplified flat

rate of £2.20 per 10ml across all vaping liquids, effective October 2026.

The TED should pursue a similar approach for e-cigarettes.

If the Commission, instead, continued with the current approach of an excise tiered by nicotine strength, this

would introduce unnecessary administrative complexity and cost throughout the EU, with no corresponding

benefits for the 23 Member States that already operate a simple structure.

8. A harmonized excise for nicotine pouches is needed in the EU. But the Commission’s proposal for a

minimum excise of €143 per KG is excessive. Countries – such as Sweden – that set much lower excise rates

on these products must be allowed to maintain the sovereign right to set excise rate in a way it considers

appropriate to continue to achieve its policy objectives.

The Commission’s new proposal, if implemented today, would force several Member States to substantially

increase the excise they levy on certain emerging non-combustible products.

Most notably, Sweden is widely lauded on a global scale for successfully reducing its daily smoking prevalence

rate to only c.5.3%, significantly lower than the EU average (which is more than 20%) and very close to being

‘smoke-free’.

Consequently, Sweden has a c.40% lower rate of death of all tobacco-related diseases compared to the EU

average.

This is, in very large measure, the result of targeted taxes and regulations that have incentivised consumers to

switch from combustible tobacco products to smokeless products including snus and non-tobacco nicotine

pouches.

The Commission’s proposal to require non-tobacco nicotine pouches to be excised at €143 per kilo would

represent a sixfold increase of the tax rates currently levied in Sweden.

This could, in one fell swoop, all but destroy Sweden’s nicotine pouch market and force Sweden to abandon its

hitherto successful policy of tobacco harm reduction. If implemented, the excise duty on nicotine pouches would

go up by more than seven-and-a-half times, from about SEK 3 per can today to almost SEK 22.

Assuming this tax hike is fully passed on to the consumer, the price of a of nicotine pouch can would increase

from SEK 45 to a massive SEK 70 a can.

Today, a can of nicotine pouches is around a third cheaper than a pack of cigarettes. The Commission’s proposal

would completely eliminate this price gap. The financial incentive for consumers to use nicotine pouches instead

of cigarettes would disappear overnight.

Even the Commission’s own calculations, from its Impact Assessment, imply the sale of nicotine pouches in

Sweden would be slashed by three quarters if its proposal were made European law. The reality could be even

worse than that.

This is a curious, and poorly thought out, policy decision from the EU Commission.

The EU's constitution, enshrined in the Treaties of the European Union, is very clear that EU level intervention in

the area of taxation is justified if, and only if, it is needed to ensure the establishment and functioning of the

Internal Market and avoid distortion of competition. This principle applies as equally to excise taxes.

It is by no means clear – from the European Commission’s own analysis or anywhere else – that the tax rates

Sweden sets on nicotine pouches in any way distorts the effective functioning of the EU Internal Market. But it

is crystal clear that by imposing extreme excise rates on nicotine pouches in Sweden, the EC proposal would

eliminate, not facilitate, competition for tobacco and nicotine products in Sweden. Such an outcome is precisely

the opposite of what EU level legislation is supposed to do.

It is important to bring novel, non-combustible, products – including tobacco for heating, e-cigarettes, and non-

tobacco nicotine pouches –into the scope of the Directive. But, at the same time, it is essential that Member

States retain the sovereign right to set taxes as they see fit in their own country, given their own economic

conditions and tobacco harm reduction policy priorities. Unless there is clear evidence that Sweden’s taxes are

compromising the functioning of the Internal Market, it is not for the Commission to interfere with how Member

States – including Sweden – taxes tobacco or any other products.

The minimum excise on non-tobacco nicotine pouches should, consequently, be set at no more than €25 per KG,

to allow Sweden, the Member States most successful in reducing smoking, to continue to operate its existing

fiscal and regulatory policies.

9. The proposed product definitions are vague and open to interpretation, which creates legal uncertainty for

economic operators. This ambiguity may result in inconsistent decisions by customs and excise authorities

across different Member States.

Rather than establishing mutually exclusive product categories, the product definitions used in the current TED,

as well as those proposed in the revised version, employs a cascading system in which definitions may overlap.

This is in contrast compared with most other EU legislation.

Because they are not currently defined in the TED, the classification of novel products currently depends on

national legislation or court rulings. Several of these have made it clear that the current cascading structure of

product definitions means that a product is classified under certain categories only if it does not meet the criteria

for others. This has led to inconsistent treatment throughout the EU of the same products for excise purposes.

For example, Member States have adopted divergent interpretations of how heated tobacco products should be

classified; some treat them as smoking tobacco, others as ‘other tobacco products’, or even as non-excisable. To

avoid future legal uncertainty and to strengthen the goal of EU-wide harmonisation, the product definitions of

both novel products and the products already covered by the TED need to be amended34.

The lack of coherence between the proposed product definitions in the revised TED and other EU legislation runs

counter to the European Commission’s Smart Regulation agenda, which seeks to ensure that EU law is clear,

consistent, and easy to implement and enforce. For example, a heated tobacco product might be correctly

classified under the TPD, yet still be treated as a cigarette for excise purposes, leading to conflicting regulatory

outcomes.

In addition, the proposed definitions for new products in the TED would result in misalignment with International

Standards. For example, the proposed definition of heated tobacco products in the TED should reflect the

decisions set out by the World Customs Organization in the 2022 update to the Harmonised System. Failure to

34 Such ambiguity did not exist prior to the introduction of novel products to the EU market. Product definitions in the TED were fit for purpose at the time they were introduced. However, as novel products have become a permanent feature in the EU, this has prompted the need to amend definitions of products already covered by the TED.

do so could result in products being treated as heated tobacco product for customs purposes but as combustible

tobacco for excise purposes, further complicating classification and compliance.

10. We recognise the importance of implementing a monitoring system to improve oversight of raw tobacco

flows. However, the definition proposed by the Commission is ambiguous. To effectively differentiate between

green leaf (which should not be subject to a harmonized monitoring system) and semi-processed tobacco

(which should be monitored), the various forms of semi-processed tobacco should be clearly defined.

Additionally, no excise should be established solely for the purpose of monitoring raw tobacco flows.

There has been a growing trend of raw tobacco being diverted for illicit production as well as raw tobacco being

sold directly to consumers as smoking tobacco which has undermined tax revenues for Member States.

Raw tobacco is currently not defined or covered by the TED or the Horizontal Directive (the ‘HED’), and therefore

it is not subject to excise duty at EU level and consequently, it cannot be moved under excise duty suspension

using the Excise Movement Control System (‘EMCS’).

As there is a lack of EU harmonized approach on raw tobacco shipments, Member States have started to develop

national legislation to monitor the movement of raw tobacco into and through their territories.

The definition needs to be broken down in two categories: the green leaf which will be out of scope and the

processed leaf (’semi-processed tobacco’) which has gone through one or more processing activities but which

is not considered a manufactured tobacco product.

The objective of the inclusion of raw tobacco in the TED is to control the movements of semi-processed tobacco

and not to collect revenues. In view of keeping the administrative burden for the various different operators to

a minimum, no minimum rate should be established. Setting a minimum rate, even if this is €0, will add

complexity and administrative burden for economic operators and Member States.

11. The delegated powers to the Commission are either deleted or limited to non-essential elements of the

Directive (i.e. inflation adjustments mechanism only) in line with Article 290 of the Treaty on the Functioning

of the European Union.

The delegated powers granted to the Commission under Article 12(5) of the Directive should either be deleted

or explicitly limited to adjusting minimum excise levels based on inflation indexation only. This should be clearly

clarified in the text of the Directive. This aligns with Article 290 of the Treaty on the Functioning of the European

Union (the ‘TFEU’) which permits delegation only for non-essential elements.

The delegated authority should be confined to adjusting minimum excise levels based on core inflation (excluding

volatile components like energy and food), with a cap of 6–10% over each three-years period.

Additionally, we recommend deletion of Recital 36 and Article 28(4) from the Directive, which implies a mandate

for tax equalization across tobacco product categories.

Such a mandate exceeds the scope of Article 113 TFEU and undermines the principles of subsidiarity,

proportionality, and national sovereignty.

Equalization disregards the distinct characteristics of different products, potentially stifling innovation and

limiting consumer choice.

Accordingly, taxation decisions should be reserved for national governments, which possess the authority to levy

taxes on various products in alignment with their respective national policies, priorities and strategies. We urge

policy makers to ensure that the Directive maintains flexibility for Member States to tailor excise policies

according to their national contexts and priorities.

12. The Commission failed to assess the impact on a range of stakeholders throughout the Impact Assessment.

The Impact Assessment (‘IA’) systematically ignores the impact of the proposed changes to the TED on the

various stakeholders:

• The IA references potential SME closures but does not sufficiently quantify the economic and employment

effects, particularly in the retail and processing segments.

• While the IA acknowledges the number of EU tobacco growers, it does not assess the socio-economic

implications of reduced demand resulting from strengthened tobacco control measures.

• The IA assumes marginal employment impacts without providing supporting labour market data or

considering regional concentration.

• The IA does not assess affordability across income groups or the behavioural implications of price increases.

–––––––– END ––––––––

E-kiri.eml

Tähelepanu! Tegemist on välisvõrgust saabunud kirjaga.
Tundmatu saatja korral palume linke ja faile mitte avada.

Dear Sir or Madam

I am writing to share with you, and your colleagues at Estonian Ministry of Finance, British American Tobacco’s submission to the consultation on the European Commission’s proposal for revising the EU Tobacco Excise Directive.

As you know, the Commission adopted a proposal for a revision of the EU Tobacco Excise Directive on 16^th July 2025.

We consider there are, however, some important flaws in the proposal.

Fundamentally, the Commission’s proposal would significantly infringe on the sovereignty of Member States to retain the right to set taxes as they see fit in their own countries in several areas.

The Treaties of the European Union make it clear that EU level intervention in matters relating to taxation is justified only if it is needed to ensure the proper functioning of the Internal Market and avoid distortions of competition arising from differences in national tax rules.

The Commission’s proposal goes well beyond this.

We wholly agree that novel, non-combustible, products should be brought into the scope of the Directive. But, several countries would be forced to substantially increase their current excise duties on these products. And others would be compelled to move from a simple tax structure to a more complicated one.

Importantly, the Commission’s proposal does not reflect the reduced risk associated with the consumption of such products when compared to combustible tobacco, such as traditional cigarettes. Heated tobacco, e-cigarettes and nicotine pouches are all already playing an important role in switching consumers to products that are less harmful than traditional cigarettes and fine cut tobacco. And they have the potential to do much more. We believe the tax treatment of these products should reflect this, and be proportionate to their reduced risk levels.

Another area in which the proposal to amend the Directive risks undermining Member States’ fiscal sovereignty is in the proposal to delegate powers to the Commission under Article 12(5) of the Directive are excessive. This would substantially take future taxation decisions out of the hands of national governments in the EU. We suggest that the delegated powers to the Commission should, preferably, be deleted entirely. Alternatively, they ought to be limited to cover no more than non-essential elements of the Directive (such as inflation adjustments mechanism only) in line with Article 290 of the Treaty on the Functioning of the European Union.

Critically, Member States must be allowed to preserve the flexibility to tailor excise policies according to their national contexts and priorities. We would, consequently, be grateful if you could consider these issues during your forthcoming discussions on revisions to the Commission’s current proposals.

If you would like to discuss any of the points covered in our submission, or require any further information, please do not hesitate to let me know.

Yours sincerely,

Donatas Laurinavičius

Regulatory Engagement Manager Baltics

mobile: +370 644 44500

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