Tobacco Tax Hike: Smugglers Benefit?

Amendments to the European Commission’s Tobacco Tax Directive aim to increase excise duty rates on tobacco products, making them more expensive and less appealing to consumers. The European Economic and Social Committee (EESC) has weighed in on the draft directive as concerns grow over increasing tobacco smuggling across the European Union.

Tobacco Smuggling on the Rise

Smuggled cigarettes currently account for 23% of the market, while illegal e-cigarettes make up 40%. Latvia alone lost an estimated 67 million euros in unpaid excise duty and VAT in 2024, a 31% increase from the previous year. Across the EU, uncollected excise and VAT revenues totaled approximately 14.9 billion euros, with 39.2 billion cigarettes consumed illegally, representing 9.2% of the total market, according to Oxford Economics data.

National Security Concerns

Authorities seized nearly 12 million contraband cigarettes in Latvia last year, including 1.5 million illegal cigarettes confiscated from traders in Riga’s Dārziņi district in early February. Cigarette smuggling is also considered a national security issue, with the majority of contraband cigarettes originating in Belarus, where the trade is reportedly a key component of the Lukashenko regime’s economic activity in both Lithuania and Latvia. Failing to curb smuggling indirectly supports the Belarusian dictatorship.

Public Health and Market Risks

Illegal tobacco products pose a risk to public health due to a lack of quality control, potentially containing unacceptable levels of heavy metals, toxins, and carcinogens, as well as excessive nicotine. The proposed directive aims to improve monitoring of cross-border shopping, but tracking remains challenging in an uncontrolled market.

The EESC working group has emphasized proportionality, economic sustainability, and the prevention of market distortions when reviewing the directive. They warn that rapid or excessive increases in excise duties may fuel smuggling and recommend a gradual approach alongside strengthened customs and police cooperation.

“Less Harm, Less Tax” Principle

Andris Gobiņš, EESC member and President of European Movement Latvia, submitted 24 of the 29 total amendments to the directive. He stresses the need to reduce tobacco consumption due to its impact on human life and public healthcare budgets. The EESC working group advocates for a “Less harm, less tax” principle, where tax policy reflects the varying health risks associated with different tobacco and nicotine products.

At the time of publication, clarification regarding the potential impact of the EESC’s 24 amendments on smuggling efforts and state budget revenues was unavailable from Andris Gobiņš. Debate over the directive’s amendments is expected to continue as the European Commission seeks support in the European Parliament to advance the revision of the EU tobacco legislative framework in 2026.