Tobacco tax in EU budget: What if Europe goes smoke-free?

Euractiv

18-07-2025

The Commission wants tobacco taxes to fund a fifth of EU-level sources of income, but the proposal casts doubts on the bloc's goal of a smoke-free generation by 2040.
The majority of the proposed €2 trillion budget still comes from national contributions, but a growing share is expected to come from new EU-wide revenue streams, known as 'own resources'. One of the biggest proposed sources: tobacco. Tobacco taxation will provide €11.2 billion annually – close to 20% of the EU's projected €58.3 billion in annual own resources each year.
To put this into perspective, the first figure represents the annual amount collected by Italy alone in 2023.
Over the seven-year cycle, that adds up to €78.4 billion, enough to fund a substantial portion of the bloc's planned defence spending.
How it works
Under the Commission's proposal, the EU would collect a flat 15% of each EU country's tobacco tax revenue and channel it directly into the bloc's budget.
Tobacco tax rates vary widely across the EU. France currently has the highest tobacco taxes, while Bulgaria maintains the lowest, meaning the amount each country contributes under the plan would differ significantly. The levy would be collected regardless of how high or low national tobacco tax rates are.
Importantly, the 15% levy, called the Tobacco Excise Duty Own Resource, or TEDOR, is not linked to the ongoing revision of the Tobacco Taxation Directive (TED), which the Commission proposed on Thursday and will soon be negotiated separately.
The TED is a proposal to significantly raise tobacco tax rates across the EU. It suggests a 139% increase on cigarettes, a 258% hike on rolling tobacco, and – for the first time – high taxes on new products such as e-cigarettes, heated tobacco, and nicotine pouches.
Previously, Commission sources in Brussels had floated using additional revenues of the revised TED to boost the EU budget. But that plan has now been dropped, with the proposal introducing TEDOR as a standalone tobacco-based own resource. Still, if the revised TED is adopted, it would indirectly boost even more the EU's income. So while the 15% rate stays the same, the EU budget grows along with national tax revenues.
Practically, under the current TED or its revised version, member states will still be required to contribute 15% of their total tobacco tax revenues. This applies even to countries like France, which already imposes tobacco taxes above the current EU average, meaning new tax hikes as part of the TED revision would not affect its current levels.
Dirty past
One major challenge in collecting the 15% tax will be addressing the growth of black markets.
Brussels, echoing the World Health Organisation, rejects claims that higher taxes lead to more illicit trade. Instead, EU officials argue that it is the lack of tax convergence across the bloc that fuels the illicit tobacco trade.
Still, in a nod to this risk, the Commission has proposed a lower tax rate for water-pipe tobacco (shisha), where black market activity has grown in many EU countries, particularly Germany.
Europol's 2025 organised crime threat assessment, however, states that countries with high excise and VAT rates are more vulnerable to the illicit sale of excise goods.
What if everyone quits smoking?
The claim that higher tobacco taxation would lead to a surge in the black market is one often cited by the tobacco industry.
But the credibility of the argument is limited. Anti-tobacco groups see this argument as an attempt to undermine public health efforts. And it goes back to the industry's track record.
In the 1980s, tobacco companies marketed filtered and 'light' cigarettes as 'harm-reduced' – a claim now widely debunked. Health organisations say the same mistake is being repeated today, with the industry promoting e-cigarettes and other alternatives as 'less harmful'.
The Association of European Cancer Leagues welcomed the Commission's proposed tax hike, describing it as a step toward creating a tobacco-free generation.
Still, it raises a practical question: what happens if higher taxes succeed and people stop smoking altogether? Would that blow a hole in the EU's budget?
The Commission says no. It argues that the projected €11.2 billion in annual revenues already account for a decline in tobacco consumption over time.
Moreover, the EU estimates that EU countries would save an additional €6 billion annually in tobacco-related healthcare costs. (mm)