The EU plans a 15% levy on member states’ tobacco tax revenues, channeling €11.2B a year into its budget. Dramatic new tax hikes aim to curb smoking and expand funds, with measures factoring in declining tobacco use and anticipated cuts to healthcare costs.
The European Union is introducing significant reforms to its tobacco taxation scheme, aiming to both generate new revenue streams for its €2 trillion budget and advance public health goals. The central proposal, known as the Tobacco Excise Duty Own Resource (TEDOR), would direct 15% of each member state’s tobacco tax revenue straight to the EU budget. This is projected to bring in €11.2 billion annually, representing nearly 20% of the EU’s planned €58.3 billion in new “own resources” each year, a figure comparable to the annual tobacco tax haul of Italy alone. Over the EU’s seven-year budget cycle, the TEDOR could yield €78.4 billion—substantially bolstering spending areas like defense.
TEDOR’s formula is straightforward: regardless of how high or low national tobacco tax rates are, each country contributes 15% of its revenue from tobacco excise, meaning the burden varies according to national consumption and tax policy. Simultaneously, the EU is revising its Tobacco Taxation Directive (TED), with plans for a dramatic rise in taxes—a 139% increase on cigarettes, a 258% hike on rolling tobacco, and, for the first time, high taxes on new products like e-cigarettes, heated tobacco, and nicotine pouches. While TEDOR and TED are formally independent, higher national tax rates under TED will ultimately increase the tax base from which the 15% EU share is drawn, indirectly boosting EU revenues.
One notable concern is the black market. Although the tobacco industry warns that higher taxes will spur illicit trade, the Commission and many health experts see tax harmonization—minimizing rate differences between countries—as more effective at curbing black markets. Special adjustments, such as a lower tax rate for water-pipe tobacco, are being considered for sectors with high black market activity.
Health advocates broadly support these hikes, viewing them as steps toward a “tobacco-free generation.” The EU estimates the revenue forecasts already factor in a continuing decline in tobacco consumption, which means a shrinkage in tax base is anticipated. Moreover, sharper reductions in tobacco use could save EU governments an extra €6 billion per year in healthcare costs by lowering tobacco-related illnesses, further offsetting any decrease in excise revenue.
