The impact of increasing excise duties on cigarettes on the level of illegal trade in these products in EU countries

Abstract

The purpose of the article is to analyze the current situation with the illegal trade in cigarettes in the EU countries and the impact of national excise policies on it, as well as to identify the risks of shadowing of the tobacco market due to the upcoming increase in the minimum excise duty on cigarettes initiated by the European Commission. The following methods were used in the study: abstract-logical, systematization, comparative analysis, expert assessments. Important results were obtained. The analysis showed that in 2021–2024, some of the highest levels of illegal trade in tobacco products in the EU or their noticeable growth were observed in countries with the highest excise duties on cigarettes. In addition, the sharp increase in excise duties had a negative impact on the tobacco market and led to significant losses of budget revenues even in countries with high purchasing power of the population and institutional capacity of control bodies and law enforcement. The implementation of the European Commission initiative will cause significant risks. The high rate of increase in the minimum excise duty on cigarettes in most EU countries will create a threat of surges in counterfeit production and smuggling of such products for these Member States, but will not improve the situation for countries that have already established high excise duties and suffer from the illegal tobacco market. For countries applying for EU membership, the risks of the spread of illegal trade in cigarettes will be even greater. It is concluded that such an undesirable situation can be prevented by: postponing the start of the application of the new minimum excise duty on cigarettes; providing transitional periods for countries with low purchasing power; increasing flexibility in the formula for calculating the minimum excise duty on tobacco products in order to better take into account the specificities of the countries.