After long negotiations on a fundamentally flawed proposal from the European Commission, it now seems that the Tobacco Excise Directive has fallen. Or at least derailed. Sources tell Pouchforum that, although the Irish Presidency has included the TED in its policy programme, the ambition to move the file forward is considered low.
This should not come as a surprise. It has been clear for some time that the divide between Member States was substantial. It took the Cypriot Presidency several compromise texts before it in any way reflected the clear signals coming from those Member States that wanted taxation to follow risk.
But the blame should not primarily be placed on the Presidency. The problem was deeper than that. The foundation of the proposal was wrong from the start, and as the negotiations developed, the logic of the directive became increasingly difficult to defend.
The health aspect
There is a strong negative relationship between cigarette smoking and public health. The same cannot be said for all nicotine products. Treating products that are not smoked, not inhaled and do not expose users to combustion, carbon monoxide and the toxic profile of cigarette smoke as if they were comparable to cigarettes is simply wrong.
Those opposed to all nicotine use often put great emphasis on the cardiovascular effects of nicotine. Nicotine pouches can raise heart rate and blood pressure when used. That is not disputed. But the effects are mild as they also remove smoke, combustion particles, carbon monoxide and many oxidants that drive much of the cardiovascular damage caused by smoking. Their cardiovascular risk is therefore expected to be far below that of cigarettes, even if it is not zero.
This is not controversial. It has a firm basis in science. The opponents of harm reduction are, or should be, well aware of this. That is likely why the debate so often avoids any discussion on the central question of relative risk.
Taken together, this means that the narrative used to justify the proposal did not match the way the directive was constructed. It was built on a false premise.
The internal market aspect
The internal market, one of the cornerstones of the European Union, seemed to carry surprisingly little weight in the TED negotiations. Mutual recognition was pushed aside in favor of proposals that would allow countries which have banned certain products to tax goods brought across borders by ordinary citizens for their own consumption. How this was supposed to be enforced remains a conundrum.
In our view, this was driven by concern over inflow. In other words, consumption would continue, but without domestic tax revenue. From a tax perspective, that concern is understandable. But in the context of tobacco control, and in a market where products differ widely in risk, it becomes far more bizarre than the already strange idea of internal customs controls.
It does not take a conspiratorial mind to conclude that France and others do not want “their smokers” to use risk reduced products taxed elsewhere.
France and others created this problem by banning nicotine pouches. Instead of reconsidering whether those bans are proportionate, the response has been to limit their consequences by restricting cross border personal consumption. That is a revealing priority. Public health should mean reducing harm, not shielding prohibition from consumer behavior.
Own resources
The European Commission’s proposal to skim off part of tobacco excise duty for so-called own resources may appear to be a simple budgetary transaction. In reality, it changed the incentives in a fundamental way.
If EU revenue depends on tobacco excise bases, the Commission suddenly has a fiscal interest in high minimum rates and broad product coverage. This may well be part of the reason why the Commission avoided any serious discussion on relative risk.
Public health arguments remained central to the narrative. But the proposal was clearly not optimized for maximum public health benefit. Every product category needed to be covered and heavily taxed, regardless of risk, harm reduction potential or proportionality. Otherwise, the own resources would not be delivered as expected.
This shift in priorities and incentives could, and perhaps should, have been reason enough for Member States to reject the Commission proposal.
The tax perspective
Taxes can be used in many different ways. There are vastly different ideological views on what should be taxed, how heavily and for what purpose. But it is difficult to see the logic behind the Commission’s proposal for nicotine pouches.
The proposed minimum tax of €143 per kilo of nicotine pouches was put forward despite the Commission’s own assessment indicating that it would severely damage or destroy the market in several Member States. In practical terms, this would remove nicotine pouches as a low-risk alternative for smokers by taxing them in a completely disproportionate way.
Most observers saw the proposal as absurd. For Sweden, the largest nicotine pouch market in the Union, it would have meant a sevenfold increase. The highest taxes in the Union were effectively proposed as the new minimum.
One generous interpretation, based on the assumption that the EC still wanted the revenue, was that the Commission had set the level extremely high in order to ensure that, even after difficult negotiations, the final outcome would still be a relatively high minimum tax. Instead, it became an unsurpassable obstacle to a harmonized minimum tax for tobacco and related products.
What now?
According to our sources, the Irish Presidency appears to have little appetite for trying to rescue a file that Member States have already made clear they cannot support.
There are vast fundamental differences between taxing products according to risk in order to improve public health incentives, and a punitive approach where all nicotine use is punished regardless of risk.
Pouchforum and ENPA believe that nicotine pouches should be taxed according to risk, and that the TED was a missed opportunity. The Commission proposal had little logic from a public health perspective. Member States that have failed to reduce smoking, although certainly not for lack of ambition, instead pushed to broaden the scope to punish products that scientific evidence places on the opposite side of the risk spectrum from cigarettes.
Nicotine pouches are not risk free. But treating them as if they were equivalent to smoking is not science based regulation. It is a refusal to distinguish between risk and harm. It exaggerates the small difference between low risk and no risk, while ignoring the massive gap between low risk and high risk. Taxation should reflect that difference, and it should be evident to anyone that equal taxation for products with different risks are a missed opportunity to create an economic incentive to encourage users to move towards low risk.
This unintentional respite should now be used for reflection. And public health must be brought back to the centre of the policy.