Cautious reform plan for tobacco excise

Date: 19/02/1998

By Chris Johnstone

'SMOKE without fire' is likely to be the verdict when the European Commission brings out its long-awaited report on how excise duties on tobacco should be revised.

The Commission is floating the idea of limiting the reform to a cautious increase in levies on tobacco in line with inflation, coupled with some small technical adjustments, as consultations begin with national governments on its initial proposals.

A final report on how the current excise regime is working, together with recommendations for change, should be unveiled by April.

The Commission's report was originally due at the end of 1996, but was held up by delays in drawing up and getting agreement on a previous proposal on mineral oil duties and long drawn-out consultations with interested parties, including the tobacco industry.

The tentative Commission suggestions underline its inability to push for a broad shake-up of tax regimes in the face of member state resistance, given that any changes must be unanimously agreed by all EU governments.

The report will disappoint those countries hoping for a harder-hitting line.

The UK government had, for example, wanted the Commission to tackle the smuggling of hand-rolled tobacco into the UK by suggesting an increase in duties levied by other countries.

British duties on hand-rolled tobacco are the highest in the Union, encouraging a lucrative business in smuggling from neighbours such as Belgium and the Netherlands.

But sources say that no such proposals are made in the Commission's initial report.

The timidity of the tobacco text is unlikely to raise the spirits of those looking for a radical shake-up of excise charges on alcohol when a follow-up report on drinks duties is published by the Commission at the end of the year.

There are wide differences in taxation in this sector as well, with some countries, such as France, choosing to levy no duty on wine and fairly low rates on beer.

The pressure created by different excise levies is pushing certain member states to seek strangely innovative solutions without apparently tackling the key issue of harmonised rates.

Belgium, which sees a lot of its shoppers heading for the hypermarkets of northern France to buy lower-priced wine, has suggested relaxing its own planning rules along the border so that large Belgian stores can tempt the travelling shoppers.

The proposal follows a study by two Belgian universities, which prompted Economic Affairs Minister Elio di Rupo to conclude that the current situation was damaging Belgian competitiveness and employment.

Far-reaching plans to reform excise duties were drawn up by the Commission in the 1980s, but were thrown out because they offended too many national governments.