MEPs’ bid to align taxes on tobacco sure to fail

Date: 30/07/1998

By Myles Neligan

EUROPEAN Commission officials have indicated that a bid by MEPs to force the UK to align its tobacco taxes with those of its closest EU neighbours is almost certain to fail.

Critics warn this means that the booming UK black market for tobacco products is likely to continue growing, depriving British retailers of more than 148 million ecu in revenues every year as smugglers take advantage of the huge disparity between UK and continental tobacco prices.

An estimated 80% of handrolling tobacco and 5% of cigarettes consumed in the UK are smuggled into the country from mainland Europe.

This prompted calls from British MEPs for action to combat the problem. "Tobacco retailers are suffering unfairly. The UK government must take steps to iron out these distortions to the EU single market," said Conservative MEP Roy Perry, one of a group of Euro MPs who signed a petition calling on the Commission to oblige London to introduce an immediate freeze on tobacco excise duty.

The MEPs' petition calls on Internal Market Commissioner Mario Monti to declare the British government's plan to raise tobacco tax by 5% every year incompatible with EU single market legislation. They point out that Sweden and Denmark were forced to lower tobacco excise duties earlier this year to combat a flood of black market cigarettes from eastern Europe.

The Commission has twice attempted to introduce a harmonised EU tobacco tax, but single market ministers overwhelmingly rejected both proposals. Under a final compromise reached in 1992, Union governments agreed to introduce a minimum EU tax equivalent to 57% of total revenues.

"Member states are legally obliged to respect this minimum rate, but that is all. So long as their tobacco tax does not fall below the 57% floor, they are under no obligation whatsoever to amend their legislation," said a Commission excise tax expert.

A Commission review of EU excise tax rates, completed in April, concluded that only technical amendments to existing Union excise duty laws were necessary.