Rising Tobacco Taxes and the Shadowy World of Smuggling: A Looming Crisis for Europe
European lawmakers are increasingly focused on curbing tobacco consumption through higher excise taxes. However, a significant and growing challenge threatens to undermine these public health efforts: the surge in tobacco smuggling. Recent data reveals a worrying trend, with illicit cigarettes now accounting for a substantial portion of the market across the EU, and Latvia is particularly hard hit.
The Growing Scale of the Problem
Amendments to the European Commission’s Tobacco Tax Directive aim to increase the cost of tobacco products, making them less appealing to consumers. Although the intent is positive, the reality is more complex. In Latvia, smuggled cigarettes currently represent 23% of the market, while illegal e-cigarettes craft up a staggering 40%. This illicit trade cost Latvia an estimated 67 million euros in lost excise duty and VAT in 2024 alone – a 31% increase from the previous year.
Across the entire European Union, uncollected excise and VAT revenues related to the illegal cigarette trade reached approximately 14.9 billion euros in 2024, with 39.2 billion cigarettes consumed illegally, representing 9.2% of the total market. These figures, sourced from Oxford Economics data, paint a clear picture of a problem spiraling out of control.
Beyond Economics: National Security Concerns
The issue extends beyond financial losses. Authorities are increasingly recognizing cigarette smuggling as a national security risk. A significant portion of contraband cigarettes originates from Belarus, where it reportedly forms part of the Lukashenko regime’s revenue model. By failing to effectively combat this smuggling, European nations may inadvertently be supporting an authoritarian government.
In February 2026, Latvian customs officials seized 1.5 million illegal cigarettes in the Dārziņi district of Riga, and nearly 12 million contraband cigarettes were confiscated throughout the year. These seizures highlight the scale of the operation and the challenges faced by law enforcement.
The EESC’s Role and the Push for Balanced Policy
The European Economic and Social Committee (EESC) is actively involved in shaping the Tobacco Tax Directive. Andris Gobiņš, EESC member and President of European Movement Latvia, submitted the majority of amendments (24 out of 29) to the directive. The EESC working group emphasizes the importance of proportionality, economic sustainability, and preventing market distortions when reviewing the directive.
A key concern is that rapid or excessive increases in excise duties could inadvertently fuel smuggling. The EESC advocates for a gradual approach to tax increases, coupled with strengthened customs controls, police cooperation, and enhanced cross-border collaboration.
The “Less Harm, Less Tax” Principle
The EESC working group too promotes the principle of “Less harm, less tax,” suggesting that tax policies should reflect the varying health risks associated with different tobacco and nicotine products. This approach would allow Member States flexibility in integrating this principle into their national tax systems.
The Future of Tobacco Regulation: What to Expect
As the European Commission seeks support for the revised EU tobacco legislative framework in 2026, intense debate over the directive’s amendments is anticipated. The challenge lies in finding a balance between public health objectives and the need to prevent a further expansion of the illegal tobacco market.
Expanding the scope of the directive to include e-cigarette liquids, chewing tobacco, nicotine pouches, and raw tobacco is intended to improve monitoring of cross-border shopping. However, the effectiveness of this monitoring will depend on the ability to control an increasingly complex and unregulated market.
Did you recognize?
Illegal tobacco products often contain unacceptable levels of heavy metals, toxins, and carcinogenic substances, posing a significant health risk to consumers.
FAQ
Q: What is the main goal of the Tobacco Tax Directive?
A: To raise excise duty rates on tobacco products to make them more expensive and less attractive to consumers.
Q: How much revenue is lost due to illegal cigarette trade in the EU?
A: Approximately 14.9 billion euros in uncollected excise and VAT revenues annually.
Q: What role does Belarus play in tobacco smuggling?
A: Contraband cigarettes originating from Belarus reportedly contribute to the revenue model of the Lukashenko regime.
Q: What is the “Less harm, less tax” principle?
A: A proposed approach where tax policies reflect the varying health risks associated with different tobacco and nicotine products.
Pro Tip: Stay informed about EU regulations and their potential impact on your business or personal habits. Regularly check official sources for updates and changes.
Want to learn more about EU policy and its impact on Latvia? Visit the European Movement – Latvia website.
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