REPORT on the proposal for a Council directive amending Directives 92/79/EEC, 92/80/EEC and 95/59/EC on the structure and rates of excise duty applied on manufactured tobacco

6.3.2009 - (COM(2008)0459 – C6‑0311/2008 – 2008/0150(CNS)) - *

Committee on Economic and Monetary Affairs
Rapporteur: Zsolt László Becsey

DRAFT EUROPEAN PARLIAMENT LEGISLATIVE RESOLUTION

on the proposal for a Council directive amending Directives 92/79/EEC, 92/80/EEC and 95/59/EC on the structure and rates of excise duty applied on manufactured tobacco

(COM(2008)0459 – C6‑0311/2008 – 2008/0150(CNS))

(Consultation procedure)

The European Parliament,

–   having regard to the Commission proposal to the Council (COM(2008)0459),

–   having regard to Article 93 of the EC Treaty, pursuant to which the Council consulted Parliament (C6‑0311/2008),

–   having regard to Rule 51 of its Rules of Procedure,

–   having regard to the report of the Committee on Economic and Monetary Affairs (A6‑0121/2009),

1.  Approves the Commission proposal as amended;

2.  Calls on the Commission to alter its proposal accordingly, pursuant to Article 250(2) of the EC Treaty;

3.  Calls on the Council to notify Parliament if it intends to depart from the text approved by Parliament;

4.  Asks the Council to consult Parliament again if it intends to amend the Commission proposal substantially;

5.  Instructs its President to forward its position to the Council and the Commission.

Amendment  1 Proposal for a directive – amending act Recital 2
Text proposed by the Commission	Amendment
(2) In order to ensure the proper functioning of the internal market and, at the same time, a high level of health protection, as required by Article 152 of the EC Treaty, bearing in mind that the Community is Party to the World Health Organization’s Framework Convention on Tobacco Control (FCTC), different changes should be made in the matter. These changes should take account of the situation prevailing for each of the various tobacco products.	(2) In order to ensure the proper functioning of the internal market and, at the same time, a high level of health protection, as required by Article 152 of the EC Treaty, bearing in mind that the Community is Party to the World Health Organization’s Framework Convention on Tobacco Control (FCTC), different changes should be made in the matter. These changes should, where appropriate, take account of the smoking ban and the situation prevailing for each of the various tobacco products and should be complementary to the ban on tobacco advertising and to the launching of education campaigns. Account should also be taken of the need to fight against smuggling from third countries and organised crime and the establishment and enlargement of the Schengen area.
Justification
It is exaggerated to state that taxation has a strong influence on the reduction of smoking. Other elements such as education, prohibition or change in social habits can also have important influence on it.
Low prices in neighbouring countries that border new Member States require moderation of price increases, which, above a minimum level, will have effects on the internal market. The proper functioning of the Schengen-zone should not be affected by police and customs controls in bordering regions only to protect the national at the expense of private consumption.
Amendment  2 Proposal for a directive – amending act Recital 3
Text proposed by the Commission	Amendment
(3) As regards cigarettes, the arrangements should be simplified so as to create neutral conditions of competition for manufactures, to reduce the partitioning of the tobacco markets and to underscore health objectives. To this end, the concept of the most popular price category should be replaced; the price related minimum requirement should refer to the weighted average retail selling price, whereas the monetary minimum should be applicable to all cigarettes. For similar reasons, the weighted average retail selling price should also serve as a reference for measuring the importance of specific excise duty within the total tax burden.	(3) As regards cigarettes, the arrangements should be simplified so as to create neutral conditions of competition for manufacturers, to reduce the partitioning of the tobacco markets, to ensure equal treatment of all Member States, EU tobacco growers and tobacco industry, to underscore health objectives, and to comply with macroeconomic objectives, such as the low inflation target, in the light of the enlargement of the euro area and the convergence of prices. To this end, the concept of the most popular price category should be replaced; the minimum excise duty requirement for all tobacco products in all Member States should, by 1 January 2012, be expressed only as a specific component levied on each unit of tobacco. The weighted average retail selling price should serve only as a reference for measuring the importance of specific excise duty within the total tax burden. Member States with a high level of excise duty on tobacco products should adopt a policy of moderation as regards tax increase, bearing in mind the importance of convergence of the tax level within the internal market.
Justification
It is necessary to abolish the transitional period after the accession of the so called new Member States and accordingly the possibility of discriminative practice by the so called old Member States in case of cross-border transfer of tobacco products for private purposes. In case of dramatic increase of excise duty and accordingly the legal consumer prices in these Member States, the production and accordingly the supply of raw tobacco will leave the EU and will be deployed in its neighbouring states.
Amendment  3 Proposal for a directive – amending act Recital 5
Text proposed by the Commission	Amendment
(5) As regards fine-cut tobacco intended for the rolling of cigarettes, the Community minima should be expressed in such a way as to obtain effects similar to those in the field of cigarettes. To this end, it should be provided that national levels of taxation have to comply both with a minimum expressed as percentage of the retail price and one expressed as a fixed amount.	(5) As regards fine-cut tobacco intended for the rolling of cigarettes, the Community minima should be expressed in such a way as to obtain effects similar to those in the field of cigarettes. To this end, it should be provided that national levels of taxation have to comply with a minimum expressed as a fixed amount levied on each unit of tobacco by 1 January 2012.
Justification
Both for cigarettes and fine cut tobaccos the change of the minimum excise duty level expressed in Euro makes it redundant to fix the minimum excise incidence expressed as a percentage of the retail price.
Amendment  4 Proposal for a directive – amending act Recital 7
Text proposed by the Commission	Amendment
(7) Greater convergence would also help to ensure a high level of human health protection. The level of taxation is a major factor in the price of tobacco products, which in turn influences consumers' smoking habits. Fraud and smuggling undermine tax induced price levels of cigarettes and fine-cut tobacco intended for the rolling of cigarettes and thus jeopardise the achievement of tobacco control objectives.	(7) Greater convergence would also help to ensure a high level of human health protection. Fraud and smuggling undermine tax induced price levels of cigarettes and fine-cut tobacco intended for the rolling of cigarettes and thus jeopardise the achievement of tobacco control objectives.
Justification
See amendment 1
Amendment  5 Proposal for a directive – amending act Recital 8
Text proposed by the Commission	Amendment
(8) In order to achieve greater convergence and to reduce consumption, the Community minimum levels of taxation for cigarettes and fine-cut tobacco intended for the rolling of cigarettes should be increased.	(8) In order to achieve greater convergence and to reduce consumption, the Community minimum levels of taxation for cigarettes and fine-cut tobacco intended for the rolling of cigarettes should be moderately increased.
Justification
Both for cigarettes and fine cut tobaccos the change of the minimum excise duty level expressed in Euro makes it redundant to fix the minimum excise incidence expressed as a percentage of the retail price.
Amendment  6 Proposal for a directive – amending act Recital 10
Text proposed by the Commission	Amendment
(10) In the interests of uniform and fair taxation, the definition of cigarettes, cigars and cigarillos and of other smoking tobacco should be adapted so that, respectively, rolls of tobacco which according to their length can be considered as two cigarettes or more are treated as two cigarettes or more for excise purposes; a type of cigar which is similar in many respects to a cigarette is treated as a cigarette for excise purposes; and smoking tobacco which is similar in many respects to fine-cut tobacco intended for the rolling of cigarettes is treated as fine-cut tobacco for excise purposes.	(10) In the interests of uniform and fair taxation, the definition of cigarettes and of other smoking tobacco should be adapted so that, respectively, rolls of tobacco which according to their length can be considered as two cigarettes or more are treated as two cigarettes or more for excise purposes and smoking tobacco which is similar in many respects to fine-cut tobacco intended for the rolling of cigarettes is treated as fine-cut tobacco for excise purposes.
Justification
The categorization should be established on the actual content of the tobacco product instead of its visible appearance or way of production.
Amendment  7 Proposal for a directive – amending act Article 1 – point 1 Directive 92/79/EEC Article 2 – paragraph 1
Text proposed by the Commission Amendment 1. Member States shall ensure that excise duty (specific duty and ad valorem duty) on cigarettes represents at least 57 % of the weighted average retail selling price of cigarettes sold. That excise duty shall not be less than EUR 64 per 1 000 cigarettes irrespective of the weighted average retail selling price. 1. By 1 January 2012, Member States shall ensure that excise duty shall not be less than EUR 64 per 1 000 cigarettes for all types of cigarettes. However, Member States which levy an excise duty of at least EUR 101 per 1 000 cigarettes on the basis of the weighted average retail selling price need not comply with the 57% requirement set out in the first subparagraph.
Justification
In the internal market the minimum level should be specified only as a fixed amount per each unit of tobacco. (See amendment 3.)
Amendment  8 Proposal for a directive – amending act Article 1 – point 1 Directive 92/79/EEC Article 2 – paragraph 2
Text proposed by the Commission Amendment 2. As from 1 January 2014, Member States shall ensure that excise duty (specific duty and ad valorem duty) on cigarettes represents at least 63 % of the weighted average retail selling price of cigarettes sold. That excise duty shall not be less than EUR 90 per 1 000 cigarettes irrespective of the weighted average retail selling price. 2. As from 1 January 2014, all the Member States shall ensure that excise duty on all categories of cigarettes shall not be less than EUR 75 per 1 000 cigarettes or EUR 8 more than level of 1 January 2010. However, Member States which levy an excise duty of at least EUR 122 per 1 000 cigarettes on the basis of the weighted average retail selling price need not comply with the 63% requirement set out in the first subparagraph.
Amendment  9 Proposal for a directive – amending act Article 1 – point 1 Directive 92/79/EEC Article 2 – paragraph 3
Text proposed by the Commission Amendment 3. The weighted average retail selling price shall be determined at 1 January of each year, by reference to the year n-1, on the basis of the total releases for consumption, and prices including all taxes. 3. The weighted average retail selling price shall be determined at 1 March of each year, by reference to the year n-1, on the basis of the total volume placed on the market and prices including all taxes.
Justification
In view of the time needed to collect the data, 1 January is too early to calculate the weighted average price for the previous year (January to December). We therefore recommend that the date should be 1 March of each year. This will give Member States two months' leeway for compiling the market data.
Amendment  10 Proposal for a directive – amending act Article 1 – point 1 Directive 92/79/EEC Article 2 – paragraph 5
Text proposed by the Commission Amendment 5. Member States shall gradually increase excise duties in order to reach the requirements referred to in paragraph 2 on the dates set in paragraphs 2 and 4 respectively. 5. Member States shall gradually increase excise duties in order to reach the requirements referred to in paragraph 1 by 1 January 2012.   Member States in which the excise duty applied on 1 January 2009 for any retail selling price category is higher than EUR 64 per 1 000 cigarettes shall not reduce their level of excise duty.
Justification
To avoid any abuse with the abolishment of the minimum excise incidence expressed as a percentage of the retail price, and a more moderate increase in the minimum excise duty rate, and also to avoid further increase in price differences between neighbouring Member States, the introduction of these measures are indispensable.
Amendment  11 Proposal for a directive – amending act Article 1 – point 1 Directive 92/79/EEC Article 2 – paragraph 6 - subparagraph 1 a (new)
Text proposed by the Commission Amendment   The Commission shall calculate and publish, on the same occasion and for purposes of information, the European floor price for cigarettes, expressed in euro or other national currency, adding the excise duty and VAT levied on a nominal packet of cigarettes of a value of EUR 0 pre-tax.
Justification
Transparency and the interests of the public, the operators and the Member States require that the minimum European taxation level on cigarettes be officially published in a clear and simple form.
Amendment  12 Proposal for a directive – amending act Article 1 – point 2 Directive 92/79/EEC Article 2a
Text proposed by the Commission Amendment Article 2a is replaced by the following: deleted “Article 2a   1. Where a change in the weighted average retail selling price of cigarettes occurs in a Member State, thereby bringing the excise duty below the levels specified in paragraphs 1 and 2 of Article 2 respectively, the Member State concerned may refrain from adjusting that duty until no later than 1 January of the second year following that in which the change occurs.   2. Where a Member State increases the rate of value-added tax on cigarettes, it may reduce the excise duty up to an amount which, expressed as a percentage of the weighted average retail selling price, is equal to the increase in the rate of value added tax, also expressed as a percentage of the weighted average retail selling price, even if such an adjustment has the effect of reducing the excise duty to below the levels, expressed as a percentage of the weighted average retail selling price, laid down in paragraphs 1 and 2 of Article 2 respectively.   However, the Member State shall raise that duty again so as to reach at least those levels no later than 1 January of the second year after that in which the reduction took place.”
Justification
The timing for updating weighted average retail selling price see amendment 7.
Amendment  13 Proposal for a directive – amending act Article 2 – point 1 Directive 92/80/EEC Article 3 – paragraph 1 – subparagraphs 8 and 9
Text proposed by the Commission Amendment As from 1 January 2010, Member States shall apply an excise duty on fine-cut smoking tobacco intended for the rolling of cigarettes of at least 38% of the retail selling price inclusive of all taxes, and at least EUR 43 per kilogram. As from 1 January 2014, Member States shall apply an excise duty on fine-cut smoking tobacco intended for the rolling of cigarettes of at least EUR 50 per kilogram or 6 % more than the level of 1 January 2012. As from 1 January 2014, Member States shall apply an excise duty on fine-cut smoking tobacco intended for the rolling of cigarettes of at least 42% of the retail selling price inclusive of all taxes, and at least EUR 60 per kilogram. As from 1 January 2012, Member States shall apply an excise duty on fine-cut smoking tobacco intended for the rolling of cigarettes of either at least EUR 43 per kilogram or 20 % more than the level of 1 January 2010.
Amendment  14 Proposal for a directive – amending act Article 2 – point 1 Directive 92/80/EEC Article 3 – paragraph 1 – subparagraphs 10 and 11
Text proposed by the Commission Amendment Member States shall gradually increase excise duties in order to reach the new minimum requirements referred to in the ninth subparagraph on 1 January 2014. Member States shall gradually increase excise duties in order to reach those new minimum requirements. As from 1 January 2010, the excise duty expressed as a percentage, as an amount per kilogram or for a given number of items shall be at least equivalent to the following: As from 1 January 2012, the excise duty expressed as an amount per kilogram or for a given number of items shall be at least equivalent to the following: (a) in the case of cigars or cigarillos, 5% of the retail selling price inclusive of all taxes or EUR 12 per 1 000 items or per kilogram; (a) in the case of cigars or cigarillos EUR 12 per 1 000 items or per kilogram; (b) in the case of smoking tobaccos, other than fine-cut smoking tobacco intended for the rolling of cigarettes, 20% of the retail selling price inclusive of all taxes, or EUR 22 per kilogram. (b) in the case of smoking tobaccos, other than fine-cut smoking tobacco intended for the rolling of cigarettes, EUR 22 per kilogram.
Amendment  15 Proposal for a directive – amending act Article 3 – point 4 a (new) Directive 95/59/EC Article 9 – paragraph 1 – subparagraph 3
Text proposed by the Commission Amendment   (4a) In Article 9(1), the third subparagraph is replaced by the following: "The second paragraph may not, however, hinder implementation of national systems [...] regarding the control of price levels, the observance of imposed prices or the implementation by a Member State's competent authority of appropriate threshold price measures applicable to all tobacco products, in the context of that Member State's public health policy, in order to discourage tobacco consumption, especially by the young, provided that they are compatible with Community legislation.".
Justification
This amendment aims to align tobacco prevention policies as outlined in Council Recommendation 2003/54/EC with Directive 95/59 in order to improve tobacco control.
Amendment  16 Proposal for a directive – amending act Article 3 – point 5 Directive 95/59/EC Article 16 – paragraph 1
Text proposed by the Commission Amendment 1. The specific component of the excise duty may not be less than 10% and more than 75% of the amount of the total tax burden resulting from the aggregation of the following: 1. The specific component of the excise duty may not be less than 10%, as from 1 January 2012, and more than 55 % of the amount of the total tax burden resulting from the aggregation of the following: (a) specific excise duty; (a) specific excise duty; (b) the proportional excise duty and the value added tax levied on the weighted average retail selling price . (b) the proportional excise duty and the value added tax levied on the weighted average retail selling price. The average weighted retail selling price shall be determined at 1 January of each year, by reference to the year n-1, on the basis of the total releases for consumption, and prices including all taxes. The average weighted retail selling price shall be determined at 1 March of each year, by reference to the year n-1, on the basis of the total releases for consumption, and prices including all taxes.   1a. The specific component of the excise duty shall not be less than 10 % as from 1 January 2014 and shall not be more than 60 % of the amount of the total tax burden resulting from the aggregation of the following:   (a) specific excise duty; and   (b) the proportional excise duty and the value added tax levied on the weighted average retail selling price.   The average weighted retail selling price shall be determined at 1 March of each year, by reference to the year n-1, on the basis of the total releases for consumption, and prices including all taxes.
Justification
By fixing the minimum and the maximum share of the specific component of the excise duty at 10% and 55% of the amount of the total tax burden, respectively, we can fulfil two objectives: (1) to achieve a moderate convergence of the excise structure; and (2) to maintain the two component excise duty in all the Member States and avoid the change in the competitive situation between cigarette producers.

EXPLANATORY STATEMENT

Summary of the Commission proposal

The Commission proposal is presented as an amendment to the current EU excise duty legislation on tobacco. The draft Directive foresees a gradual increase in the EU minimum taxation levels on cigarettes and fine cut tobacco up to 2014. It also updates the definitions of different types of tobacco products. According to the Commission, this proposal will narrow differences between Member States' tobacco taxation levels and will help tackle intra-EU tobacco smuggling. With its proposal, the Commission also expects to contribute to reducing tobacco consumption by 10% within the next 5 years.

In a nutshell, the Commission proposes:

-    To abolish the MPPC benchmark ("most popular price category") as a reference point for EU minimum requirements on excise duties and for measuring the importance of specific excise duty within the total tax burden. According to the Commission, the MPPC, as benchmark for minimum rates, is not in line with Internal Market objectives as it entails a partition of the tobacco markets of the Member States.

-    To increase gradually the minimum tax levels for cigarettes in line with internal market objectives and health considerations.

-    To allow Member States greater flexibility to apply specific duties and to levy minimum excise duties on cigarettes. In order to avoid a situation of purely specific taxation in one Member State and purely ad valorem taxation in a neighbouring Member State, which would result in cross border flow for premium brands from the first to the second Member State with bottom priced brands flowing in the opposite direction, some consistency of excise tax structures remains desirable, according to the Commission. Therefore it is proposed to widen the band from 5% - 55% to 10% - 75% of the total tax burden.

-    To bring gradually the minimum rates for fine-cut tobacco intended for the rolling of cigarettes into line with the rate for cigarettes.

-    To adjust for inflation the minimum requirements for tobacco products other than cigarettes and fine-cut tobacco intended for the rolling of cigarettes. The rate of inflation is estimated by the Commission at around 2% a year or at 8% over the period as a whole. Applying this percentage to the minimum specific amounts and rounding up to the nearest unit gives €12 for cigars and cigarillos and €22 for other smoking tobacco.

- To amend the existing definition of cigarettes, cigars and other smoking tobacco.

Assessment and recommendations by the draftsperson

Whilst acknowledging the need to pursue legitimate health objectives in al areas of EU intervention, your draftsperson wishes to underline the importance of taking into account, when legislating in the area of excise duties, other equally legitimate objectives of the Union. Any change in this area of EU legislation must take into account the situation prevailing for each of the various tobacco products and should be complementary to the ban of tobacco advertising and to the launching of education campaigns. Account should also be taken of the need to fight against smuggling from third countries and organised crime, the enlargement of the Schengen-zone and the need to enlarge the Euro-zone.

As regards cigarettes, your draftsperson shares the Commission’s views that the arrangements should be simplified. That is why your draftsperson proposes a substantial simplification of the excise duties structure with the aim of reaching the following objectives:

- to create neutral conditions of competition for manufactures

- to reduce the partitioning of the tobacco markets

- to ensure equal treatment of all Member States

- to underscore health objectives, and

- last but not the least, to comply with macroeconomic objectives, and in particular with inflation targets.

Furthermore, when fixing the minimum excise duty requirements, account should be taken of the interest of the EU tobacco growers and tobacco industry.

To this end, the minimum excise duty requirement for all products and for all Member States should be only expressed as a specific component levied on each unit of the product by 1 January 2014. As from this date, minimum excise duty requirements expressed as a percentage of the retail selling price should therefore be abolished. Only one minimum excise duty will be applicable for all products and for all Member States.

As regards cigarettes, Member States, where the excise duty applied by 1 January 2009 on any retail selling price category is higher than EUR 64, shall not be allowed to reduce such excise duty. In order to moderate the price increase in high taxation countries and to promote convergence, your draftsperson suggests that the excise duty should maintain its two component nature and the maximum level of the ad valorem part should thus not be higher than 55 % of the retail selling price. For the same reason, the minimum excise tariff (if it exists) cannot be higher than 100 % of weighted average retail selling price.

Here is a summary of your draftsperson’s proposal for minimum excise duties, applicable to all products falling within the same product category and for all member States, as from 1 January 2014:

Cigarettes

EUR 64 per 1000 cigarettes

Fine-cut smoking tobacco intended for the rolling of cigarettes

EUR 43 per kilogram or by 12 % more than the level of 1 January 2010.

As from 1 January 2010:

Cigars or cigarillos

EUR 12 per 1 000 items or per kilogram, but maximum 130 % of the national level on 1 January 2010 by 1 January 2014.

Smoking tobacco other than fine-cut smoking tobacco intended for the rolling of cigarettes

EUR 22 per kilogram

Moreover, your draftsperson proposes not to accept the change of definition as regards cigars and cigarillos, since he is not convinced that the taxation of a product be based on the external, visible appearance of a tobacco product rather than on its actual composition.

PROCEDURE

Title	Structure and rates of excise duty applied on manufactured tobacco
References	COM(2008)0459 – C6-0311/2008 – 2008/0150(CNS)
Date of consulting Parliament	11.9.2008
Committee responsible        Date announced in plenary	ECON 23.9.2008
Committee(s) asked for opinion(s)        Date announced in plenary	ENVI 23.9.2008
Not delivering opinions        Date of decision	ENVI 10.9.2008
Rapporteur(s)        Date appointed	Zsolt László Becsey 24.9.2008
Discussed in committee	5.11.2008		2.12.2008		20.1.2009
Date adopted	2.3.2009
Result of final vote	+: –: 0:	16 2 9
Members present for the final vote	Mariela Velichkova Baeva, Paolo Bartolozzi, Zsolt László Becsey, Pervenche Berès, Sharon Bowles, Manuel António dos Santos, Elisa Ferreira, José Manuel García-Margallo y Marfil, Jean-Paul Gauzès, Donata Gottardi, Gunnar Hökmark, Karsten Friedrich Hoppenstedt, Sophia in ‘t Veld, Gay Mitchell, Sirpa Pietikäinen, John Purvis, Eoin Ryan, Antolín Sánchez Presedo, Olle Schmidt, Margarita Starkevičiūtė
Substitute(s) present for the final vote	Mia De Vits, Harald Ettl, Werner Langen, Klaus-Heiner Lehne, Gianni Pittella
Substitute(s) under Rule 178(2) present for the final vote	Françoise Castex, Hans-Peter Mayer