European Taxation

Tobacco, how the EU budget rewrites (and increases) taxes

Revenues estimated at EUR 11.2 billion annually at EU level, in addition to EUR 15 billion for individual countries

by Giorgio Emanuele Degani

12 August 2025

3' min read

Key points

New withdrawal levels
The reflections in Italy

3' min read

The tobacco excise duty is set for a makeover, with possible price increases, in the context of the new European budget. The EU Commission, as part of the own resources package for the next budget, has included the 'Tobacco excise duty own resource' (Tedor) as new fixed EU contribution. It is an additional levy amounting to 15% of the revenue from the national harmonised minimum excise duties and is dedicated to partly compensate the repayment of the Next Generation Eu, while avoiding further burdening of national GDP-based contributions. The aim is to strengthen common resources to respond to health and economic crises with a transparent and uniform mechanism, while reducing differences between the tax systems of the Member States.

Contributions based on the Gni (Gross National Income) are today the main own resource of the European Union and cover more than 70% of total revenues. Each year, the EU Commission calculates the remaining budgetary needs - after deducting tariffs, VAT resources and other own revenues - and allocates a uniform 'rate' to be applied to each Member State's GNI. In the seven-year period 2021-27, the ceiling is set at 1.40 per cent of the total EU Gni, with an average effective rate around 0.67 per cent. Tedor aims to diversify the EU revenues, gradually reducing the dependence on Gni contributions.

New withdrawal levels

The EU Commission proposal sets newmandatory minimum levels for domestic excise duties on tobacco: EUR 215 per one thousand cigarettes, EUR 215 per kilogram of rolling tobacco, EUR 143 per one thousand cigars or cigarillos, EUR 108 per one thousand units of heated tobacco devices and EUR 0.12-0.36 per millilitre of liquid for electronic cigarettes (depending on nicotine content).

With Tedor, as of 1 January 2028 and with a transitional period of four years, states will have the opportunity to adjust their regulations. According to initial estimates of the Commission - comparing the new levels with the current ones - the increase of excise duties could result in an increase of 139% for traditional cigarettes, 258% for rolling tobacco and more than 1,090% for cigars. In all, the EU expects to collect approximately 11.2 billion per year from Tedor, while the new harmonised minimum rates will bring another 15 billion to the individual states.

The reflections in Italy

InItaly the impact will be significant for a system that already incorporates a double component (specific and ad valorem) and boasts a production of over 40 thousand tonnes of tobacco (30% of the EU total), cultivated on 11 thousand hectares and managed by 1,200 farms employing 25 thousand workers. It is estimated that a standard packet of cigarettes could increase in price by more than one euro, with possible repercussions on the combating smuggling, which today accounts for around 1.8% of the national market.

Coldiretti e Philip Morris, alleanza sul tabacco verso il 2034

On an operational level, the reform requires the revision of the customs IT systems, the redefinition of protocols for the transmission of tax declarations and the harmonisation of sanctions for omissions. The Ministry of the Economy, the Customs Agency and the Guardia di Finanza will have to coordinate to ensure transparency, traceability of excise duties and consistency with the public health objectives promoted by the Union.

Innovations and advantages

With regard to innovative products - electronic cigarettes, vaping liquids and heated tobacco devices - the directive under review envisages a mixed model, with a specific tax in euro per unit and ad valorem rate on the price. The aim is to incentivise switching from combustible tobacco without creating distortions that push consumers back to their old habits. The expected benefits go beyond revenue: reducing dependence on subsidies, creating dedicated resources for prevention and support programmes for those who want to quit smoking, and curbing cross-border shopping and smuggling practices.

On the other hand, complex challenges remain: to calibrate taxation on vaping in a balanced way, to avoid overburdening states with already high excise duties and to standardise customs controls on a European scale. The reform represents a balance between economic needs and public health objectives. With the Tedor and the revision of rates for innovative products, the European Union sets a coherent framework capable of supporting the common budget without abandoning combating smoking strategies. It will now be up to the states to translate these into efficient practices, while ensuring market competitiveness, protection of the supply chain and concrete results for citizens' health.