Assessing the Effectiveness of the Tobacco Excise Directive, 2011-2024

The EU’s Tobacco Excise Directive set a harmonised framework for cigarette taxation, but our study shows that differences in the pace and scale of excise increases have contributed to a rise in illicit trade, especially in high-price Member States, and mixed cigarette excise revenue outcomes between 2011 and 2024 —highlighting the need for a more gradual and coordinated approach with the upcoming revision of the Tobacco Excise Directive.

The EU’s Tobacco Excise Directive (TED), adopted in 2011, established a harmonised framework for tobacco taxation across Member States. By prescribing common tax structures and minimum excise duty levels, the Directive aimed to support the single market, reduce tax-induced distortions, limit cross-border and illicit trade, and support public health objectives.

This study assesses the effectiveness of the TED between 2011 and 2024 through case studies of six Member States—Belgium, Czechia, France, Hungary, the Netherlands, and Poland—covering a range of developments: price and tax levels, excise strategies, and enforcement environments. The analysis evaluates outcomes against key objectives, including price convergence, cross-border and illicit trade, consumption patterns, and real cigarette excise revenue performance.

Across all six countries, excise duty increases led to substantially higher cigarette prices, indicating that the TED has been effective in raising price floors. However, implementation outcomes have been uneven. In high-price Member States such as France, the Netherlands, and Belgium, excise increases that significantly exceeded EU minimum requirements widened price gaps with neighbouring countries and the EU average. These gaps encouraged substitution toward duty-not-paid products, including illicit trade and non-domestic legal purchases, eroding domestic tax bases and limiting expected fiscal outcomes in these markets.

In lower-price Member States such as Hungary and Czechia, excise duties rose more gradually to meet EU minima, but sharper increases after 2019 coincided with declining legal sales, rising illicit inflows, and falling real excise revenues — indicating that these outcomes were driven less by compliance with EU minimum requirements than by subsequent acceleration in tax increases. Poland presents a contrasting experience, where strengthened enforcement, improved border controls, and the closure of illegal production facilities helped reduce illicit trade and support more stable fiscal outcomes by 2024.

Overall, while the TED has provided a unified framework and raised minimum cigarette excise rates across the EU, differences in national excise strategies — particularly where increases have been steep — have driven sustained growth in duty‑not‑paid consumption, especially in high‑price markets, placing pressure on domestic tax bases and real excise revenue —highlighting the need for a more gradual and coordinated approach as the European Commission reviews the TED.