Sundheds- og Ældreudvalget 2016-17
SUU Alm.del Bilag 420
Offentligt
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To Combat Borderline Tobacco Products:
60.8% of Health and Tobacco Policy Experts
support the Additional Prevention Tax (APT)
Q8: Which option would you choose? (%)
Maintaining EU Directive 2011/64/EU
Adopting the RAMBOLL report conclusions
Other
Updating the tobacco product category definitions
Adopting an Additonal Prevention Tax
Other Maintaining EU
Directive
7%
2011/64/EU
4%
Updating the
tobacco product
category definitions
12%
Adopting the
RAMBOLL report
conclusions
16%
Adopting an
Additonal
Prevention Tax
61%
Figure 1: Question 8 of Elite Opinion Poll among 102 top experts on Health and Tobacco Policy, p. 8.
Brussels, June 2017
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Health and tobacco policy experts: 81.4% against borderline tobacco
products
In accordance with Council
Directive 2011/64/EU,
the European Commission is reviewing the tobacco
excise duty rates and structure. It is currently conducting studies to prepare a possible legislative
proposal to revise the Directive. The revision may include addressing cheap cigarette-like cigarillos,
k ow as o de li e p odu ts o low- ost iga illos . These
tobacco products are taxed at the lower
cigars/cigarillos rate but are dangerously sold and consumed as cheaper substitutes for substantially
higher taxed cigarettes. In several Member States (MS), they constitute the cheapest tobacco product
on the market, thereby lowering the threshold against smoking. An expert polled from the Tobacco-
Related Disease Research Program of the University of California described these borderline products
as
a
tobacco industry strategy to addict younger smokers to nicotine. It is a nicotine manipulation
strategy to drive consumption toward the cigarillo market [borderline products] and take advantage
of a rela ed ta stru ture.
On 29 June 2014, consultancy
RAMBOLL
recommended the European Commission to align the
Minimum Excise Duty (MED) on cigar/cigarillos with the MED on cigarettes. Experts fear that this leads
to a consumption shift from cigar/cigarillos towards more frequently smoked cigarettes. This is
reflected in an Elite Opinion Poll among 102 top experts on tobacco policy held between 24 January
and 15 April 2017:
less than 16% preferred the RAMBOLL option. 76.8% considered protecting public
health to be the most important objective of updating the Directive,
while the RAMBOLL solution is
focused on obtaining tax revenues for MS. Members of the European Parliament indeed objected to
this ignoring of public health.
A second Commission authorised study by the Italian Consultancy
Economisti Associati
understated
the health threat of borderline products by concluding that current measures tackling the issue were
sufficient.
Only
3.7 billion pieces
a e u e tl sold
, it stated, without referring to planned major
product launches by the cigarette industry which will considerably add to this number. Health experts
state that borderline products represent a significant health threat which equates to quantifiable
diseases. They target those with low incomes, especially youth. Indeed,
81.4% of polled experts
thought that the emergence of borderline products and their lower taxation was a threat to public
health.
As a researcher at the Schroeder Institute for Tobacco Research and Policy Studies responded,
The arket has e ol ed i respo se to the ta Dire ti e. The Dire ti e should e re ised so
that it can
o ti ue to eet its goals i the o te t of the e
arket e iro e t.
Respondents by sector
27%
41%
10%
15%7%
Academia/research institute (42)
Consumer organisation (7)
NGO/health organisation (15)
Private sector/industry (10)
Public sector/government (28)
Recognising the need for expert opinion on the issue of
borderline products, the PA International Foundation
conducted an Elite Opinion Poll on the Taxation of
Tobacco Products. Between 24 January and 15 April
2017, the Foundation received the named opinions of 102
leading tax and health experts, including 15 esteemed
Health NGOs, such as the Association of European Cancer
Leagues and ASH Ireland, 7 national Consumer
Organisations and 13 EU MS representatives, particularly
from Health and Finance Ministries. The purpose of the
Poll and of this Report is to present policy and decision
akers ith the aggregate ie s of the orld’s a d
Europe’s ost re o ed authorities i to a o poli .
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If RAMBOLL and inaction are considered undesirable, then what? The Poll
introduced a new option
developed by legal and political experts:
The Additional Prevention Tax (APT).
The APT will only be
activated when borderline products occur in a Member State market. Thereby, the APT also stops the
evasion of tobacco excise on these products. A strong majority of
over 60% of all experts are in favour
of the APT over the other options on the table,
with nearly
80% considering the APT effective or very
effective.
The APT is understood as an effective deterrent against borderline tobacco products.
APT: the only effective option
The main outcome of this Elite Opinion Poll, conducted among key experts from a multi-stakeholder
group, can be summarised as follows:
-
-
-
-
76.8%
listed the protection of public health as the main objective of tobacco taxation;
81.4%
described the production and consumption of borderline products as a potential
threat to public health;
82.4%
support that the Commission should consider increasing the excise duty levied on
borderline products to the level of cigarettes;
After presenting respondents with four options to eliminate the tax incentive for
borderline products,
60.8% of the respondents preferred the Additional Prevention Tax
(APT) above all other solutions.
In other words:
a) The
communis opinio
among the polled experts is that the European Commission should first
of all act to protect its citizens from these borderline products.
b) The results of the Elite Opinion Poll also indicate the way in which the European Commission
should act. An overwhelming majority supports raising the excise duty on borderline products
to the level of cigarettes.
c) However, from a legal and regulatory perspective, it is difficult to distinguish the more
expensive, traditional cigarillos from the borderline products. Raising the excise duty for these
borderline products only, is complicated. The only option that addresses the problem
effectively is to deter producers to market borderline products by immediately raising the
excise duty on them: that is what the Additional Prevention Tax (APT) does. As big tobacco
companies seek to gain market share in the Directive-enabled borderline product market, the
Additional Prevention Tax would work to remove this rather perverse tax incentive and
protect European citizens.
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Complete Elite Poll Results
Question 1: What should be the main objective of tobacco taxation in the European
Union?
A majority of 76.8% thought that the most important objective of tobacco taxation and Directive
2011/64/EU on the structure and rates of excise duty applied to manufactured tobacco should be to
ensure the best protection of public health (i.e. to discourage smoking). Less than one-quarter (24.5%)
of respondents considered securing excise duty revenues for the MS to be the most important
objective, while an even smaller minority (9.1%) considered ensuring the proper functioning of the
internal market to be the main objective of Directive 2011/64/EU.
Many respondents added to this question that the tobacco revenues should be earmarked for health
purposes (notably to pay for smoking inflicted diseases) and to support cessation programmes. The
responses to this question demonstrate that the suggestions of the 2015 RAMBOLL study are
insufficient, focusing on revenue and finances and totally neglecting what is widely seen to be the
most important reason for tobacco taxation: the public health aspect.
Q1: Most important objective of tobacco taxation (%)
76.8
48.7
32.3 34.3
21.6
7.1
8.1
8.1
9.1
24.2
23.1 23.1
5.1
OTHER
29.4
24.5 24.5
SECURING EXCISE DUTY FOR PROTECTING PUBLIC HEALTH
ENSURING PROPER
MEMBER STATES
FUNCTIONING OF INTERNAL
MARKET
Most Important
2nd Most
3rd Most
Least Important
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Question 2: Which of the following
arguments further legitimises the
current higher taxes on cigarettes?
Q2: Which factor(s) legitimises
a higher tax on cigarettes? (%)
PRODUCTION (SPEEDS AND
When asked about the reason for the distinction
23.5
NATURE OF PRODUCER)
in taxation between cigars/cigarillos on the one
CONSUMPTION RATES
36.3
hand and cigarettes on the other, with
cigarettes being taxed higher than cigars,
ADDICTIVE POTENTIAL
18.6
opinions varied. Respondents were invited to
identify one or more factors that legitimise a
CONSUMPTION DIFFERENCES
53.9
higher cigarette tax. Just over half of all
respondents (53.9%) agreed that a difference in
OTHER
35.3
consumption between cigars and cigarettes is
0 10 20 30 40 50 60
one reason for the difference in treatment for
tax purposes. Indeed, according to the 2015
Eu o a o ete epo t attitudes towa ds to a o a d the A tio agai st
Smoking and Health (ASH)
UK, cigars and cigarillos are usually not inhaled, are smoked much less often than cigarettes, and are
less attractive to youngsters and women. Less than 20% of participants were convinced that one
reason for the difference is tied to the lower addictive potential of cigars/cigarillos due to the above-
mentioned difference in consumption. A slightly larger minority (36.3%) attributed the higher taxes
on cigarettes to the fact that consumption levels of cigarettes are much higher than those of cigars,
while a similar amount of respondents (35.3%) pointed to the much higher production speeds (up to
20,000 per minute)
of cigarettes and the fact that they are typically produced by MNEs, compared to
cigars which are usually produced by SMEs at a speed between
20 and 50 pieces per minute.
Question 3: What is your opinion on
the e erge e of orderli e
produ ts
on the European market
and the rapid growth in their market
size due to their lower taxation?
Q3: How would you describe the
emergence of borderline products
and their lower taxation? (%)
81.4
This questions asked respondents to consider
60.8
the implications of the market distortions
54.9
aused
the e e ge e of
o de li e
p odu ts
that look like t aditio al
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15.7
cigars/cigarillos and are therefore taxed
lower but are smoked like cigarettes. Almost
all participants judged the growth in the
market size of borderline products to be an
overwhelmingly negative development, with
only 1% describing it as a natural
development in the market that must be
encouraged, compared to a clear majority
(54.9%) describing it as a natural
development in the market that must be discouraged. An even larger majority of
60.8% perceived the
lower taxation of borderline products to be an abuse of the existing tax Directive.
ABUSE OF DIRECTIVE
PUBLIC HEALTH THREAT
However, the most ubiquitous opinion on the emergence of borderline products on the European
market concerns the drastically detrimental impact of their emergence on public health, with 81.4%
describing this as a threat to public health. A senior civil servant in the Lithuanian Ministry of Finance
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NATURAL MARKET
DEVELOPMENT TO BE
ENCOURAGED
NATURAL MARKET
DEVELOPMENT TO BE
DISCOURAGED
OTHER
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outlined that
Lithua ia has a problem
with borderline cigarillos. The tax dispute is in the process at
the moment, but the economic operator continues to sell these products (and it even asked the
manufacturer to make some adjustments in the production in order to comply with legislation). The
pri e of those orderli e igarillos is lo er tha the heapest igarettes.
Question 4: Should the European Commission
consider raising the excise duty levied on
borderline products to the level of cigarettes?
Respondents were almost unanimous in Question 3 that the
emergence of borderline products represents a potential
threat to public health. In this light, Question 4 noted that
the European Commission and the MS use excise duties on
cigarettes to discourage consumption of products that are
considered harmful for public health and asked whether the
excise duty levied on borderline products should be raised
accordingly to the level of cigarettes. An overwhelming
majority of
82.4%
of respondents stated that such an
increase in excise duty was indeed necessary and should be
introduced, while only
2.9%
stated that such an increase
should not be imposed. 12.7% of participants had no opinion
on the matter. According to the response of a professor at
the University of Manchester, borderline products
should
be [p]u
ished as fraud .
Q4: Should the excise
duty levied on
borderline products be
raised to the level of
cigarettes? (%)
2.0%
12.7%
2.9%
82.4%
Yes
No
No opinion
Other
Questions 5, 6, and 7: Opinion on the proposed options (refining definitions of tobacco
production categories, adopting the conclusions of the RAMBOLL report, or an
Additional Prevention Tax)
Respondents were asked to consider a range of options concerning strategies the European
Commission could use to combat borderline products. Respondents indicated that all options
possessed some merit, but that only one
–
the
Additional Prevention Tax
–
was optimally effective.
The first option involves the European Commission sharpening the definitions of cigarettes and
cigar/cigarillos to ensure that low-cost borderline products fall into the higher taxed cigarette category
rather than in the cigar/cigarillo category. Historically, abuse of the categories of tobacco products
has triggered numerous refinements in the existing definitions of cigars, cigarillos, pipe tobacco, roll-
your-own tobacco and cigarettes. Of the respondents surveyed, 48% thought that a further
sharpening of the definitions of cigar/cigarillos and cigarettes would be effective in eliminating
borderline products in the longer-term, while 11.8% thought doing so would be very effective. In
contrast, 18.6% and 7.8% respectively thought doing so would be quite ineffective or ineffective. 13.7%
had no opinion. It should be noted that certain tobacco manufacturers have always found loopholes
to circumvent these definitions and that it is extremely hard to distinguish borderline products from
the traditional cigarillos making any definitional change problematic. It is also worth noting that of the
60% who stated that refining the product category definitions would be effective or very effective, a
clear majority (59%) of them still believe APT would be more effective, choosing it as the optimal
option in Question 8.
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The second option is adopting the recommendations of the 2015 RAMBOLL report that the European
Commission should align the excise duties on all cigars/cigarillos (not just borderline products) with
those of cigarettes by adapting Directive 2011/64/EU. The majority of respondents (64.7%) stated that
they would agree with this process, while 21.6% stated they would not. 13.7% had no opinion. The
Q5: How effective would refining the
product category definitions be?
Q6: Would you agree with adapting
Directive 2011/64/EU based on the
RAMBOLL report conclusions?
No opinion
13.7%
Very
effective
11.8%
No opinion
13.7%
Ineffective
7.8%
No
21.6%
Quite
ineffective
18.6%
Effective
48.0%
Yes
64.7%
Of those who stated that refining the product category
definitions would be effective or very effective, a clear
majority (59%) nonetheless chose APT as the optimal
option in Question 8.
Of those who agreed with the RAMBOLL report, a clear
majority (58%) nonetheless chose APT as the optimal
option in Question 8.
RAMBOLL option would substantially increase the retail selling price of cigars/cigarillos, which may
then shift part of the tobacco consumption to the then relatively cheaper cigarettes which are more
harmful for public health. Consumers of cigars/cigarillos would end up buying more cigarettes instead,
if their product of choice becomes more expensive. That change would be counterproductive to the
health promotion objective of the excise duties. Substitution
from traditional cigars/cigarillos (typically only 1% of
Q7: Do you think an
smokers consume these daily, according the Eurobarometer
Additional
2016) to cigarettes, with their much higher risk for addiction,
would not fit the objective of reducing smoking. It would also
Prevention Tax will
probably take traditional cigars - produced mostly by SMEs -
be effective? (%)
out of the market. Note the 64.7% who agreed with the
RAMBOLL report, a clear majority (58%) of them still prefer
APT, selecting it as the optimal option in Question 8.
79.4
The third option involves charging an Additional Prevention
Tax raising the retail selling price of borderline products to
the level of cigarettes. Support for this method among the
respondents was significantly higher than support for all
other methods, with an overwhelming majority (79.4%)
stating that an Additional Prevention Tax would be effective
or very effective. In comparison, a significantly smaller
majority of 64.7% stated that they would agree with the
11.7
8.8
VERY
QUITE
NO OPINION
EFFECTIVE INEFFECTIVE
OR
OR
EFFECTIVE INEFFECTIVE
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RAMBOLL report recommendations and an even small majority of 59.8% stated that the definitional
refinement option would be effective or very effective.
NGOs/Health organisations
view of APT
No
opinion
6.7%
Academia/research view of
APT
No opinion
2.4%
Quite Ineffective
4.8%
Very Effective
or Effective
93.3%
Very Effective or
Effective
92.9%
This identification of the APT as the most effective option was consistent among participants from all
sectors, although support for the APT was particularly unanimous across four groups (NGOs and health
organisations; academics and researchers; consumer organisations; and private sector and industry),
with 93% of those belonging to NGOs and health organisations predicting that the APT would be very
effective or effective, alongside 93% of academics and researchers, 72% of members of consumer
organisations, and 90% of members of the private sector and industry. No respondents belonging to
these groups determined that the APT would be ineffective. Public sector and government officials
were more divided over the APT, with 50% saying it would be an effective or very effective
intervention. However, this figure still vastly outnumbers the proportion of public sector and
government officials who predict APT would be ineffective (11%).
Moreover, a substantial amount of those surveyed expressed concern over the RAMBOLL report
recommendations (21.6% would not agree with adapting the Directive in that way) and the
definitional refinement option (26.6% stated it would be either quite ineffective or ineffective). In
contrast, only 2.9% of participants thought that the Additional Prevention Tax would be ineffective.
Consumer organisations
view of APT
Quite
ineffective
14.3%
Private sector/industry view
of APT
Quite
ineffective
10.0%
Public sector/government
view of APT
No opinion
14.3%
No opinion
21%
Very Effective
or Effective
50%
Ineffective
11%
Quite
ineffective
18%
Effective
71.4%
Very Effective or Effective
90.0%
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Question 8: Which of the options would you choose?
The final question of the poll invited
participants to directly compare
these options (including the option to
maintain Directive 2011/64/EU as it
is). This question reveals most clearly
the widespread opinion among the
stakeholders and experts that the
Additional Prevention Tax would be
the most effective solution to the
issue of borderline products, with an
overwhelming majority of 60.8%
stating that that is the option they
would choose. In contrast, a much
smaller number (15.7%) said they
would adopt the conclusions of the
RAMBOLL report, and an even
smaller number (12.7%) said they
would choose to update the existing
definitions of the tobacco product
categories. Only 3.9% stated that the
Directive should be retained as it is.
Q8: Which option would you
choose? (%)
Maintaining EU
Directive 2011/64/EU
6.9
3.9
12.7
Updating the tobacco
product category
definitions
15.7
Adopting the RAMBOLL
report conclusions
Adopting an Additonal
Prevention Tax
60.8
Other
Just as in Question 7 the majority participants across all sectors deemed the APT to be an effective
response to the issue, the identification of the APT as the most optimal of all the proposed responses
in Question 8 was consistent across participants from all sectors. As with the assessment of efficacy,
respondents from NGOs and health organisations, academia and research institutes, consumer
organisations, and private sector and industry were most unanimous in determining the APT to be the
best option. 60% of members of NGOs and health organisations, 69% of academics and researchers,
86% of members of consumer organisations, and 70% of members of the private sector and industry
chose the APT as the best option. A lesser proportion (39%) of public sector and government officials
identified APT as the superior option, however this group (like all others) preferred the APT to all other
options, with only 14% of them identifying an adoption of the RAMBOLL conclusions as the best option.
Preference of
academia/research institutes
Update
definitions
Other
4.8%
9.5%
RAMBOLL
16.7%
Preference of consumer
organisations
Maintain
Directive
14.3%
APT
69.0%
APT
85.7%
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Preference of NGOs/Health
organisations
Maintain
Directive Update
6.7% definitions
13.3%
Preference of private
sector/industry
Update
definitions
10.0%
Preference of public
sector/government
Maintain
Other Directive
11%
7%
Update
definitions
29%
RAMBOLL
20.0%
RAMBOLL
20.0%
APT
39%
APT
60.0%
APT
70.0%
RAMBOLL
14%
Brief Outline of the Additional Prevention Tax
The APT represents an additional
–
very targeted
–
excise duty to be levied by the European Member
States on borderline products only. Member States shall, in addition to the excise duty applicable to
cigars and cigarillos, impose an APT on borderline products that are considered cigars or cigarillos
within the meaning of Directive 2011/64/EU, but that have a retail selling price lower than the one of
the cheapest cigarettes representing 1% market share in a Member State. This APT may be either an
ad valorem duty, a specific duty or mixture of both. The excise duty for cigars and cigarillos and this
APT together should have the same level as the total of excise duty levied on the cheapest 1% market
share of cigarettes in the Member State. Such a measure should be mandatory for the Member State
not only to eliminate current and potential borderline products from the MS markets but also to
prevent distortion in the local markets and future launches of products aiming to circumvent tax
revenue interests of MS.
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Annex: Current options on the table to combat borderline tobacco
products
I. A refinement of the existing definitions of the cigar/cigarillo category and cigarettes
In theory, the European Commission could consider sharpening the definitions of cigarettes and
cigar/cigarillos to ensure that low-cost borderline products fall into the higher taxed cigarette category
rather than in the cigar/cigarillo category. In practice, it is extremely hard to distinguish low-cost
cigarillos from the traditional cigarillos. In the past, several refinements of the definitions have not
fundamentally solved the problem.
II. The recommendation of the RAMBOLL-report
The RAMBOLL study advises policy makers to consider aligning the excise duty on cigars/cigarillos with
those of cigarettes. While this would immediately eliminate the current tax incentive for borderline
products and effectively stop their production in the EU, particularly Members of the European
Parliament feel it may not be the best solution to address health impacts. The philosophy behind the
RAMBOLL suggestion is based on revenue and finances only, with the public health aspect completely
lacking. The European Public Health Alliance (EPHA) expressed its disappointment with the report in
whi h the o side atio of the health o se ue es of to a o, a d the o t i utio that ta atio
can make to reducing death and disease from tobacco use is completely missing
. I deed, eithe the
RAMBOLL study nor any of the other assessments by the Commission have researched the effects that
an alignment of overall cigar/cigarillo taxation rate may have on the behaviour of smokers. It is not
unthinkable that a (much higher) retail selling price of cigars/cigarillos may shift part of the tobacco
consumption to the then relatively cheaper cigarettes.
III. The Additional Prevention Tax (APT)
The Additional Prevention Tax specifically targets borderline products to discourage their production
and consumption, thereby maintaining the price barrier against smoking and protecting public health.
The APT was developed by legal and political experts and is designed as a special excise duty imposed
on top of the excise duty for cigars/cigarillos to increase the price of borderline products and bring
them in line with the price of cigarettes. Such an APT could be the most effective instrument for MS
to eliminate current borderline products from their markets and to deter new ones from being
developed, while securing tax revenues of the MS. It could also prevent distortion in the local markets.
Applying the APT will help recover MS revenue currently lost from consumers substituting lower taxed
borderline products for cigarettes. Most importantly though, the simple existence of the APT should
dissuade tobacco manufacturers from developing and marketing borderline products. Where these
products are already available in a MS or outside the EU, the manufacturers would be deprived of any
economic interest to introduce such a product in additional EU countries, knowing the APT would be
applied.
IV. Maintaining Directive 2011/64/EU as is
It has been argued that the existing Directive already offers enough instruments for the European MS
to address borderline products. Indeed, through a modest rise of the minimum excise duty on all cigars
and cigarillos, Germany seems to have halted the increase in market share of borderline products
(marketed there as eco-cigarillos). Though the problem does persist and data suggests that the market
share of these products is growing or remains high in other MS. Recent launches of cheap borderline
products by some of the big cigarette manufacturers suggest that as long as the loophole exists, the
threat of economic operators massively abusing this loophole throughout the EU continues. This also
suggests that the current rather stable market share of borderline products in the EU is more thanks
to initial reluctance in the industry itself than a result of clever legislation.
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