EU governments are set to agree on raising the minimum level of excise duties on cigarettes tomorrow in a bid to narrow big gaps in tobacco tax levels and reduce incentives for fraud, EU officials said.
Excise duty on tobacco accounts for up to 1.9 per cent of the gross domestic product in some EU countries. But part of these revenues is lost to cigarette smuggling to high-tax countries such as Ireland, where a packet of cigarettes can cost up to four times as much as in Spain.
The new EU legislation will reduce price differences between cigarette brands and lead to an overall increase in prices in Spain, Greece, Italy, Portugal and Luxembourg - the countries with the lowest taxes.
Finance ministers, who meet in Brussels for their regular monthly discussions, will agree to increase the minimum excise duty on cigarettes to € 60 per 1,000 cigarettes from 2005, and to € 64 from 2006.
Spain and Greece, two of the cheapest countries for cigarettes, will be able to wait until 2008 before raising their minimum duties to € 64.
The legislation will be ready for ratification by EU government only after the European Parliament has given its non-binding opinion next week.
Similar plans to rationalise excise duties on alcohol across the EU are in the pipeline and the Commission is due to present a proposal before the end of the year.