Portugal questions EU tobacco tax overhaul, warns of illicit trade and budgetary impacts

On 1 August 2025 the Portuguese government released a statement raising “strong concerns” about the European Commission’s proposal to revise the Tobacco Taxation Directive (2011/64/EU). The Commission unveiled its package on 16 July 2025, including updates to excise-duty rules for manufactured tobacco, a recast of excise legislation and a plan to channel part of tobacco-tax revenues into the EU budget. Lisbon argues that the reforms could harm harm‑reduction efforts, fuel illegal trade and divert billions of euros from national coffers.

Lisbon opposes both EC’s proposals to revise nicotine-related legislation and the additional tax (TEDOR) of 15% to generate more revenue in the frame of the next long-term budget. Portugal is not the first EU member state to express specific reservations against the plans of the EC to overtax tobacco and nicotine products. Earlier in July, Swedish Finance Minister Elisabeth Svantesson publicly condemned the European Commission’s proposed Tobacco Taxation Directive (TED), calling it “completely unacceptable” to the Swedish government.

She objected to plans that would significantly hike taxes on white snus, heated tobacco, and other nicotine products, and to proposals that redirect tax revenues to the EU budget instead of member states. She insisted that each EU country should be free to tax products according to relative harmfulness, with revenues remaining national-echoing familiar concerns raised by Portugal.

Italy, Greece and Romania have also expressed their opposition to the plans of the Commission.

Lisbon’s three objections
The Portuguese statement summarizes three objections to the Commission’s draft directive:

1. Equal taxation of cigarettes and less harmful products. The Commission wants to apply the same taxation rules to all “smoking” products. Lisbon believes that less harmful alternatives such as e‑cigarettes or heated tobacco should be taxed less heavily to encourage smokers to switch, because taxes are designed to be a disincentive.
2. Risk of illicit trade. Higher excise rates will inevitably raise retail prices. Portugal warns that this will push more consumers into illicit channels, pointing to countries where steep hikes have already boosted illegal trade.
3. Loss of national tax revenue. The Commission also proposes to transfer part of tobacco‑tax revenue from member states to the Union budget. Portugal estimates that the current draft could cost up to €1.5 billion in national revenues and says it will negotiate how much revenue is earmarked for Brussels during talks on the Multiannual Financial Framework 2028‑2034.

Overtaxing is not a solution
The Commission’s reform package aims to align tobacco taxation with Europe’s Beating Cancer Plan. According to the EU executive, the revision would update excise rules for manufactured tobacco, which have not been substantially revised since 2010, and bring them into line with public‑health objectives. Brussels argues that the existing minimum tax rates have lost traction because national taxes are already higher; smoking prevalence remains around 24 % and is not falling quickly enough to meet the EU’s target of reducing tobacco use to under 5 % by 2040 taxation-customs.ec.europa.eu. New products have entered the market, and persistent illicit trade underscores the need for modernisation taxation-customs.ec.europa.eu.

The Commission is also trying to diversify its revenue sources. Under its Own Resources proposal, part of the minimum excise duty on tobacco would fund the EU budget. A summary by KPMG notes that the tobacco excise duty own resource (TEDOR) would require member states to contribute 15 % of the revenue generated from applying the minimum excise rate on manufactured tobacco and related products to the EU budget. This measure would need unanimous approval in the Council and, if adopted, would apply from 1 January 2028.

Portugal’s finance ministry fears that redirecting such revenue could significantly reduce national tax income. Lisbon therefore intends to scrutinize the measure during the MFF 2028–2034 negotiations, where own‑resources proposals are debated alongside spending priorities.

Excessive taxation on an entire industry jeopardizes thousands of jobs, encourages the growth of illicit trade, and ultimately undermines public health. Imposing the same tax rates on traditional cigarettes and less harmful nicotine products is unproductive for those who advocate for reduced-risk alternatives and scientifically supported harm reduction.

The Commission’s proposal will now be examined by the Council and the European Parliament. Member states must agree unanimously on the new own‑resources system. The coming negotiations will test whether EU governments can balance health policy ambitions, fiscal sovereignty and market realities while moving towards the goal of a tobacco‑free Europe.

Picture: Tax Commissioner Wopke Hoekstra

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