The European Union’s revised Tobacco Excise Directive (TED) is the latest proposal from Brussels that attempts to replace Member States’ national autonomy with EU subordination. Harmonized policy in pursuit of a low-friction, Single Market is a worthy goal, but over-exporting policy decisions to Brussels will harm many Member States.
TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. policy is a clear expression of national sovereignty. Governments decide whom to tax, how much to tax them, and how to use the resulting revenue. Those decisions reflect the preferences of voters and the economic conditions in each jurisdiction.
The EU has an important role to play when differences in national tax systems substantially inhibit the Single Market. But there is a meaningful difference between harmonizing tax rules to facilitate commerce and harmonizing tax rates to pursue a particular social policy.
The suggested revision of the TED illustrates that distinction.
The European Commission (EC) proposed a comprehensive update in July 2025, arguing that the existing framework no longer reflects tobacco and nicotine markets that have experienced remarkable innovation since the TED’s last update. The proposal would expand EU minimum taxation to products including e-cigarette liquids, heated tobacco, nicotine pouches, and other nicotine products.
Taxation Is Closely Connected to National Sovereignty
EU treaties explicitly recognize subsidiarity. Under Article 5 of the Treaty on European Union, powers not explicitly conferred on the EU remain with Member States. Where the EU does have authority to act, it should do so only when the objectives cannot be sufficiently achieved by Member States themselves.
EU action must also be proportionate to the objective being pursued. Even if some degree of action is justified by the EU, proportionality requires consideration of how an objective can be achieved through the least restrictive measures.
Taxation is particularly sensitive to both sovereignty and proportionality. Taxation is inseparable from national budgets and political accountability. The EC acknowledges this and says that Member States retain responsibility for tax collection and tax policy within their countries.
This doesn’t mean every national tax policy deserves protection from European coordination. Member States should not be able to use tax policy to deliberately undermine the Single Market, for example. But it does mean that the EU should be cautious about replacing national policy choices with centralized rules when the underlying policy problem is fundamentally domestic.
Tobacco taxation is a good example. Member States have different smoking rates, income levels, health systems, consumer preferences, and enforcement capabilities. A tax rate that might be appropriate in France does not necessarily make sense in Bulgaria. A rate that is enforceable in Germany may be considerably more difficult to administer in a country with a larger informal economy or a different geographic relationship to lower-tax neighboring countries.
These differences aren’t evidence of a broken Single Market. They are evidence that Member States face different policy environments and may need different policy tools to use in their specific countries.
Tax Harmonization Can Be a Guise for Paternalism
The EC argues that greater harmonization is needed to protect the Single Market and advance public health.
But its proposal—which Member States have been debating, amending, and continuing to work on—still reads more like paternalistic prescriptions and protectionism than policies that promote EU trade.
This is most evident when it comes to the new minimum excise taxes on nicotine pouches and other nicotine products. The latest Council proposal would introduce a minimum tax rate of 10 percent of retail selling price or €30 per kilogram in 2028-2029 (whichever is greater), and transition to a 25 percent minimum or €50 per kilogram in 2030-2031, before ultimately reaching 50 percent or €80 per kilogram.
The latest Council proposal would also increase the minimum cigarette excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. to 60 percent of the weighted average retail selling price or €200 per 1,000 cigarettes, with transitional provisions.
These rates represent more than an effort to prevent tax arbitrage. They establish a European-wide judgment about how heavily consumers should be taxed on select products.
This is where subsidiarity deserves renewed attention. If Member States conclude that maintaining a substantial price difference between cigarettes and lower-risk nicotine products helps move smokers away from combustible tobacco, those governments should retain meaningful authority to pursue that strategy. The EU should not inadvertently (or intentionally) make such substitution more difficult in the name of tax harmonization.
The EC’s proposal recognizes that Member States have developed different national approaches to products that substitute for combustible tobacco. Its justification for the new and higher taxes is that these differences “distort competition” and undermine the Single Market.
But different taxes do not automatically constitute harmful competition. The relevant question is whether those differences create meaningful distortions to cross-border commerce that require EU intervention. If the primary effect of tax harmonization is instead to constrain Member States’ ability to pursue different public health strategies, the case for EU-level intervention becomes considerably weaker.
Further, the EC should remember that harmonization goes both ways. Perhaps the problem isn’t that some countries maintain low and more equitable taxes. Maybe the problem is that some countries have gone too far with tax rates that are beyond the established EU norms.
France has a serious problem with illicit cigarettes. Nearly 4 in 10 packs of cigarettes consumed in France aren’t purchased legally in the country.
This leads to the obvious question of whether the problem observed in France is because cigarette tax rates are too low in the rest of the EU, or is it that taxes are too high in France to be compatible with the effective functioning of a Single Market?
The problem of tax harmonization goes both ways. Just as France is pressuring other Member States to increase their tobacco tax rates, it would surely be equally as valid for other Member States to demand that limits be placed on how high tax rates are set.
Sweden Offers Important Policy Alternatives
Perhaps the biggest problem with an increasingly centralized approach to tobacco taxation is that it risks treating all nicotine products, and taxation of those products, as though they have identical policy implications.
This is particularly problematic because the preferred policy blueprint from Brussels isn’t the one that would most quickly reduce smoking rates.
Consider Sweden. Sweden’s tobacco experience is markedly different from that of most other European countries. Sweden has the lowest smoking rate of any EU Member State. Sweden’s Public Health Agency reported that only 5.4 percent of adults aged 16-84 smoked daily in 2024, down from roughly 14 percent in 2006. This outcome alone should have countries around the world trying to emulate the Swedish Experience. But EU policymakers are pushing the opposite policy approach.
Sweden has a long history of producing and consuming snus, a smokeless oral tobacco product. The rest of the EU prohibits the sale of snus. An exemption to this prohibition for Sweden was a key provision for Sweden joining the EU.
Partly due to its long history of snus consumption and production, Swedish companies led the innovation to produce smokeless, modern oral pouches. These modern oral pouches, like ZYN, VELO, and on!, have experienced a rapid increase in global demand and have contributed to the decline in many countries like Sweden.
Despite the incredible opportunity for harm reduction, nicotine pouches are banned in several EU countries, including France, Belgium, and the Netherlands. The seemingly obvious policy question should be: why doesn’t the EU copy Sweden’s tobacco policy, requiring legal sales of less harmful products across the bloc?
At the very least, Member States should have the option to pursue empirically supported, more successful policies that reduce smoking. EU-required minimum tax policies would hamper other Member States’ ability to pursue harm reduction policies like those that have worked in Sweden.
The goal of the Tobacco Excise Directive should be a functioning Single Market, not a single European tobacco policy. Harmonization has a legitimate role to play when it removes tax-induced distortions to competition in the Single Market and barriers to commerce. But when harmonization masquerades as a justification for paternalism, centralized authority threatens national sovereignty and Member States’ ability to use effective policy tools to raise revenue and reduce harm.
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