Portugal has become the latest EU member-state to push back against long-overdue tobacco tax reform, joining a bloc of countries aligning themselves with Big Tobacco’s agenda. In early August, Lisbon expressed official opposition to the European Commission’s proposed overhaul of the Tobacco Excise Tax Directive (TED), as well as its plan for an additional levy to help finance the Union’s next long-term budget.
Unveiled last month, the Commission’s 2028–2034 budget blueprint includes the contentious Tobacco Excise Duty Own Resource (TEDOR) – a 15% share of national tobacco tax revenue redirected to the EU budget. Portugal has claimed that the measure could strip €1.5 billion from its coffers, and bristled at the TED reform proposal’s higher minimum tax rates for both traditional and alternative nicotine products such as vaping devices, heated tobacco and nicotine pouches.
Lisbon insists these newer, and underregulated, products merit far lower taxation, citing reduced health risks, while asserting that higher cigarette taxes will drive consumers to the illicit market. The Commission must resist such industry-aligned arguments, pairing the revamped TED with a robust overhaul of the EU’s anti-illicit trade regime via the Tobacco Products Directive (TPD), which would help recoup the tax revenue Portugal fears losing.
Misguided backlash expanding across EU
Portugal’s opposition to the TEDOR proposal is part of a growing trend, with Greece, Italy, Sweden and Romania among the member-states which have made their objections clear. Lisbon has also joined these countries in resisting Brussels’ planned 139% tobacco tax hike under the TED review. According to Euractiv, the hikes would lift cigarette prices EU-wide by an average of 18%, with far steeper rises in lower-price markets.
In Portugal, the proposed increase would reach €1.22, or 24%, while Bulgaria tops the chart with a staggering 60%, followed by sharp rises in member-states including Greece (nearly 38%), Luxembourg (33%), Italy (23%), Romania (19%), and Lithuania (20%). Conversely, countries with already-high taxes – namely, France, Belgium, the Netherlands, Finland, and Ireland – would escape mandatory hikes and are among the most vocal advocates of reform.
Worryingly, the opposition camp is leaning heavily on tobacco industry rhetoric. Portugal believes the reforms will push smokers toward illicit markets – a concern echoed by German CSU MEP Markus Ferber in July. Aptly capturing Big Tobacco’s misleading narrative, Cyril Lalo, Head of EU Engagement at Imperial Brands, recently claimed that “the Commission’s approach overlooks real-world evidence” and that high excise rates have “fuelled illicit trade” and “negatively impacted MS revenues.” Lalo’s position conveniently omits the €2.3 billion already paid by tobacco majors, including British American Tobacco (BAT), under cooperation agreements aimed at curbing tobacco contraband.
Dispelling Big Tobacco myths
Displaying a remarkable lack of shame, Lalo has even claimed that the Commission’s tobacco tax plans ignore the “substantial” tax losses already seen in high-excise countries such as France and the Netherlands, where the illicit trade is growing sharply. Reflecting the ‘Big Four’ consensus of industry giants like Philip Morris International (PMI), Lalo also posits that Brussels underestimates the “primary influence of price” that higher taxes would supposedly exacerbate.
Unsurprisingly, Lalo and his fellow industry advocates neglect to mention the industry’s own role in sustaining an illicit trade robbing member-states of billions in annual tax revenue, and significantly exaggerate the link between cigarette prices and black-market sales – a distortion well-documented by leading tobacco control researchers. At 20%, Lithuania – whose anti-smuggling traceability efforts the industry has long sought to dilute – now has among the highest rates of illicit tobacco consumption in the EU despite its low taxes.
This industry narrative serves to deter policymakers from using the single most effective tool to cut smoking rates – and industry profits. Indeed, Big Tobacco’s rhetoric, increasingly parroted by member-states that are deepening their economic ties with the industry, obscures the fact that illicit trade flourishes where enforcement and regulatory gaps can be exploited – often with the tobacco industry’s involvement.
Tobacco industry obstructing EU’s anti-smuggling efforts
One of the biggest loopholes the industry exploits is the vast cigarette price gap between EU countries. Low-tax states like Luxembourg have become hubs for parallel trade, with 2024 data showing 88% of its cigarette sales consumed abroad. The industry’s deliberate oversupply floods markets like Luxembourg, facilitating the funnelling of cheap products into high-tax countries such as France and the Netherlands – examples that Big Tobacco cynically cites to argue against EU-wide tax hikes.
Consequently, the Dutch public health agency is pushing for new measures to curb cross-border purchase-enabled tax avoidance, while in France, MP Frédéric Valletoux is spearheading efforts for EU-level country quotas on tobacco deliveries. In July, Valletoux notably announced that France’s National Assembly would be addressing the parallel trade on 24 September, with the MP questioning tobacco industry’s role in feeding this scourge costing France billions in lost tax revenue every year, while calling for the implementation of the WHO FCTC Protocol to Eliminate the Illicit Trade in Tobacco (ITP Procotol).
Beyond the country quota system, the ITP Protocol equally requires industry-independent tobacco traceability – another key omission from the EU’s current framework. In addition to Big Tobacco’s obstruction of the TED review, the industry has spent over a decade bending the Tobacco Products Directive (TPD) to its commercial advantage, from watering down the 2014 TPD revision by stripping out independent traceability provisions to swaying the Commission’s choice of operators for the EU tracking system launched in 2019.
Indeed, the EU’s tobacco traceability includes private operators with tobacco industry links and has consequently failed to stem record-high illicit trade. Swiss firm Inexto acquired the Codentify system originally developed by Philip Morris, Dentsu Tracking is tied to Codentify through its takeover of the system’s co-creator Blue Infinity, and PSQR is a spin-off of FractureCode – a Danish tobacco industry front group offering traceability solutions including Codentify. All three providers are deeply tied to the design of a traceability system tailored to Big Tobacco’s commercial interests, and still derive most of their revenue from the industry, in violation of the WHO Protocol.
Moreover, even tobacco industry data confirms the system’s ineffectiveness, both in the EU and in the UK – which operates a near-identical scheme – while the Commission’s DG TAXUD has openly acknowledged the system cannot secure the EU’s supply chain or prevent the massive excise and VAT losses draining public budgets.
Time to stand up to Big Tobacco
Despite these clear indictments of its traceability system, the Commission appears to have decided, without compelling justification, that the TED reform must precede a TPD overhaul, which Ireland has indicated it will pursue during its EU presidency from July 2026. Yet, tackling illicit trade, the unspoken objective of the TED overhaul, demands revising the TPD now and replacing its Articles 15 and 16 with the ITP Protocol’s provisions, ensuring fully independent traceability alongside complementary safeguards such as an EU-wide country quota system.
If the EU executive is serious about reducing smoking rates, curbing illicit trade, and securing stable revenues, it cannot allow selective national objections or arbitrary procedural considerations to derail urgently-needed reform. The TED and TEDOR proposals, alongside stronger enforcement through a bolstered TPD, offer a coherent path to address both public health and fiscal concerns – as well as a healthier, fairer Europe that refuses to let tobacco interests dictate its legislative agenda.
