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Conclusions & Recommendations

A single EU market for tobacco products does not exist, especially not for fine-cut tobacco but instead there are many interdependent markets in the EU with specific consumer preferences and consumption patterns. Because of this interdependency, fiscal policy should always consider the “wider market environment”, the product itself and consumers’ characteristics in order to delicately balance safeguarding government revenues, protecting fair competition and jobs as well as protecting public health whilst at the same time deterring illegal tobacco trade.

Facilitating the role of fine-cut tobacco as an affordable alternative to cigarettes and illicitly traded products (buffer function), will preserve government revenues, but it requires a differentiated tax treatment of the various product categories. Adopting a transparent, long-term and systematic approach to fine-cut tobacco taxation will result in a stable market-place, with predictable government revenues.

Where Member States have initiated sharp increases in fine-cut excise duties, both direct effects and unintended consequences have led to an erosion of state revenues.

At country level, individual Member States should consider their own national market and its characteristics, whilst explicitly taking in account neighbouring jurisdictions, recognising the interdependency between markets across national borders. Many examples of failure to account for the impact of domestic policy decisions on consumers’ choice to engage in cross border shopping have resulted in a deterioration in national tobacco taxation receipts.