Cyprus – a possible dealmaker in EU tobacco tax deadlock?

A long-stalled debate over the European Union’s Tobacco Excise Directive (TED) may finally be moving toward resolution, thanks to the Cypriot EU presidency.

After months of division and failed proposals, Cyprus has reportedly introduced a “compromise” that seems to be gaining traction among member states and could break one of Brussels’ more contentious policy impasses.

The need for unanimous approval from all member states on tax matters makes this a delicate negotiation, with pressure to reach a political agreement by June 2026.

According to the respected press agency Agence Europe, the Cyprus Presidency of the Council of the EU has drawn up a new draft compromise, which was discussed 21 January, that “In particular, proposes lowering the minimum rate of excise duty and granting a transitional period.”

AE adds that the Cypriot presidency has, it is claimed, proposed lowering the requirement for an overall excise duty from 63% to 60% “of the weighted average retail selling price of cigarettes offered for consumption.”

Speaking this week, a Cypriot official told this site, “In our role as Presidency of the Council of the EU, we have been facilitating an open, transparent, inclusive and constructive dialogue with all member states with respect to the tobacco taxation directive.

“In an effort to bridge diverging views amongst member states, we have worked hard to enable discussions to move forward with the aim of achieving consensus, taking into consideration the different positions and concerns of all member states, as expressed during our consultations.

“We intend to take technical work forward aiming for substantial progress; if possible, political agreement by June 2026. This will be agreed by consensus, “ added the Cypriot official.

The stakes are high.

First established in 2011, TED sets minimum excise duties on tobacco products across the EU. This is a key policy for public health and boosting revenue. But the framework has, it is argued, failed to keep pace with the rapid evolution of nicotine products and shifting market dynamics. It needs to be modernized, hence the Commission proposals to revise the Tobacco Excise Directive made last July.

Revision of TED aims to update the current legal framework for excise duty on tobacco in line with the laudable objectives of “Europe’s Beating Cancer Plan” by better aligning the taxation of tobacco and related products with health objectives through three approaches:

– Increasing the minimum tax rates to reduce disparity in rates applied by Member States. In practice, the EU minimum rate would be adjusted according to the economic situation in each individual Member State, based on general price levels;

– Extending the scope of the directive to new products (for example, e-cigarettes, heated tobacco and nicotine pouches). These products will be covered with new minimum taxes and

– Better controlling measures concerning raw tobacco, which can be diverted to the illicit supply chain.

Tobacco taxation is harmonised at EU-level but the latest update to the Directive dates from 2010. The EU concedes the framework needs to be updated in various aspects.

First, the average rate applied at national level in EU Member States is already well above the current minimum imposed by the EU. Hence, current EU minimum rates have lost traction in effectively reducing tobacco consumption.

The  EU says smoking prevalence of Europeans is not declining sufficiently fast to meet the Europe’s Beating Cancer Plan objective, ensuring that less than 5% of the population uses tobacco by 2040. Smoking prevalence in the EU is currently still at 24 %.

Second, various new products, such as heated tobacco, e-cigarettes and nicotine pouches, have entered the market. Harmonising tax rules across the EU and introducing minimum rates for such products will, the EU has argued, allow for better controls, while giving flexibility to Member States to adapt their taxation rules in line with market developments in their country.

The increased tax will also help to reduce their attractiveness as tobacco substitutes, it is said by Brussels.

Third, illicit trade in tobacco products remains substantial and continues to constitute a source of concern for Member States. A substantial amount of products subject to illicit trade are actually manufactured within the EU from raw tobacco. The inclusion of raw tobacco in the scope of the Directive will in part address this issue.

However, the EU plan to increase in minimum cigarette taxes and expand the directive to newer products such as nicotine pouches has run into  resistance in some quarters.

Governments across Southern and Eastern Europe  warned that such increases risked harming domestic industries and fueling illicit trade. With billions already lost annually to black market tobacco, critics argued the Commission’s approach was out of step with economic realities and could backlash on EU consumers.

A subsequent attempt to revise the proposal did little to ease tensions.

Since assuming the Council presidency in January 2026, Cyprus has taken a different approach. Rather than doubling down on ambitious tax hikes, it has focused on finding common ground. The reported Cypriot compromise apparently retains the overall structure of the Commission’s proposal but recalibrates its most controversial elements, offering what many policymakers now see as a workable path forward.

The Cyprus presidency, in essence, has pushed for lower minimum excise duty rates for cigarettes than originally proposed, aiming to bridge the gap between EU health goals and member states’ economic realities.

At its core, it is believed that the proposal introduces more moderate increases in minimum excise duties, alongside phased implementation periods that allow member states to adjust gradually. According to reports, it also reportedly seeks to replace automatic inflation-linked tax escalators with a more controlled mechanism, giving national governments greater flexibility and oversight. Newer nicotine products are said to remain within scope, bringing them into a clearer regulatory framework and reducing so called grey areas.

The negotiations are aimed at reaching a compromise to ensure the new tax structure is both workable and enforceable.

One Brussels-based expert on EU-wide tax policy said, “By acknowledging the economic diversity of member states and the practical limits of enforcement, the Cyprus compromise addresses some current concerns that overly aggressive taxation could backfire.”

Recent evidence seems to support claims that excessive excise increases risks driving consumers toward illicit markets, undermining both public health goals and government revenues. That warning has, it is also argued, already been borne out: a major cross-border smuggling network spanning several European countries was dismantled in February, with over 40 tonnes of illicit tobacco seized.

Data from across the EU seems to underscore the trend. In France, more than a third of cigarette consumption is reportedly now illicit, while the Netherlands and Luxembourg are also seeing significant black-market penetration, particularly for newer products. These developments, it is argued, reinforce the need for a more calibrated approach.

The Cypriot proposal appears to do just that. By setting more measured minimum thresholds and allowing for gradual implementation, some have argued that would stabilize legal markets while still advancing public health and revenue objectives.

It is reported that Ireland, which is set to assume the presidency next, has already indicated it may push for more aggressive tax increases.

Speaking to this site, a European Commission spokesman said, “The Commission made proposals to revise the Tobacco Excise Directive in July.

“It is now in the hands of the co-legislators, therefore we have no further comment.”

The legislative proposals will be sent to the Council for agreement and to the European Parliament and the European Economic and Social Committee for consultation.

For now, momentum is building. In a policy space long defined by division, it is argued that Cyprus seeks to charter a pragmatic “middle course” that prioritizes feasibility over ideology. If consensus is secured, the country may not only resolve the TED impasse but also demonstrate that compromise remains possible within the European Union.