When it comes to taxing reduced-harm products, is the EU prioritizing public health, or just ignoring its own rules?
We recently sat down with former EU tax official Donato Raponi, at the inaugural World Nicotine Congress, to unpack the complex and often contradictory process behind European taxation. Right now, the ongoing revision of the EU Tobacco Excise Directive is exposing a fundamental tension in Brussels: a clear departure from the original “internal market” rationale mandated by Treaty Article 113, in favour of a primary justification based on public health policy, a pivot risking both legal scrutiny and practical failure.
Peter Beckett: This is Clearing the Air at the World Nicotine Congress in 2026. Could you please introduce yourself and let us know why you’re interested in this field?
Donato Raponi: I’m interested because I work in this field as an independent tax consultant dealing with indirect taxation, specifically VAT and excise duty. I spent more than three decades as an official in the European Commission, especially in the taxation field, so I have some knowledge there. I am also a professor of European tax law and worked for a few years as a senior advisor with Deloitte. I have experience from both the private sector and the public sector in the European Commission. When you are a tax man, you deal with tax issues, and excise duty is a tax. Article 113 of the treaty is very clear: we have to harmonise indirect taxation for the functioning of the internal market and to avoid distortion of competition. While health is a factor, the first priority is the internal market.
Peter Beckett: You were head of the unit that came up with the original Tobacco Excise Directive. What was the original policy rationale there?
Donato Raponi: It was to put in place an internal market. Article 113 of the treaty says clearly that you have to harmonise indirect taxation for the necessity of the functioning of the internal market. It does not concern direct taxation. That is why it was decided to harmonise VAT and excise duties.
Peter Beckett: When we hear about the current revision being debated in the working party of the council, we hear a lot more about the public health rationale than the internal market. Does that survive legal scrutiny? Is that what the commission and the institutions are really there for?
Donato Raponi: I understand the Commission because they have proposed a very high level of taxation. If I had to justify that based on the internal market, it would be quite impossible. That is why they use the health policy argument. If you want to challenge this from a legal point of view, it will be very difficult. You can try, but I don’t think it will work.
Peter Beckett: The next logical question is: how much of that is going to be eaten by the illicit market? What were your assumptions around the illicit market and did they play out?
Donato Raponi: This is a risk. We have a case now in France, for example, where they apply a very high tax rate and the illicit market is over 50% of the market. High tax levels increase illegal activities. In Italy, we see a direct link between the level of taxation and illegal activities. This is a risk especially with new products like pouches and e-cigarettes; they are light and easy to buy abroad via the internet. From my point of view, there is also a health risk because with illicit products, there is no security regarding quality.
Peter Beckett: We are now beginning to see illicit markets for vapes and pouches grow. It is useful to reflect on what that means for society more broadly, considering these financial flows into the illicit market.
Donato Raponi: Criminal organizations use products that are easy to fraud. Drugs are more risky because the penalties are very high. Fraud in VAT or excise duty is seen as less risky, and if taxes are high, the gain is greater. Criminal organizations look to make money, and these are well-organized groups with lawyers and banks.
Peter Beckett: So when we hear statements from the public health community that the tobacco industry only uses the threat of the illegal market as a lobbying tool, is that not real?
Donato Raponi: It is a reality. A report by KPMG on the tobacco sector clearly shows that illegal activity is increasing. Every year, the Commission presents a report on the VAT gap, and last year it increased significantly because tax legislation has become a business for criminal organizations.
Peter Beckett: This excise file is special because it requires unanimity in the Council. When negotiating this, what actually moves Member State positions? Is it public health, revenue, or the illicit market argument?
Donato Raponi: The reality differs by Member State. Revenue is usually the first priority. In Italy, they link illegal activities to high taxation, while other countries prioritize health. It also depends on the income levels in those countries; high taxation in poorer countries increases illegal activities because people will still use the products but try to pay less. Cross-border shopping is very important—16% of the EU population lives within 30km of a border, making it easy to buy where prices are lower.
Peter Beckett: What is the history of the illicit market in Italy?
Donato Raponi: They have experience from the past and understand that high taxation creates illegal activities. This is why Italy’s position is very moderate compared to France, which pushes for high taxation but is now asking to protect its borders. France is negotiating in the Council to change indicative quantities to compulsory ones and reduce them. This would mean reintroducing border controls to monitor what people buy, which I believe is contrary to the principle of the internal market and free movement.
Peter Beckett: You worked on the initial proposal concerning very harmful products like cigarettes. We are now looking at similar taxation levels on substitute products that cause a fraction of that harm.
Donato Raponi: This is not consistent or coherent. One should take into account the relative risks, especially concerning health. I don’t understand why this hasn’t been done clearly.
Peter Beckett: Is there a way of looking at the healthcare costs for those who smoke?
Donato Raponi: It is difficult to calculate those externalities. The Commissioner responsible for taxation mainly argues that the young generation is using these products and they are addictive. It is less about being harmful and more about this specific argument. During Council negotiations, except for countries like Sweden, there isn’t much discussion on this point.
Peter Beckett: Lastly, the Commission proposed that a proportion of tobacco revenue become “own funds.” Do we think that survives the MFF?
Donato Raponi: No, I don’t think so. In the MFF, expenditure is what matters. To finance the debt, they decided to implement new own resources. One is on enterprise turnover, which is inconsistent because a company can have high turnover but no profit. Proposing high taxation and then adding another 15% as an own resource lacks logic. Many Member States oppose this due to sovereignty. In taxation, consent is linked to the concept of the nation, which is why we have unanimity at the European level.
Peter Beckett: National governments often like to channel difficult decisions through the EU so they have someone else to blame. I think that was a big part of what led to the UK leaving.
Donato Raponi: That is right.
Peter Beckett: Do you see that in other Member States?
Donato Raponi: It is very common to blame Brussels. But the Member States are the ones deciding; the Commission only proposes and has no power of decision.
Peter Beckett: Why does the Commission still walk into this trap?
Donato Raponi: Because they focus on the “common interest.” In the face of globalisation, the EU has the merit of existing as a big market, even if we are politically weak. That is just my personal view.
Peter Beckett: It seems the Member States channel unpopular decisions through the Commission. The Commission falls into the trap every time, and all it does is foment anti-Brussels feeling to the point that when you actually need Brussels, it can’t perform.
Donato Raponi: In Italy and Spain, regional funds have built infrastructure like airports, yet in places like France, they claim credit for themselves. The Commission should react and explain to citizens what they have thanks to the EU. But again, that is just my personal view.
