Cigars and cigarillos
[…]is a […] family business […]. We produce and sell only real cigars and cigarillos. The production of cigars and cigarillos is an artisanal and very labor intensive process and our cigars and cigarillos are produced and sold in a large variety of shapes, brands, packaging and prices. Due to these characteristics, production runs are in always very small, especially compared with the production of cigarettes and roll your own / make your own products. Also, cigars and cigarillos are produced at a speed between 20 and 50 pieces per minute, whereas cigarettes are produced with speeds up to 20,000 pieces per minute.
Cigars and cigarillos tend to be smoked occasionally rather than daily. The cigar and / or cigarillo smoker generally is a male adult of mature age: the majority of smokers are over 35 years of age.
Compared to the overall EU consumption of excisable tobacco products, consumption of cigars and cigarillos is small, i.e. approximately 1,6 % of the total EU consumption of tobacco products
Borderline products
In MEMO/08/506 that accompanied the 2008 proposal the European Commission wrote: “Cigars and cigarillos' consumption has been declining over the last 30 years, representing less than 1% of the total EU consumption of tobacco products. The current excise regime on these products takes into consideration the nature of the production (labour-intensive, with small business units and a low speed of production). A lower excise duty rate is therefore applied on cigars and cigarillos compared to cigarettes”. We would like to note that these reasons are still valid and contribute to the much lower tax bearing capacity of cigars and cigarillos;
[…] is of the opinion that ‘borderline’ cigarillos are only partly equivalent to cigarettes and that there is no need to change the current legislation. Although we agree with the problem outline, which states that “it is currently not possible to increase the tax rate on ‘borderline’ cigarillos without affecting the other products in the same category (i.e. traditional cigars and cigarillos)”, experience shows that Directive 2011/64/EU offers Member States the possibility to respond to the introduction of borderline products by introducing a minimum tax floor on cigars / cigarillos (e.g. the option to establish a minimum amount of excise duty (Art 14.1)). All cases where minimum excise systems were introduced have so far been effective. In Denmark, Spain, Italy, Austria and Germany sales of “borderline products” dropped considerably and will continue to decline.Another example is France where there are no borderline products at all due to an already existing minimum excise system introduced long ago. At the same time since the 1st of January 2015, Germany and Hungary can no longer apply the derogation from Article 4(1) of Directive 2011/64/EU).
The most effective way to impose a minimum tax burden is a combination of excise and VAT, meaning that the minimum tax burden should be a combination of excise and VAT that is based on a certain reference price (as is the case for cigars and cigarillos sold in Germany).
In short, […] fully agrees to the non-regulatory option which would, where relevant, encourage Member States to use the instruments provided by the Directive – e.g. the option to establish a minimum amount of excise duty (Art 14.1) - to address the possible distortions caused by ‘borderline’
cigarillos. As said before, such an approach was successfully applied in several Member States during recent years.
In contrary, a regulatory revision by means of introducing a mandatory mixed rate structure or a specific rate (per 1000 pieces) for cigars/cigarillos, or by means of an alignment of the minimum excise taxes on cigars/cigarillos with those of cigarettes would end the existence of traditional cigars/cigarillos which still represent the overwhelming majority of the cigar / cigarillo market.
Considering that the ECOFON Council (8 March 2016) stressed that “.. any potential amendments to the current text of Directive 2011/64/EU have to be proportional ..” and that “.. the particular circumstances of small and medium enterprises should be borne in mind”, both policy options ( 1) introduction of a mandatory mixed rate structure or specific rate and 2) alignment of the minimum excise taxes with those of cigarettes) are not suggested by the Council and are not proportional.
Also Member States in which borderline products do not appear (i.e. the vast majority of the 28 Member States) would be forced to change their excise system for cigars / cigarillos.
Finally, […] also fully disagrees with a regulatory revision of the Directive by which the reference to “normal consumer expectations” would be removed. In 2010 (Directive 2010/12/EU, later codified by Council Directive 2011/64/EU) the ‘subjective criteria’ ‘normal consumer expectations’ and ‘exclusively intended’ were added to the cigar definition as borderline products like Gulliver (see Ramboll study page 277) could theoretically be smoked as they were, but were under “normal consumer expectations” certainly not “exclusively intended” to be smoked as they are. For decades the phrase “smoked as they are” is used in the definition of cigarettes (article 3(1)(a) as well as in the definition of cigars (article 4(1)) in order to differentiate these product categories from smoking tobacco, which cannot be smoked “as it is”. In case the above explanations would be part of a non-legislative recommendation on the implementation and interpretation of the articles 2-5 of the Directive […] would not have any objections against such a recommendation.
Raw tobacco
According to the ‘problem outline’, raw tobacco and intermediate products could be diverted to the illicit manufacturing of smoking products or sold in small quantities to consumers for home processing. However, cigars and cigarillos mainly use dark air cured tobaccos and there is no illicit manufacturing or home processing of dark air cured tobaccos. Therefore we do not consider this to be an issue and we fully disagree with any regulatory revisions in this context that would increase the costs and administrative burden for cigar / cigarillo manufacturers.
Using EMCS for monitoring all movements of raw tobacco would not eliminate illicit trade. However, it would significantly increase the costs for tax administrations and economic operators involved. Being disproportionate relative to the marginal size of the problem, […] considers the suggested treatment of raw tobacco and relevant intermediate products as a specific tax category (so that they are included in the excise system and are covered by the control system (EMCS)) to be inappropriate. Many EU Member States have implemented more effective and efficient legislation over the last couple of years. The common denominator of this legislation is the reversed proof of evidence: the owner of raw tobacco has to demonstrate that the tobacco will be used for a legitimate purpose; otherwise the tobacco will be seized.
Of course we fully agree to any non-regulatory options that would step up joint efforts on monitoring and law enforcement against illicit trade of raw tobacco or, as regards the definitions, that would – where relevant – provide guidance on the interpretation of the definitions used in the Directive.
Correspondence between excise and customs classification systems
[…] fully supported (and still supports) the additional clarity that the amendments to the cigar definition in 2010 (Directive 2010/12/EU, later codified by Council Directive 2011/64/EU) provided.
We would like to note that the CN classification system exists for a separate purpose, is adopted in a different way and changes more frequently. We consider the topics mentioned to be minor issues and fully disagree with a regulatory revision that would harmonize the definition and categories used in Directive 2011/64 with the corresponding Combined Nomenclature definitions and classifications. We would, however, fully agree to an (updated) correspondence table between Excise Product Codes and
CombinedNomenclature codes.