The European Union is facing mounting scrutiny over its tobacco taxation and regulatory policies, as new data reveals a sharp rise in counterfeit cigarette production and consumption across the bloc—costing governments an estimated €14.9 billion in lost revenues last year alone.
A report by Euromonitor International shows that counterfeit cigarette consumption in the EU has more than tripled over the past decade, rising from 4.1 billion in 2015 to 13.4 billion in 2024. Counterfeit products now account for roughly one-third of the EU’s illicit cigarette market, underscoring what analysts describe as a major structural shift in Europe’s tobacco economy.
From “destination market” to production hub
Perhaps most strikingly, the EU has evolved from being primarily a destination for smuggled tobacco into a growing hub for the manufacture of counterfeit cigarettes.
Organised criminal networks have increasingly localised production within EU borders, establishing sophisticated operations capable of scaling output rapidly. Some factories uncovered in recent years have operated on an industrial scale, reflecting both the profitability and relatively low risk associated with this form of illicit trade.
Growth has been concentrated in a handful of countries—France, Hungary, the Czech Republic, Romania and the Netherlands—which together account for more than two-thirds of the increase in counterfeit volumes over the past decade.
Policy pressure and unintended consequences
The report attributes the surge to a combination of economic and regulatory pressures, including rising excise duties, inflation, supply chain disruptions and tighter product rules.
A widening price gap between legal and illicit cigarettes is seen as a key factor. In many EU countries, taxes represent a large share of the retail price, making legal products significantly more expensive than those sold on the black market.
This is increasingly influencing consumer behaviour, particularly among price-sensitive groups. At the same time, restrictions on alternative nicotine products may be limiting legal substitution options, potentially pushing some consumers toward illicit channels.
Political debate intensifies in Brussels
The findings come as the European Parliament’s Subcommittee on Tax Matters (FISC) held a fresh debate this week on the impact of tobacco excise policy on the EU’s internal market and the evolving landscape of nicotine products.
According to officials familiar with the discussions, the exchange highlighted clear divisions among policymakers over how far taxation should go.
Some MEPs raised concerns that further increases in minimum excise levels could widen price disparities across member states and risk strengthening incentives for illicit trade—particularly in markets already experiencing high levels of price sensitivity.
Others emphasised that taxation remains one of the EU’s most effective tools for reducing smoking rates, pointing to evidence discussed during the session that higher excise duties can contribute to lower consumption and improved public health outcomes.
The debate also touched on the growing complexity of the market, with policymakers examining whether newer nicotine products—many of which fall outside existing tax frameworks—are creating additional distortions within the Single Market.
Officials described the discussion as part of a broader effort to strike a balance between health objectives, fiscal revenues and market realities, as Parliament prepares its position on proposed revisions to the Tobacco Excise Directive.
Security concerns and organised crime
Law enforcement agencies are increasingly warning that illicit tobacco is no longer a peripheral issue, but a significant and expanding component of organised crime in Europe.
A senior Europol official familiar with illicit trade investigations said that counterfeit cigarettes have become “one of the most profitable and lowest-risk activities” for criminal groups operating within the EU.
The official noted that networks are becoming more sophisticated, with decentralised production systems and distribution channels that closely resemble legitimate supply chains.
“Illicit tobacco is not a standalone issue,” the official added. “The same networks are often involved in money laundering, drug trafficking and other serious criminal activities, using the proceeds to fund wider operations.”
Customs authorities across Europe are also facing growing challenges linked to digital trade. A spokesperson for one EU customs service said that the rise of e-commerce and small-parcel deliveries has created new vulnerabilities, allowing illicit products to enter markets through channels that are difficult to monitor effectively.
Enforcement gaps and evolving criminal networks
Beyond taxation, the Euromonitor report highlights persistent weaknesses in enforcement, particularly in relation to online sales, postal shipments and intra-EU supply chains.
The expansion of e-commerce has provided new avenues for illicit distribution, while relatively low penalties in some jurisdictions continue to make counterfeit cigarette production an attractive criminal activity.
Authorities have also identified cases of labour exploitation linked to illegal factories, including the use of vulnerable migrant workers, adding a further social dimension to the problem.
A growing policy dilemma
The EU now faces a complex challenge: how to maintain its commitment to reducing smoking and protecting public health, while preventing the continued expansion of a lucrative illicit market.
The European Commission’s planned revision of the Tobacco Excise Directive aims to modernise the framework and address disparities between member states. But as the debate in Parliament shows, there is no clear consensus on how to balance taxation, regulation and enforcement.
Euromonitor warns that without stronger coordination and more effective enforcement—particularly targeting supply chains and online distribution—Europe risks entrenching a “shadow market” that undermines legitimate businesses, erodes public revenues and fuels organised crime.
As policymakers move closer to decisions on the future of EU tobacco taxation, the central question remains whether current approaches are achieving the right balance—or inadvertently contributing to the very problem they aim to solve.
