Parliament reviews behavioural taxes under EU control: VAT; alcohol; tobacco; and energy products
The EU Parliament has published a briefing on behavioural taxation, which can be used to influence consumer behaviour, as well as to collect revenue. The EU has set ambitious environmental and health policy targets that will likely influence the future direction of behavioural taxation.
The EU has some direct influence and control over several of these taxes, including VAT and excise duties. Separately, the EC is looking at the VAT reforms after ViDA and environmental taxes for potential changes to the tax regime. Reforms to the EU energy tax directive are still searching for a compromise.
The briefing, published on 16 October 2024, highlights the use of taxes on goods like tobacco, alcohol, and fossil fuels. Whilst a number of Member States have introduced other behavioural taxes at national level, for instance on flights and on sugar. It covers:
- Public support for behavioural taxes – sin to green tax acceptance
- Economic consequences of behavioural taxation – negative externalities;
- Role of the EU
- Changing revenue dynamics – waining tobacco and energy taxes;
- Possible avenues for new behavioural taxation – sugar, meat and aviation taxes
- Looking ahead – EU’s DG TAXUD new dedicated behavioural tax unit
Sin taxes to meet EU health and environmental goals
These “sin taxes” aim to discourage activities deemed harmful to public health and the environment, aligning with broader EU goals such as achieving climate neutrality by 2050 and improving public health under the EU Beating Cancer Plan.
The EU’s Green Deal, launched in 2019, set the ambitious goal of making Europe the world’s first climate-neutral continent by 2050.
Public support for behavioural taxes varies across the EU. Northern European countries tend to support alcohol control measures, particularly when revenues are directed toward healthcare. However, environmental taxes, such as fuel taxes, face more opposition, with public trust and perceived fairness playing a crucial role in acceptance.
Behavioural taxes are based on Pigouvian theory, seeking to reduce harmful societal externalities by targeting price-sensitive behaviours. However, due to the addictive nature of products like tobacco and alcohol, demand is often inelastic. Understanding cross-price elasticity and how taxes impact related goods is essential for policymakers.
At the EU level, excise duties on alcohol, tobacco, and energy are subject to minimum rates, but Member States can impose higher rates. The Tobacco Tax Directive focuses on health, while the Energy Tax Directive has been criticized for not aligning with current climate goals. VAT regulations, initially designed for market efficiency, have been reformed to include green incentives like solar panels and e-bikes.
The briefing also explores potential new behavioural taxes on sugar, aviation, and meat to address health and environmental concerns. The European Commission is currently reviewing existing taxes and preparing to revise outdated directives, such as the Tobacco Tax Directive, to further guide future policy.
