The airport in the Lithuanian capital of Vilnius made headlines last month after it had to close twice due to dozens of balloons arriving from Belarus. Their freight – thousands of packets of contraband cigarettes.
Illicit cigarette trade is a big, easy business, and the industry’s main argument against revising taxation. But experts say that claim doesn’t stand up to scrutiny. According to figures from Europe’s Anti-Fraud Office (OLAF), nearly 616 million illegal cigarettes – up by more than 60 million in one year – were seized in 2023. About 140.6 million of them had been produced within the EU.
That’s only a fraction of the number smoked across the bloc. A study commissioned by tobacco giant Philip Morris calculated that 39.8 billion illicit cigarettes were consumed in the EU in 2024 – a 10.8% increase compared with 2023.
“Cigarettes are an ultra-low-cost product to produce – very quick – and on top of that, there’s a large pool of consumers. Smokers are price-sensitive; they buy wherever it’s cheapest,” a source from the legal tobacco industry told Euractiv.
According to the source, factories using old machinery can be found across Europe. “They pay for themselves in three weeks,” the same source said. New ones, meanwhile, are easy to buy online – even from platforms such as Alibaba, noted Hughes de la Motte, an official at DG TAXUD.
“If we were all a bit smarter, we could take this room, buy two machines on Alibaba to produce cigarettes, and we’d be rich – by the end of the month we could all retire,” he joked during a recent panel on pro-health taxes.
Most EU countries – including those without direct borders with third countries – are affected, such as France and Belgium. On 5 October, Flemish police arrested six people and dismantled an illegal cigarette factory in Grembergen.
Divisions among member states
Forty-two kilometres from the illegal Belgian factory, around the Schuman roundabout in Brussels, EU countries are well aware of the urgency of regaining the revenue slipping through their fingers in lost taxes.
Yet they remain divided on how to act – a debate that blends financial concerns, national industrial interests, and health priorities.
For its part, OLAF estimates that 10 million cigarettes are worth around €2 million in tax revenue, though it calls this “a very conservative estimate”, as losses depend heavily on the final market. If the destination is France, the Netherlands, or Belgium, tax evasion rises sharply. According to a KPMG study for Philip Morris, the illicit market represented a €14.2 billion loss in tax revenue in 2024.
On 16 July, the Commission presented a proposal to raise taxation on tobacco products and extend the rules to new alternatives. Several EU states are resisting, warning that higher prices would only widen the door to the illegal market.
But many politicians, experts, and researchers argue that this line of reasoning mirrors the industry’s talking points. The French Alliance Against Tobacco, for instance, notes that Italy hosts Philipp Morris largest European factory.
Italy is also a paradise for forgers. In September, customs police dismantled the country’s largest illegal factory, near Cassino in southern Lazio. Hidden inside an apparently abandoned warehouse and equipped with advanced machinery, it was capable of producing about 2.7 billion cigarettes a year. Officials estimate the operation generated more than €900 million in annual revenue and evaded around €600 million in taxes.
What the WHO says
Several experts – including Hana Ross from the Vienna Institute for International Economic Studies – argue that the best way to combat the illegal trade is through efficient tax administration.
“Maybe we do have a certain level of illicit trade, but tax revenues are still there: the higher the tax, the higher the illicit trade rate – but also the higher the revenue,” Ross explained.
She added: “It’s also worth noting that the price of illegal cigarettes tends to follow that of legal ones – when the price of legal cigarettes goes up, so does the price of the illegal ones.”
The World Health Organization takes a similar line. In May 2025, the WHO explained that data tend to show the opposite of what some sceptical governments claim: illicit trade is driven less by high taxes than by weak governance and ineffective law enforcement.
The European Commission agrees. When presenting its proposal, the executive underlined that previous tax increases had contributed to a 40% reduction in the number of smokers, and that additional measures are needed on traceability, governance, and sanction regimes.
A Commission source recently told Euractiv that tackling illicit trafficking within the 27 EU countries was one of the reasons behind the proposal. In other words: higher taxes mean fewer smokers – and fewer smokers mean a smaller illegal market.
The Commission also argues that the reform would help harmonise rates across the internal market, where national taxes vary widely. Still, this approach has limits, as most illicit tobacco production originates in third countries.
Good times ahead for the illegal market
The illicit tobacco market is likely to keep thriving for now. Figures put forward by reports from entities such as OLAF, or from the private sector like KPMG, show that conditions remain favourable for smugglers, who have easily adapted to the existing rules.
Those rules – shaped under strong industry pressure – are unlikely to change anytime soon. Less than three months after the Commission presented its proposal on tobacco taxation, Rome sent a reasoned opinion to the EU executive challenging the text’s subsidiarity, which asserts that the EU is the appropriate level at which to legislate on this issue.
Romania, one of the countries most reluctant to amend the rules – citing its external EU borders, which could flood its market with illegal products – also questioned the Commission’s approach, though not on legal grounds.
“We are nowhere – and there is a lot of work to be done,” summed up Hughes de la Motte, whose tax department has been preparing the revision of the Tobacco Directive “for the last five years or even more”.
He added that, for now, the ball is largely in the court of the EU’s capitals.
(aw, jp, vib)
