Luxembourg could soon lose its reputation as a haven for cheap tobacco. The European Commission is considering a sweeping reform of tobacco taxation that would significantly raise prices in countries with higher purchasing power, like the Grand Duchy.
In 2024 alone, tobacco brought €1.4 billion in tax revenue to Luxembourg, mostly thanks to cross-border shoppers. Less than 5% of all tobacco sold in the country is actually consumed domestically. With cigarette prices starting at under €6 per pack, compared to around €10 in the Netherlands or €13 in France, the difference is striking.
The 2025 national budget already includes a 5.5% increase in excise duties. But according to several media outlets, the European Commission is preparing a much more ambitious plan to reduce price disparities across the bloc, a move that could jeopardise Luxembourg’s booming “tobacco tourism.”
According to an impact study seen by Politico, the EU is considering three scenarios, with the most aggressive one currently favoured. This would see:
Water pipe (shisha) tobacco taxed at €107 per kilo
In real terms, that could mean a 60% price increase in Luxembourg, pushing up a pack of cigarettes by €3.50. By comparison, the increase would be around €2 in Greece and €2.60 in Bulgaria, both lower-income countries.
Countries like France and the Netherlands, which have already implemented steep taxes, would see only minimal changes.
While the Commission has yet to formally propose legislation, Luxembourg’s Finance Ministry is closely monitoring the developments that could see a big blow to ‘tobacco tourism’ and impact tax revenues.
Luxembourg’s low prices have long attracted not just foreign shoppers but also smugglers. Despite strict EU customs limits – 800 cigarettes, 400 cigarillos, 200 cigars or 1 kg of loose tobacco per traveller – enforcement remains a challenge, and bulk-buying is common.
The Commission argues that taxation remains the most effective tool in cutting tobacco use, a point echoed by the World Health Organisation (WHO), which this week called on countries to raise the real price of tobacco, alcohol, and sugary drinks by at least 50% by 2035.
Tobacco-related illnesses cause 500 to 600 deaths annually in Luxembourg and an estimated 700,000 across the EU each year. The Commission notes that 40% of the decline in smoking rates in the EU over the past decade is directly linked to higher tobacco taxes.
