ITSA Calls for Reform as EU Reviews Tobacco Traceability System
As the European Commission prepares to revise the Tobacco Products Directive (TPD), a debate is gaining further traction over the effectiveness of the European Union’s tobacco track and trace system.
On one hand, the Commission’s own evaluation argues that the EU traceability system has helped maintain a long-term downward trend in illicit trade since becoming operational in 2019.
On the other hand, evidence suggests that Europe’s illicit tobacco market is becoming larger and more sophisticated. This finding is also supported by the latest KPMG study. Even though the study is financed by the tobacco industry, it confirms that cross-border trade, contraband, and counterfeits are rampant and increasingly affecting public health policies.
The differing assessments come as stakeholders submit their contributions as part of a public consultation on the TPD, which is expected to culminate in legislative proposals by the end of 2026.
Rising illicit trade
Specifically, according to KPMG’s 2025 report (commissioned by Philip Morris), illicit cigarette consumption in the EU reached more than 41 billion cigarettes, accounting for over 10% of total cigarette consumption and representing estimated tax losses of €16.7 billion.
This marks a significant increase from the previous year’s report, which estimated illicit consumption at 38.9 billion cigarettes, resulting in tax losses of €14.9 billion.
One of the report’s most significant findings is the growing dominance of counterfeit cigarettes. Counterfeits now account for 18.3 billion cigarettes, representing 44% of all illicit cigarettes consumed within the EU and making them the largest component of the illicit market. This compares with 15.3 billion counterfeits in the 2024 report.
The increase means that counterfeit products have not only grown in absolute volume but have also strengthened their position within the illicit market, overtaking contraband and illicit whites.
KPMG also reported that enforcement authorities had come across counterfeit products carrying falsified tax stamps and functioning QR codes, highlighting the increasing sophistication of criminal networks. It is, however, unfortunate that the report uses selected testimonials to downplay the role of tax stamps. Like other high-security printed documents, such as banknotes, tax stamps can be authenticated against fakes, generating evidence that can be brought to a court of justice, which is clearly not the case with digital-only codes.
Commission points to long-term trend
Despite the evidence on the growing illicit trade market, the European Commission’s evaluation reaches a positive conclusion regarding the EU traceability system.
Published in April 2026, a Commission Staff Working Document describes the TPD track and trace system as having strengthened the integrity of the legal tobacco supply chain by providing unprecedented visibility from manufacture through to the last economic operator before retail.
The Commission notes that the system enables authorities to identify instances where traceability requirements have not been met and provides a substantial volume of supply chain data for enforcement purposes.
Importantly, though, the evaluation concludes that there was ‘no significant change in the post-2019 slope in illicit trade’, suggesting that the rate of decline observed before the introduction of the system continued afterwards.
As a result, the Commission states that the traceability system has likely contributed to maintaining the overall downward trend in illicit trade across the EU since it became operational.
ITSA calls for reform
Many disagree that the current system has achieved its objectives.
In its response to the Commission’s call for evidence, the International Tax Stamp, Authentication and Traceability Association (ITSA) argues that illicit trade remains stubbornly high despite seven years of implementation and that several structural weaknesses limit the effectiveness of the current framework.
ITSA points to continuing problems including counterfeiting, contraband, undeclared manufacturing facilities, under-reporting and cross-border diversion.
The association is particularly critical of the separation between authentication and traceability within the EU model. Under the current system, track and trace identifiers are distinct from the authentication labels or tax stamps used by many member states.
ITSA argues that this separation weakens enforcement and creates excessive reliance on accurate reporting by supply chain participants.
The association also reiterates longstanding concerns regarding compliance with the WHO Protocol to Eliminate Illicit Trade in Tobacco Products, arguing that the system does not provide sufficient independence from the tobacco industry and that key responsibilities should rest more directly with government authorities.
According to ITSA, effective anti-illicit trade programmes should combine secure physical product markings with digital traceability, ensure full governmental control of critical system functions and be supported by strong enforcement measures. To date, no objective information has been shared on the use of the EU system for enforcement operations and only reporting errors have been documented.
Different measures of success
The apparent disagreement between KPMG, the Commission, ITSA, and several public health organisations may ultimately reflect different definitions of success.
The Commission’s evaluation focuses largely on whether the traceability system has strengthened oversight of the legal supply chain and helped sustain a longer-term decline in illicit trade.
KPMG’s report, by contrast, is perceived as serving the industry narrative by highlighting the current scale and evolving nature of the illicit market, particularly the rise of counterfeit products and increasingly sophisticated criminal operations.
ITSA’s submission focuses on system design, arguing that the current architecture could be strengthened through closer integration of physical authentication and digital traceability under greater governmental control.
At the same time, several public health organisations, including Smoke Free Partnership, are calling for the current European system to be revised to include tobacco monitoring and traceability schemes that are completely independent of the tobacco industry.
Taken together, the four perspectives paint a nuanced picture. The EU’s track and trace system may have improved visibility and oversight within the legal supply chain, while organised criminal networks have simultaneously adapted their methods and continued to exploit weaknesses elsewhere in the market.
Eventually, a proper and thorough assessment may only be achieved if authored by a fully independent body, with access to enforcement data.