STRASBOURG (Reuters) – The European Parliament yesterday rejected proposals to raise the minimum level of excise duties on cigarettes as a way to narrow big gaps in tobacco tax levels and reduce incentives for fraud. The Parliament criticized the draft proposal, arguing an increase in tobacco duties would damage producers in low-cost European Union countries, such as Spain and Greece, without stopping smuggling into high-cost countries like Britain. The Parliament cannot block the proposal, which has the support of EU finance ministers, but the rejection sends a political message. The Commission very much regrets this vote, European Internal Market Commissioner Frits Bolkestein told the assembly, saying he would speak to the other commissioners next week on the matter to decide on a course of action. Excise duty on tobacco accounts for between 0.32 and 1.9 percent of gross domestic product in EU member states. But part of these revenues is lost to cigarette smuggling to high-tax countries such as Britain, where a packet of cigarettes can cost up to four times as much as in Spain. The proposed EU legislation will reduce price differences between cigarette brands and lead to an overall increase in prices in Spain, Greece, Italy, Portugal and Luxembourg – the countries with the lowest taxes. Finance ministers agreed earlier this month to increase minimum excise duty on cigarettes to 60 euros per 1,000 cigarettes from 2005, and to 64 euros from 2006. Spain and Greece will be able to wait until 2008 before raising their minimum duties to 64 euros. The new rules supplement an existing law requiring total duties on cigarettes to be at least 57 percent of the retail price of the most popular brand. The legislation will also push overall excise duty on rolling tobacco from 30 to 39 percent. The minimum duty will be set at 34 euros per kilo of tobacco. But for such a deal to go through, the government will have to transfer to the Public Portfolio Management Company all of POSB’s holdings in numerous companies and organizations in the broader public sector, such as in the National and Commercial banks, OTE telecoms and the Hellenic Portfolio Investment closed-end fund.