Taxation: E-cigarettes

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E-cigarette is invented two decades ago in China and became available in Europe and the US as early as 2006/2007. Following years of turbulent growth, e-cigarette sales now surpassed the $20Bn mark (global retail turnover per year).Therefore, the category is no longer under the radar and is a subject of controversy/debate. And, increasingly, governments across the world are considering to introduce excise tax on the category. We expect e-cigarette excise to become a more universal phenomenon by 2027.

Chronology:

Luxembourg: March 2024

Luxembourg will introduce taxes on e-cigarette liquids and nicotine pouches from October 1, 2024 (tax rate: €120/liter for e-liquids and €22/kilo for nicotine pouches). In addition to the taxation, Luxembourg will include the new-generation tobacco products within the scope of the country’s new national anti-smoking program.

UK: March 2024

The UK Government will introduce a new duty on vaping products from 1 October 2026 with registrations for the duty opening from 1 April 2026. The rates will be £1.00 per 10ml for nicotine free liquids, £2.00 per 10ml on liquids that contain 0.1-10.9 mg nicotine per ml and £3.00 per 10ml on liquids that contain 11mg or more per ml. A 12-week consultation will be published on the policy design and technical details alongside the Spring Budget.

UK: January 2024

A tax on vaping will be introduced in the UK1 as part of the Spring Budget (- to be announced on March 6, 2024). In 2014, Italy became the first country to tax e-cigarette liquid and the current excise tax rate on is €0.132/mL. Germany charges a levy of €0.20/mL (as of Jan 1, 2024) and has a plan in place to increase the excise tax rate to €0.32/ml in 2026. The UK Government may set a tax rate of £0.20/mL if inspired by these front-runners.

A 10ml bottle of e-liquid costs around £4 in the UK. The levy is likely increase the cost of vaping liquid by more than 25% and as much as 50%. Major tobacco companies support the introduction of an excise duty on all vaping products.

Meanwhile, as of January 1, 2024, Belgium will apply an excise duty of €0.15/ml on e-liquids and Romania will increase the e-liquid excise duty from 0.64 lei/ml to 0.81 lei/ml (€0.16/ml). Moreover, Indonesia will introduce a 10% additional excise tax on vapes – on top of the 57% excise duty imposed on e-liquids since 2018. In Indonesia, the revenue from e-cigarette taxes amounted to Rp1.75T (~$120 Mn), or ~1% of the total tobacco excise revenue, in 2023.

Ireland: December 2023

Ireland reconfirms its intention to apply a levy on e-cigarettes2 (in 2024) despite the challenging implementation environment and significant IT, administrative, control and compliance costs associated to the implementation. Irish Finance Minister cited the delays in the revision of the EU tobacco directives (EU TPD/TTD) as the root cause of the implementation challenges. Most excise taxes in Ireland are governed by the EU legislation on harmonized excisable products: absence of an EU-wide harmonization for e-cigarette taxation increase the compliance and administrative costs as the existing movement controls and tax warehousing (for tax collection purposes) cannot be used.

Ontario (Canada): November 2023

Ontario will add a provincial excise duty to vaping products which would double the current federal duty rates3. The combined tax would see manufacturers and importers paying $2 per two milliliters of e-liquid for the first 10 milliliters, then $2 per 10 milliliters for volumes beyond that. Ontario follows Quebec, Nova Scotia, British Columbia, Saskatchewan, Newfoundland and Labrador to introduce a provincial excise tax on vaping products.

Malaysia: Feburary 2023

Malaysia imposes excise duties on vapes4.

Quebec (Canada): December 2022

Quebec follows Nova Scotia, British Columbia, Saskatchewan, Newfoundland and Labrador to introduce a provincial excise tax on vaping products5. The federal government already levied a tax which will come fully into effect in 2023. The province’s excise tax is expected to match it.

The EU: November 2022

Brussels proposes first EU-wide vaping levy6. The update to the 2011 EU tobacco taxation directive will bring the tax on novel smoking products, such as e-cigarettes and heated tobacco, in line with cigarettes:

– Stronger vapes: at least 40% excise duty

– Lower-strength vapes: 20% duty

– Heated tobacco: 55% duty or a tax rate of €91/’000.

China: November 2022

China imposes consumption tax on e-cigarettes7. A tax rate of 36% will be placed on the production or import of vapes while an 11% tax will be placed on the wholesale distribution of vapes.

Switzerland: October 2022

The Swiss government proposed amending the Tobacco Act to tax e-cigarettes8. The proposed tax rate is CHF0.2/ml for reusable vapes and CHF1/ml for single use vapes.

Canada: April 2022

Canada will introduce excise tax on vaping products at the federal level as of Oct 1, 2022 (later postponed to 2023)9:

– CAD 1 for a 2 ml cartridge (or fraction thereof)

– CAD 5 for a 10ml bottle (CAD 1 for every additional 10ml or fraction thereof)

South Africa: Feburary 2022

The National Treasury proposes to introduce a specific excise tax on e-cigarettes based on its existing policies applicable to other excisable products

References:

  1. https://www.mirror.co.uk/news/politics/vapers-hit-new-tax-e-31756349 ↩︎
  2. ‘Challenging’ to introduce tax on vapes, says Michael McGrath (irishexaminer.com) ↩︎
  3. https://www.cbc.ca/news/canada/toronto/ontario-vaping-tax-youth-1.7018364 ↩︎
  4. https://thestar.com.my/news/nation/2023/02/24/govt-to-impose-excise-duties-on-vape-products ↩︎
  5. https://montreal.ctvnews.ca/quebec-plans-to-hit-the-vaping-industry-with-a-new-tax-next-fall-1.6188629 ↩︎
  6. https://ft.com/content/6f1c4211-5e54-4aa8-a391-0ec9bc5244de ↩︎
  7. https://reuters.com/world/china/china-impose-consumption-tax-e-cigarettes-november-2022-10-25 ↩︎
  8. https://www.swissinfo.ch/eng/e-cigarette-tax-mooted-in-switzerland/48008814 ↩︎
  9. https://ctvnews.ca/politics/budget-includes-pocketbook-promises-on-low-alcohol-beer-vaping-and-menstrual-products-1.5852712 ↩︎

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