As of the end of July, China’s electronic cigarette supervision system has basically been formed. As one of the core links of supervision, the formulation of electronic cigarette tax policy is still in progress. The Tobacco Bureau proposed to cooperate with relevant departments to formulate e-cigarette tax policies, which are currently being studied and promoted according to procedures.
The industry generally believes that e-cigarette taxation is only a matter of time. Li Min, an intermediate professional title of tobacco engineering and a compliance expert, said in the analysis that the diversification and modernization of nicotine intake is a worldwide trend. Countries such as Russia, Japan, the United States, and the United Kingdom that have taxed electronic cigarettes have imposed specific ad valorem compound taxes on various tobacco products. The main control method is to gradually increase specific taxes. Judging from the taxation and market conditions of tobacco products in overseas countries, how and how much tax is levied has different impacts.
With reference to cigarettes included in the scope of consumption tax collection?
According to the new regulations, e-cigarettes are implemented with reference to the relevant regulations of cigarettes and enter the monopoly system. So, will e-cigarettes be included in the consumption tax collection with reference to cigarettes in the future? It is a hot topic in the industry recently.
According to the “2018 Progress Report on China’s Tobacco Control Implementation”, the comprehensive tax rate of cigarettes in my country is 66.6%. In the current consumption tax on tobacco, in the industrial production process, the tax rate of Class A cigarettes is 56% plus 0.003 yuan per stick, and the tax rate of Class B cigarettes is 36% plus 0.003 yuan per stick. For the commercial wholesale of cigarettes, the tax rate is 11% plus 0.005 yuan per cigarette.
Based on the calculation of RELX’s fourth-generation wireless pods, the current retail price of the terminal is 33 yuan/piece, assuming that it is levied according to the tax rate of Class B cigarettes, that is, 11% in the wholesale link and 36% in the production link. The total incremental tax burden is about 8.2 to 14.2 yuan, accounting for 25% to 43% of the original retail value of the terminal.
In this regard, the reporter of “China Times” contacted RELX official, RELX replied to the reporter that there is no new relevant information on the taxation policy of electronic cigarettes. At present, in accordance with the policy requirements, the work is steadily advancing.
Minsheng Securities also issued a report saying that it is the general trend to levy consumption tax on new tobacco products. Referring to Japan and South Korea, China’s new tobacco tax rate may be cut in at a lower tax rate in the future, and gradually increase the tax rate close to traditional cigarettes. At present, my country’s electronic cigarettes only charge value-added tax, and the tax rate is significantly lower than that of traditional cigarettes.
E-cigarette market generally cools after tax hike
Li Min pointed out that many countries have taxed electronic cigarettes, and the taxation situation of different countries is different.
The United States is the number one country in the world in terms of e-cigarette sales. The government has not yet levied a unified tax on e-cigarettes, but is drafting a plan to charge 0.0278 US dollars/mg based on nicotine content, which is about US$1 per pod of 36mg.
Similar to cigarettes, taxes on e-cigarettes each state has its own regulations. For example, California will impose an ad valorem tax of 12.5% on e-cigarettes from 2021, Texas has a tax rate of 0 so far (but there is a license fee from 2021), and Kentucky will levy 15% ad valorem + $1.5 per volume from 2021. While North Carolina has levied taxes on e-cigarettes at a specific volume of $0.05/mL since 2015, none of the states has set a special tax on smoking equipment.
“In 2021, the e-cigarette market in the United States will exceed US$10.3 billion, more than one-tenth of the US$96.8 billion of cigarettes. Behind it, the tax burden of electronic cigarettes in various states is generally lower than that of cigarettes.” Li Min said.
Referring to the impact of tax rates on the market, Li Min added: “China Tobacco Science and Education Network published a report in April last year to see if it can bring us new thinking. The report pointed out that raising tobacco tax rates can reduce tobacco consumption. The organization’s proposed tobacco tax rate is 75% of its retail price.”
Looking at other countries and regions, the EU does not require member states to impose a unified consumption tax on e-cigarettes as a whole, but many member states have included the “e-liquid” of e-cigarettes into the consumption tax item, and tax is calculated according to the volume of e-liquid. Tax rates vary from country to country, with Finland and Portugal having the highest rate at 0.3 EUR/ml.
South Korea is the first country to impose a consumption tax on e-cigarettes. In 2011, South Korea expanded the scope of tobacco consumption tax collection to “electronic tobacco”. The initial tax rate was 400 won per milliliter of e-liquid, and it was gradually increased. The total tax on e-liquid is 1,799 won. South Korea also imposes a green fund tax of 24.4 won per 20 pods, which is the same as 20 traditional cigarettes.
The taxation of e-cigarettes in Indonesia is relatively stricter than that of traditional cigarettes, with a 57% excise tax based on the retail price of e-cigarettes, while the average excise tax rate on tobacco products in Indonesia is 23%.
The market popularity of e-cigarettes in these countries has generally declined after taxation, and a period of repair is required. In Indonesia, for example, sales of e-cigarette products surged in 2016, but the growth slowed after the tax was imposed on e-cigarettes on July 1, 2017.
