Manufacturers of electronic cigarettes ask the government not to raise excise taxes

To bring the market of electronic cigarettes and nicotine-containing liquids into the legal field, the amount of excise taxes must be reduced, not increased. Such a request is contained in a joint letter from the Professional Alliance of Market Participants in Electronic Nicotine Systems (PAURRENS) and the Union of Enterprises of the Industry of Nicotine-Containing Products (SPINI) to Russian Prime Minister Mikhail Mishustin.

A copy of it was also sent to the Ministry of Industry and Trade. Vedomosti got acquainted with the content of the document. The representative of the Ministry of Industry and Trade confirmed its receipt. The Ministry of Finance and the press service of the Russian government did not respond to Vedomosti’s requests.

The Ministry of Finance proposed to raise excise taxes on nicotine-containing liquids from 17 to 33 rubles. for 1 ml. during the discussion of amendments to the Tax Code. They provide for the simultaneous installation of two excises for electronic nicotine delivery systems (ENDS) – for the device itself (64 rubles per piece) and liquid (17 rubles per 1 ml).

The bill itself was submitted to the State Duma in February 2022 and on September 13 was adopted in the first reading. From the new excises, additional revenues to the budget were to be from 1 to 5 billion rubles. depending on market value.

Deputy Finance Minister Aleksey Sazanov said on December 6 that the department was proposing to gradually bring rates on nicotine-containing liquids and sticks to the level of cigarettes. The increase proposed by the Finance Ministry already equalizes excises on different types of products, says SPIN director Dmitry Vladimirov.

From January 1, 2023, the rate on cigarettes and cigarettes will rise by 4%, to 2,454 rubles. for 1,000 pieces plus 16% of the estimated cost calculated on the basis of the maximum retail price, but not less than 3333 rubles. Vladimirov adds that the desire of the Ministry of Finance contradicts the position of the World Health Organization, according to which the price of tobacco products should be higher than ENDS to stimulate smoking cessation.

Now approximately 90% of the ENDS market is in the gray zone and does not pay excise duty, the authors of the appeal say. POWERRANCE President Lev Grigoriev says that about 3.8 million people in Russia consume electronic nicotine delivery systems. The market size of electronic cigarettes is up to 200 million pieces, and liquids, if equated to a standard volume of 30 ml, is up to 90 million pieces.

An increase in excise duty will not contribute to the whitewashing of the market, the authors of the appeal believe. Vladimirov points out that now excise taxes are up to 64-66% of the cost of electronic cigarettes and nicotine-containing liquids. The proposal of the Ministry of Finance will increase the share to 94-96%, while worldwide the excise duty is on average 13-15% of the product price.

Vladimirov is sure that in the event of an increase in the excise tax, the market may completely go into the black zone, not complying, among other things, with the requirements of the “Honest Sign” marking. Mandatory labeling for manufacturers, importers and sellers comes into force on December 15, 2022. A representative of the Center for the Development of Advanced Technologies (operator of the Chestny Znak system) considers labeling to be an effective tool for whitewashing the market. He cites the experience of working in the tobacco industry: since the system was launched in 2019, the level of illegal products has decreased from 15.6% to 12.1% this year, despite the increase in excise rates.

The correct action, according to Vladimirov, would be a combination of introducing labeling and reducing excise taxes to world levels: this would make legal work more profitable, while at the same time creating obstacles for suppliers and sellers of counterfeit products.

Maksim Korolev, editor-in-chief of the Russian Tobacco industry news agency, points out that now, for example, vape liquids that do not contain nicotine do not fall under excise taxes. At the same time, consumers continue to buy nicotine on the black markets, mix their own liquids and get nicotine-containing products. According to Korolyov, in this direction, the Ministry of Finance has a certain margin for increasing excise revenues.

The owner of the tobacco consulting agency Fedotov Group, Yevgeny Fedotov, says that the idea of ​​equalizing excises is, in principle, logical, but the question is how to calculate them. According to him, based on the amount of nicotine consumed in different ways, at the moment excise taxes on electronic cigarettes and liquids in Russia are already significantly higher than the same tax on regular cigarettes.

The representative of the Ministry of Industry and Trade agrees that the amendments proposed by the Ministry of Finance increase the risks of an increase in the illegal circulation of excisable products. But, in his opinion, they can be reduced through a balanced distribution of excise rates for all categories of tobacco and nicotine-containing products.

A spokesman for the Ministry of Health said that the department supports an increase in the excise tax on tobacco intended for consumption by heating and liquids for electronic nicotine delivery systems. He sees this as an effective way to reduce tobacco and nicotine use among children and adolescents.