EU proposes new taxation guidelines for e-cigarettes

Nov.28.2022
EU proposes new taxation guidelines for e-cigarettes
The EU plans to include new tobacco products in the tax category, with a minimum tax on e-liquids based on nicotine concentration.

The London-based news center 2FIRSTS has learned that several European and British media outlets, such as the Financial Times on November 28, reported that the European Union may propose to amend the current 2011 EU tobacco taxation directive.


A London-based journalist from 2FIRSTS News Center conducted interviews with insiders in the European electronic cigarette industry to gather information. The findings are as follows:


The European Commission is working on a proposal to include new tobacco products, such as e-cigarettes and heated tobacco products, in the tax framework for traditional cigarettes.


The European Commission is set to impose a minimum consumption tax on electronic cigarette liquid, with the tax rate based on the nicotine concentration of the liquid.


Each member state can choose to use a pricing-based tax, a quantity-based tax, or a combination of both for taxing. The minimum consumption tax rate depends on the nicotine concentration of cigarettes and must not be lower than:


Nicotine levels below 15mg/ml will be subject to a retail tax of 20% or €0.10/ml, while nicotine levels above 15mg/ml will be subject to a retail tax of 40% or €0.30/ml. The maximum retail price should include all of these taxes. The minimum tax will be adjusted based on the purchasing power parity of each member country, using a specific formula.


The equation RateMS(t) is calculated as two-thirds the rate of the European Union plus one-third of the rate of the European Union multiplied by the previous year's Percentage of the Labor Force in Industry, Manufacturing, and Construction (PLIMS) divided by 100.


RateMS(t) is the adjusted tax rate for a given year (t) in each member country.


RateEU is the standardized EU consumption tax rate.


PLIMS(t-1) refers to the Price Level Indices of each member country in the previous year (t-1), as shown in the chart below.


The EU Consumer Price Index for the year 2021, sourced from the European Commission.


According to these standards, the minimum tax range for nicotine levels of <15mg/ml of e-liquid this year is €0.085/ml (Romania, PLI2021=55.5) and €0.113/ml (Denmark, PLI2021=140.3).


This tax rate will be adjusted on a three-year cycle.


After the release of the draft guidance on taxation, it will be reviewed and revised by the European Council. It can only be approved for implementation after all EU member states have unanimously agreed to it.


The review and modification of the draft will also take into account the opinions or suggestions for amendments from the European Parliament, but they are not binding.


It is reported that the European Commission will propose a revised version of the draft on December 7, 2022.


Taking the example of a 10ml e-liquid product with a nicotine concentration of 20mg/ml on the German online e-cigarette retail platform Innocigs, the current retail price is 8.95€ (including a 20% value-added tax).


Source: innocigs.com


According to a calculation by 2FIRSTS (subtracting existing taxes and adding new taxes, all other conditions remaining the same), the retail price of the product (to EU standards) would be 9.84€ (calculated with a 40% retail tax) or 10.63€ (calculated with a volume tax of 0.3€/ml).


In addition, the European Commission has implemented a ban on flavored heated tobacco products on the 25th of this month in order to curb the increasing demand from young consumers.


To further strengthen coverage of the European electronic cigarette industry news, 2FIRSTS has established a news center in London and will continue to monitor the latest developments in the local electronic cigarette industry, providing exclusive updates. Stay tuned for more information.


Author/Zhu Hongxu


Recommended Reading:


The European Union has banned flavored heated tobacco products.


2FIRSTS establishes London news center.


In a recent report, 2FIRSTS connected with the Medicines and Healthcare products Regulatory Agency (MHRA), which revealed that 25% of electronic cigarettes currently on the market do not comply with regulations.


FIRSTS connects with UKVIA: Suggests UK Government Raise E-cigarette Capacity Limit to 5ml.


Reference:


Law to modernize tobacco tax law (Tobacco Tax Modernization Law - TabStMoG)


The taxes levied on tobacco products, commonly referred to as excise duties.



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