Germany imposes tobacco tax on e-cigarette liquid

From July 1st, Germany has started to impose taxes on e-cigarette oil. Previously, Germany only levied value-added tax on e-cigarette products, but from July 1st, it will also impose tobacco tax.

In Germany, there are currently around 2.45 million e-cigarette users. Starting on July 1st, e-cigarette liquids will be subject to an additional tobacco tax of 0.16 euros per milliliter, which could result in a retail price increase of almost 40%. For example, a bottle of e-liquid with a 10ml capacity currently costs around 5 euros (including VAT). With the added tobacco tax of 1.6 euros per bottle, plus additional VAT, the total price increase will be 1.9 euros.

Over the next few years, taxes are set to continue to increase.

It is expected that there will be three similar tax measures before January 2026, with taxes doubling to reach 0.32 euros per milliliter, which means that a tax of 3.2 euros will be levied for every 10 milliliters. Regardless of nicotine content, the price of a bottle of e-cigarette oil will exceed 8 euros, resulting in a price hike of over 60%. The Ministry of Finance is expected to collect 14.5 billion euros in taxes from the price hike.

Scientific research clearly indicates that vaping is less harmful than smoking.

The primary argument against imposing high taxes on e-cigarette liquid is health-related. Independent studies have revealed that the harms of e-cigarette use are much lower compared to smoking. The federal Risk Assessment Institute has stated that consuming traditional cigarettes carries significantly more health risks compared to using e-cigarettes.

Today, every child knows that cigarettes can be harmful, but many people are completely unaware of how much less harmful electronic cigarettes can be. There are numerous negative reports about the harmful effects of e-cigarettes, including causing lung disease and other health problems. However, these reports typically refer to American users who make their own e-liquid or suffer consequences from improper device use, such as popcorn lung. According to a survey commissioned by a federal research institute in 2020, only 5% of German smokers know that e-cigarettes are much less harmful than smoking.

Even the German Cancer Research Center indicates that electronic cigarettes may be much less harmful to health compared to tobacco cigarettes. Health insurance companies such as Barmer state on their websites that "research has shown that respiratory diseases such as chronic obstructive pulmonary disease, chronic bronchitis, emphysema, and asthma occur less frequently in electronic cigarette users than in traditional cigarette users." However, there is still no long-term research that can assess the clear impact of inhaling electronic cigarettes on health.

Barmer also cited a study that found that 18% of 886 participants in the UK successfully quit smoking after switching to e-cigarettes for one year. In comparison, the quit rate for a group using nicotine patches was only 10%. While it is important to note that not smoking at all is still the healthiest choice, this fact should not be hidden from the public.

Currently, there are constitutional complaints being filed regarding the impact of new taxes. The Smoke-Free Alliance's "Small and Medium-Sized Companies Association for the E-Cigarette Industry (BFTG)" is suing the new tax measures. The main argument presented by the alliance is that the unequal treatment between traditional tobacco and e-cigarettes is unfair due to the harmful health effects of traditional tobacco.

According to a recent research report, electronic cigarettes for consumer use pose "much lower risks than consuming tobacco." However, stakeholders argue that this violates the principle of tax justice, which states that "the more harmful a product is, the higher the tobacco tax must be." As a result, the current tax increase is unconstitutional. It is unknown whether the Federal Constitutional Court will accept the complaint, but Dustin Dahlmann, the president of BFTG, expects a response from the court in the first half of 2023.

Especially considering the significant advantages of electronic cigarettes compared to traditional tobacco, it is perplexing why a product that has been proven to be less harmful and even help people quit smoking completely, should now be taxed in the same manner as traditional tobacco.

Increasing taxes may bring about new problems.

Of course, all considerations regarding taxes are related to the increased healthcare costs caused by illness and treatment related to smoking. According to a 2017 calculation by the German Cancer Aid organization, the costs associated with tobacco are equivalent to "800 billion euros annually nationwide - 254 billion euros for the healthcare system and an estimated 537 billion euros for production losses and early retirement.

Will the new tax be effective in reducing financial losses and decreasing the number of smokers? Unfortunately, it is unlikely that this goal can be achieved through taxation. Compared to electronic cigarettes, weakening the traditional tobacco industry is much cheaper. Dahlmann even worries that a significant price increase may lead people to buy illegal products, stimulate the growth of the black market, and even result in new health problems caused by illegal and non-compliant products.

Consumers are stocking up on goods before prices rise.

The new tax laws have had minimal impact on traditional tobacco companies, with much less harm inflicted compared to e-liquid manufacturers. Traditional cigarettes may end up being cheaper than electronic cigarettes in the future. Dahlmann suggests this may result in the closure of many small and medium-sized businesses in the e-cigarette industry. Many consumers have started to stockpile ahead of July 1st in order to avoid the effects of price increases for as long as possible.

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