Recently, reports from some media outlets indicate that electronic cigarettes that meet national standards will be subject to a 36% consumption tax, similar to that placed on Class B cigarettes. This may result in at least a 30% price increase for most products on the market. However, before October 1, non-standardized products can still be sold at normal prices as they are not subject to the consumption tax.
The research team of the Southern Metropolis Electronic Cigarette Industry Observation Project has found out that China's current tax rate on electronic cigarettes is still around 13%, which is only subject to the tax rate of ordinary consumer goods. At the same time, the team has conducted surveys with several leading electronic cigarette companies and store owners, who all claim to have not received any official notifications regarding changes in tax policies.
Will electronic cigarettes be subject to consumption tax? With the legitimization of electronic cigarettes and the introduction of numerous related policies, the November 2018 amendment to the Regulations on the Implementation of the Tobacco Monopoly Law explicitly stated that "new tobacco products such as electronic cigarettes should be regulated in accordance with relevant provisions for cigarettes." This year, two regulatory documents on electronic cigarette products and industry standards, the "Electronic Cigarette Management Measures" and the "National Standard for Electronic Cigarettes," have been introduced one after the other. The relevant policies have mentioned that "supplementary policies and implementation rules for electronic cigarette product quality supervision and random inspections, identification testing, product packaging, and other aspects will be introduced one after another, and relevant policies on warning labels, inspection and testing institutions, taxation, mailing, and entry and exit carrying will be developed in coordination with relevant departments to establish a sound policy system.
From a policy perspective, some experts believe that the implementation of a tax on e-cigarettes in the future is expected. However, questions such as how much tax should be collected and from whom have been the subject of much debate within the industry.
Some argue that one of the defining characteristics of traditional cigarettes is their heavy taxation. In June 2009, the tax rates for Class A cigarettes were set at 56%, while Class B cigarettes were taxed at 36%. If electronic cigarettes were to be subjected to the same regulatory framework as traditional cigarettes, it is possible that the increased tax rate could lead to a significant increase in the retail price for electronic cigarette products.
There are opinions that suggest that in the future, e-cigarettes will be regulated and managed through a unified sales system, with a possibility of taxes being levied at the point of sale instead of the retail level.
Regarding the news of taxation within the industry, the research team reached out to several leading electronic cigarette companies for clarification. The companies stated that they have not received any official announcements or policy documents regarding changes in taxation. They are currently focused on developing and testing products in accordance with government regulations.
In light of speculation regarding tax standards and flavors in the electronic cigarette market, the first quarter of this year saw a wave of stockpiling. However, a research team found that although there is generally sufficient supply of electronic cigarettes, sales have not maintained the momentum of the first quarter. During interviews with several stores in Shenzhen, one store owner attributed the surge in March to policy determinants, but sales have since returned to levels before the new year.
On the one hand, the overall economic environment and weak consumer demand have had an impact. On the other hand, businesses are adjusting their operations based on official policy documents. The sales situation for e-cigarette stores is not optimistic. Especially before the policies and national standards for products are implemented, the stores can only adjust their sales strategies according to market supply and demand. This is according to a store owner.
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