Research Shows Illegal E-cigarette Prevalence and Tax Evasion in Russia

Sep.30.2024
Research Shows Illegal E-cigarette Prevalence and Tax Evasion in Russia
Russian e-cigarette market facing tax evasion crisis, with only 1 in 50 products legal, causing low revenue. SPINI urges regulation.

According to a report by RIA on September 30, a study conducted by the Union of Nicotine Product Enterprises (СПИНИ) shows that in Russia, only one out of every 50 e-cigarettes is legal, leading to lower rates of consumption tax collection.


The organization pointed out that in Russia, over 99% of e-liquids containing nicotine and electronic nicotine delivery systems (ENDS) are illegally produced and sold. This means that only 1 out of 50 e-cigarettes sold in Russia are legal, and only this portion is subject to consumption tax.


SPINI predicts that the consumption tax on e-liquid in 2024 will be "close to zero". The organization cites data from the Ministry of Finance, stating that from June to August 2024, Russian manufacturers producing these e-liquids did not pay any consumption tax, compared to the 2.119 billion rubles (225 million USD) in consumption tax paid by Russian manufacturers for e-liquid in 2023.


SPINI's representative also mentioned that starting from January 1, 2025, a consumption tax of 2.2 million rubles (23,000 dollars) will be imposed on every kilogram of nicotine raw material. This year, the consumption tax on e-liquids containing nicotine is 42 rubles (0.45 dollars) per milliliter. Preliminary calculations suggest that the government expects to collect 50 billion rubles (500 million dollars) in consumption tax from e-liquids, but this amount is deemed "unattainable" by the agency.


SPINI President Vladimir Mishelovin emphasized that


The current situation in the market is described as completely "black" (illegal). Consumers are unwilling to spend money on legal products, and the country could completely lose out on nicotine raw material tax revenue. In addition to the over 148 billion rubles (approximately 1.6 billion USD) lost in 2023, the government is expected to have virtually no income in the 2024 budget. The situation is extremely critical and requires urgent reevaluation of national regulations on the e-cigarette market and e-liquid, in order to prevent the market from falling into a completely underground state. A method needs to be found to ensure the reasonable taxation of nicotine raw materials and products.


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