Russian Parliament Proposes Comprehensive Tax on E-Cigarettes

According to TASS, the Budget and Taxation Committee of the State Duma has recommended that the lower house of parliament passes a bill on first reading to impose a comprehensive consumption tax rate on nicotine (e-cigarettes) and disposable electronic delivery devices that are inseparable from the device.

This document was initiated by the Chairman of the Federal Commission for Economic Policy, Andrey Kutepov, and his deputy, Alexei Sinitsyn.

The bill establishes a procedure for applying a consumption tax to disposable electronic nicotine delivery systems. It specifies a consolidated consumption tax rate for such systems, including a predetermined consumption tax rate for each unit of the device as well as a predetermined consumption tax rate for each milliliter of liquid contained within the device that cannot be separated from it.

It points out that disposable electronic cigarettes consist of both the device itself and the liquid, meaning two consumable products. Meanwhile, according to the principle of a single tax, the consumption tax for disposable electronic cigarettes is based on the rate determined by the electronic nicotine delivery system. "Taxing kits containing reusable devices and liquid containers may lead to similar situations. The goods displayed in the kit must be classified according to the part that gives the kit its main attribute, which is the equipment code for the electronic nicotine delivery system. Therefore, when importing a kit, only consumption tax is paid for the device itself," the explanatory statement said.

The proposed bill suggests setting the consumption tax rate from January 1, 2022 to December 31, 2023, inclusive at 62 rubles per item and 17 rubles per milliliter of disposable liquid for electronic nicotine delivery systems. From January 1, 2024 to December 31, 2024, the rate would increase to 64 rubles per item and 18 rubles per milliliter of liquid.

According to the author, this bill aims to establish a more fair tax regulation and to maximize the additional revenue from nicotine-containing products for the federal budget. The document's author points out that the passage of this bill would result in an additional annual revenue of over one billion rubles solely from the extra excise tax on disposable electronic nicotine delivery systems.

The Russian federal government has expressed support for the bill, but it still needs to pass for final approval.

We certainly support the concept of the bill, which proposes imposing taxes on all nicotine delivery devices based on their liquid content. However, as pointed out by our colleagues, the current proposal not only taxes the liquid but also the devices themselves. This is pointless because even if a disposable device is loaded with liquid, the device itself has no negative impact on a person. The liquid already exists," said Alexei Sazanov, the deputy minister of finance, during a committee meeting.

According to him, the amount of nicotine-containing liquid provided in the device should be the basis for the consumption tax rate. "We support this part of the bill, but we believe there should not be double taxation. That means in a disposable nicotine delivery system, you shouldn't be paying both for the system itself and for the liquid inside it. Therefore, it's necessary to impose taxation only on the liquid and not on the system. This part of the bill needs to be clarified," said the deputy minister.

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