On the afternoon of January 6th, 2023, 2FIRSTS held its first online live event for "Russia Market Share Week" titled "Research on Russia's Electronic Cigarette Tax Policies". The live broadcast lasted for over an hour and attracted 250 electronic cigarette professionals to participate, with over 10,000 likes on the stream.
At the end of the article, free access to the course materials for the live broadcast will be provided.
Li Jiasen, an expert on Russian e-cigarette policy and market research, has provided a comprehensive interpretation of Russia's e-cigarette tax policy in four areas: the current state of the market in the Gray Zone, government regulatory trends, an overview of tax policies, and future development trends.
Explanation of Russia's Electronic Cigarette Tax Policy Contents. Image source: 2FIRSTS.
The chronic issue of grey market in the industry is difficult to eradicate, but the trend of regulatory compliance is gaining momentum.
Currently, the Grey Market remains a persistent issue in Russia. Numerous electronic cigarette products are being smuggled into the country from neighboring nations such as Kazakhstan and Belarus, turning Russia into a hub for electronic cigarette smuggling.
In light of this context, expert Liang Jiasen has stated that compliance and regulation are becoming increasingly important in Russia. The Russian government has gained control over the black market and tax loopholes in the grey areas. In the next step, more stringent measures and strict regulations will be taken to reduce these illegal practices.
Starting from December 15-25, 2022, honest labeling will be mandatory for electronic cigarette products. The pilot project for this category of labeling, originally scheduled to be completed by February 28, 2023, has been introduced earlier than planned as a mandatory requirement. Compliance regulation is not only a government desire but also an expectation of domestic businesses in Russia.
A comprehensive federal tax audit has revealed that the consumption tax is the main factor affecting profits.
During a live sharing session, expert Liang Jiasen provided a thorough analysis of the tax policies of the Russian Federation. He elaborated on topics such as pricing principles, consumption tax, value-added tax, and tariffs. 2FIRSTS has selected a few tax laws to present as follows:
According to Article 187.1(2) of the Russian Tax Code, the maximum retail price refers to the highest price that retailers, restaurants, service industries, and individual entrepreneurs can charge consumers for a packet of tobacco products.
According to Article 181 of Chapter 22 "Excise Tax" in the Russian Federation Tax Code, electronic cigarettes, nicotine heating devices, nicotine liquids and HNB products are deemed consumer goods subject to excise tax.
The calculation procedures for consumption tax and prepayment consumption tax are outlined in section 194, paragraphs 1-3, of the Russian Federal T ax Law. When considering the latest tax rates for 2023, 18 rubles equate to 0.23 euros (approximately 1.66 yuan), while 64 rubles equate to 0.84 euros (approximately 6.06 yuan).
According to Article 164.3 of the Russian Federal Tax Law, electronic cigarettes are subject to a 20% value-added tax rate, and the tax base is the total value of the product.
Article 185 of the Tax Law of the Russian Federation specifies the taxation aspect of goods that are transported across the customs border of the Eurasian Economic Union.
Comparison of Consumption Tax Calculation Formulas Image Source: 2FIRSTS
According to expert Leung Ka-sum, in terms of consumption tax, the use of higher capacity disposable electronic cigarettes can lower the cost of the tax rate and increase profits, as they are generally priced higher than smaller capacity options. Exchange rate fluctuations can also play a significant role in profit margins. Therefore, electronic cigarettes with larger capacities and refillable options have greater potential for profits.
Screenshot analysis of disposable and high-capacity electronic cigarettes. Image source: 2FIRSTS.
Seize the opportunity and take the lead by staying ahead of regulatory policy trends.
Expert Liang Jiasen mentioned that the electronic cigarette market in Russia will inevitably move towards compliance regulation. Therefore, it is important to keep up-to-date with Russia's compliance policies in order to take the lead. By staying ahead of the policies, one can prepare in advance, seize opportunities, and stand out in the next wave of market competition.
During the live stream, Liang Jiasen, an expert, answered questions from viewers regarding topics such as "honest labeling," the size of the electronic cigarette market in Russia, market share of HNB in Russia, and grey customs clearance. More information regarding honest labeling will be discussed in detail during next week's (January 10) theme live stream, "Practical Guide to Honest Labeling in Russia". Other market, product, and customs clearance-related questions can also be interacted with Liang Jiasen through the corporate WeChat "Russian Market Exchange Group".
For more exciting live content, please head to 2FIRSTSAPP to watch the live playback and receive the course materials from this live broadcast.
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