TASS: Russian Government Halts E-Cigarette Ban Amid $2 Billion Tax Revenue Forecast

Key points:

Regulatory measures: Russia's mandatory honest labeling has doubled the number of legal sales points, with a maximum fine of 800,000 rubles (about 10,000 US dollars) and 6 years of imprisonment for selling without labels. Sales to minors, advertising and public displays, packaging or imitation of cigarettes are required to adopt a uniform low-key design. 

Policy dilemma: A proposal for a comprehensive ban is on hold due to concerns over the contribution of consumption tax and counterfeit risks. 

The Ministry of Health supports the ban, while the Ministry of Finance is worried about tax revenue losses and local enforcement issues. 

Industry dynamics: The profit margin for e-cigarettes is high, and there are advertisements for the transfer of "quick return on investment" online stores. Volgograd Oblast has already closed 10% of non-compliant stores, but there are still loopholes in national regulation.

According to a report from the Russian news agency TASS on August 6th, one of the important market regulation measures introduced by Russia at the end of 2022 is the honest labeling of e-cigarettes and their e-liquid. The purpose of this measure is to "legalize" the e-cigarette industry and protect the public from counterfeit nicotine. According to the Center for Advanced Technology Development (CRPT), after the implementation of this requirement, the number of legal sales points has almost doubled.

According to Article 15.12 of the Administrative Violations Code, selling unmarked e-cigarettes will be punished. For legal entities, the fine will be 300,000 rubles (approximately $3761); for particularly large-scale or conspiracy cases, the fine will be between 400,000 and 800,000 rubles (approximately $5015 to $10,000), or a maximum of 6 years of imprisonment, as well as a fine of up to 1,000,000 rubles (approximately $12,000).

In addition to labeling requirements, electronic product retailers must also adhere to the requirements outlined in a law passed in April 2023. According to this law, the price of nicotine-containing products must not fall below a minimum set by the government. Furthermore, selling e-cigarettes to minors, including those without nicotine, is completely prohibited. Advertising and demonstrations for these products are also banned, as well as any public display in retail stores.

Comprehensive ban temporarily put on hold

In 2024, a group of lawmakers led by Yaroslav Nilov, Chairman of the State Duma Committee on Labor, Social Policy, and Veterans Affairs, proposed a more radical initiative to ban the sale of e-cigarettes nationwide. The bill was submitted to the lower house of parliament in May 2024.

Despite certain e-cigarette sales bans being in place, these regulations are easily circumvented, and minors are still able to purchase e-cigarettes," the statement of the bill reads. "In order to save our nation, we believe it is necessary to implement a comprehensive federal ban on e-cigarette sales." The bill never made it to a first reading.

The State Duma website has published the conclusions of the Joint Executive Committee (Youth Policy Committee and Family Protection Committee) as well as the legal department. The first committee welcomed the bill but requested uniform terms. The second committee acknowledged that "there have been cases of deaths in Russia due to e-cigarettes," but also recommended modifications to the document. The legal department pointed out that "the proposed amendments contradict certain provisions of Federal Law No. 19, which allow for such trade but impose restrictions on its implementation.

Seeking a balance of interests

The drafter of the suspended bill acknowledged in a statement that "according to data from the Russian Ministry of Finance, as of January 1, 2023, the revenue from consumption tax on the above-mentioned goods amounted to 6.4 billion rubles (approximately $80.07 million)." By 2024, the consumption tax had doubled. The amendments to the bill will come into effect starting in March 2025.

According to the calculations of the Ministry of Finance, the implementation of a consumption tax on nicotine raw materials and tobacco products without nicotine starting on March 1, 2025, is expected to bring an additional income of 156 billion rubles (about 2 billion US dollars) to the national budget in the next two years. Perhaps one of the reasons why the bill has not been passed is the risk of a significant reduction in budget revenue.

Yaroslav Nilov told Tass News Agency: "The government and the State Duma are discussing the formulation of a comprehensive resolution aimed at taking into account the opinions of various stakeholders. Currently, the political process is underway and positions are converging. The Ministry of Health believes that e-cigarettes are harmful to health and can shorten lifespan. The heads of the economic and finance departments, on the other hand, stated that e-cigarettes fall under taxable products, contributing to budget revenue. Additionally, a ban could lead to the import and distribution of counterfeit products, although studies show that the market is already flooded with counterfeit goods, causing harm to public health and the national economy.

Not a lollipop from childhood

Although a decision on a comprehensive ban has not yet been made, Yaroslav Nilov's colleagues are proposing new measures aimed at reducing the appeal of e-cigarettes. Therefore, Ksenia Goryacheva, a State Duma deputy from the New People's Party, wrote to Prime Minister Mikhail Mishustin suggesting that e-cigarette manufacturers be instructed to use low-key packaging in a single color.

Redesigning packaging is not a cure-all, but it is an important step. When e-cigarette packaging looks like childhood lollipops, we not only sell products, but also target children with specific advertising. Of course, we need educational programs, stricter sales controls, and provide psychological and social assistance for those who are already addicted," said Ksenia Goryacheva.

Ksenia Goryacheva expressed her support for the idea of completely banning the circulation of e-cigarettes. At the same time, she emphasized the importance of avoiding the market falling into darkness. "We also propose gradually banning the sale of nicotine-containing products to those born after 2009. This way, children will not have the opportunity to develop bad habits. This is a global change, and we are working together with experts and colleagues. We also understand the need to lower age restrictions again," she added. According to her, these measures are currently being developed, with the primary task being to restrict access to e-cigarettes, reduce their appeal, and control quality.

Artyom Metelev, chairman of the Youth Policy Committee of the Russian State Duma, has also put forward a similar proposal. Recently, he wrote to Anton Shalaev, the director of the Russian Federal Agency for Technical Regulation and Metrology, requesting him to consider amending the regulations on the production of e-cigarette liquids containing nicotine in Russia. The deputy director proposed that manufacturers be required to include warning labels on the packaging of e-cigarettes and e-cigarette liquids with nicotine, informing consumers of the risks associated with using these products, similar to current regulations for cigarettes.

According to Ksenia Goriacheva, the government has not yet replied to her letter. "The deadline has not passed. The issue of labels and registration of products containing nicotine is currently a focus of attention for multiple agencies, and I hope the government can take similar actions," she said.

The Russian men who don't smoke e-cigarettes are also cool

Another initiative comes from a group of lawmakers from the Liberal Democratic Party of Russia (LDPR). Under the leadership of party leader Leonid Slutsky, they have submitted a bill to the State Duma that would ban the use of "substances intended to increase the attractiveness of such products, including food flavorings and additives that increase nicotine addiction" in e-liquid production.

According to the document, starting from September 1, 2023, the government has been empowered to determine the list of substances allowed for production, but this authority has not yet been implemented. "Experts emphasize that one of the reasons why such a list of substances has not been determined is that the Eurasian Economic Commission is developing a draft technical regulation on nicotine products for the Eurasian Economic Union. Once this regulation is passed, it will provide a common list for all union member countries, listing substances that cannot be used in the production of nicotine and non-nicotine e-cigarette liquid," the document states.

Leonid Slutsky expressed his support for a total ban on e-cigarettes and cigarettes - a proposition that the Liberal Democratic Party had already introduced as a bill in 2017. However, he believes that, before making a decision, the purpose of banning flavors is to reduce the allure of nicotine consumption.

Most young people are attracted to the flavors of candy, gum, coffee, mint, and cherry. If we remove these aromatic baits, most people will stay away from this fashionable innovation," the deputy minister said. "Any potential, direct tax or other national revenue from e-cigarette sales cannot compare to the long-term strategic task of saving the Russian people, especially the younger generation. Russian boys and girls can be cool without e-cigarettes.

He stated that if the spice ban bill is passed, the Liberal Democratic Party will do everything in their power to ensure compliance. In addition, the party also plans to introduce a bill for fines for those who violate the new regulations.

You can buy, but it is best to close the e-cigarette store.

The internet is inundated with advertisements selling e-cigarettes. These stores have established customer bases, offer direct delivery, provide devices, and even offer customized online advertising.

As Yaroslav Nalov stated, the appeal of this type of business is obvious; all that is needed is to establish a legal entity and choose a conveniently located place to start operations. For entrepreneurs, the advantages lie in low rent, long product shelf life, and high profit margins. The average retail price of e-cigarettes is 1.4 thousand rubles (about $18), while the wholesale price for a purchase of 100 units is less than 800 rubles (about $10).

It is worth noting that dozens of countries have banned the sale of e-cigarettes. In China (the main supplier of e-cigarettes in Russia), the sale of such products is strictly regulated in the domestic market.

However, there have also been some successful examples of Russia shutting down e-cigarette shops. For example, the government of the Volgograd region closed 32 retail stores selling nicotine products in just two weeks in June. Governor Georgy Filimonov stated that this amounted to 10% of the total number of e-cigarette shops in the region. According to him, prior to this action, there were a total of 316 e-cigarette retail stores in the area, some of which were located near educational institutions.