The Economic Impact of Legalizing E-cigarettes in Brazil

According to a report from Odia on August 7th, a study has shown that the legalization of e-cigarettes in Brazil could bring in over 1.02 billion reais (approx. $18.09 million USD) in revenue to the state of Rio de Janeiro annually.

A study conducted by the Federation of Industries of the State of Minas Gerais (FIEMG) analyzed the expected demand for these products and the potential ICMS tax revenue that could be generated after commercial legalization.

This study indicates that Rio de Janeiro will become the fifth largest high-tax state in the country.

This information is based on the latest research from Ipec (Research and Consulting Intelligence), which calculates that Brazil has 3.5 million potential e-cigarette consumers per year, bringing in a market value of 10.5 billion Brazilian reais (1.86 billion US dollars) annually for the country. The study was commissioned by British American Tobacco Brasil (BAT Brasil).

Despite Anvisa maintaining the ban in April of this year, the consumption of e-cigarettes continues to increase. Data from Ipec shows that by 2023, the number of e-cigarette consumers in Brazil has reached 2.9 million, an increase of 600% from six years ago.

In Rio de Janeiro, the growth rate is 300%. Due to lack of regulation, these consumers face an illegal market where taxes are not paid and hygiene standards are not followed.

Considering the demand and the 20% ICMS tax on the sale of e-cigarettes in all states, the agency estimates that total revenue could reach 21 billion Brazilian reais (3.7 billion US dollars), which would help increase revenues for states and improve fiscal balance.

The Chief Economist of FIEMG, João Gabriel Pio, emphasized that allowing the import and sale of these products can also promote economic activity.

Based on estimates of the demands of 3.5 million consumers, it is expected that this market could reach 10.5 billion reais annually. These numbers reflect the potential impact on the national economy, and if production takes place in Brazil, it could also create jobs and income.

If this potential market is filled by the domestic legitimate tobacco industry, the national income could exceed R$27 billion (US$4.8 billion). Otherwise, in the absence of regulation, these incomes will continue to flow towards the smuggling activities that currently dominate the market.