Where Is Europe’s E-Cigarette Tax Policy Headed? (Photos)

As the European Commission discusses taxing e-cigarettes, seven EU member states have already developed their own tax plans.

Among them, various tax rates have been set. However, unlike the different principles used by various states and local governments in the United States for taxation, European taxes are mostly based on how much tax is levied per milliliter of e-liquid.

Every four years, the European Commission must review the tax rates and the structure of excise taxes applied to tobacco products. This is detailed in the 2011/64/EU directive, which allows for modifications at its discretion. This directive requires a tax framework for tobacco products to ensure that member states handle them uniformly.

E-cigarettes are currently not included in the directive, and although heated tobacco products (HNB) contain tobacco and are thus subject to tax policies, how they will be treated remains unclear.

In a report submitted to the European Council in December 2015, the Commission assessed the possibility of further analyzing the inclusion of e-cigarettes in tobacco product excise taxes. Six months later, in June 2016, the Commission released an impact assessment of a directive that included e-cigarettes and other amendments.

On November 17, 2016, the Commission launched a public consultation to gather opinions from EU citizens and stakeholders regarding the amendment of the directive. In particular, it was interested in opinions on expanding the directive's scope to include e-cigarettes. The consultation period ended on February 16, 2017.

Despite the Commission gradually moving towards a resolution for a unified approach to taxing vaping products, an increasing number of EU member states have introduced excise taxes without waiting for Brussels' directives.

In 2016, three member states (Latvia, Romania, and Slovenia) passed tax laws regarding e-cigarettes and heated tobacco products, similar to Italy and Portugal, which passed tax bills in 2014. Hungary and Greece have approved excise taxes on e-cigarettes, which will take effect in January 2017. Among the 28 EU member states, seven will introduce e-cigarette tax systems independently of any EU-wide authorization.

A consensus is forming

Although the Commission has not provided clear guidance on how to formulate excise taxes on e-cigarettes, a clear trend is emerging. The seven countries have established tax policies based on the amount of e-liquid used in e-cigarettes.

In 2014, Italy replaced a hastily introduced ad valorem tax based on the retail price of e-cigarettes (including devices and components) with a flat tax of €0.3743 per milliliter of e-liquid, the same rate as for combustible cigarettes.

Since then, other European countries have adopted similar low-volume-based excise taxes on e-liquid. Only Portugal has a higher tax rate than Italy, while Latvia has adopted a mixed tax structure, charging one euro cent per milliliter plus half a euro cent per milligram of nicotine.

Serbia, eager to join the EU, introduced a volume-based tax of 4 Serbian dinars per milliliter of e-liquid in 2015, which was increased to 4.06 dinars (approximately €0.033) in July 2016 due to inflation.

It is not surprising that these same European markets have amended their excise tax laws to include heated tobacco as a new product category. In all cases, volume-based taxes are implemented based on the weight of the tobacco mixture.

While heated tobacco is defined as a unique product category in Portugal's excise tax law, it is grouped with chewing tobacco and snuff, subject to mixed volume and ad valorem tax restrictions.

In May 2017, the Slovak Republic will introduce a volume-based tax of €73.90 per kilogram for "smokeless tobacco." Smokeless tobacco is a new tobacco category that does not include chewing tobacco and snuff and does not require burning during use.