Will the EU Introduce Unified E-cigarette Taxation?

In recent years, the European e-cigarette market has developed rapidly.

Data shows that Germany's e-cigarette sales are expected to reach 350 to 400 million euros in 2016 (1 euro is approximately 7.4 RMB), a 30% increase from the previous year. Some governments hope that this rapidly growing industry can become another source of fiscal revenue. To avoid chaos, the EU is actively drafting a universally applicable e-cigarette taxation system.

In December 2015, the EU Customs Union released a report stating that the current exemption of e-cigarettes from excise tax could have a significant and long-term impact on the finances of member states. The report pointed out that some EU member states have already begun taxing such products. If other member states follow suit but adopt inconsistent policies, it could disrupt the normal operation of markets across countries.

Currently, EU countries mainly impose value-added tax on e-cigarettes, with some countries also adding taxes on e-liquid. Italy's tax standard is 0.385 euros per milliliter, while Portugal's is 0.6 euros per milliliter; the Greek government plans to impose an excise tax on e-liquid at a rate of 0.1 euros per milliliter; Latvia imposes an excise tax of 0.01 euros per milliliter for e-liquid and 0.005 euros per milliliter for nicotine.

In June of this year, Hungary and Slovenia officially announced that they would also tax e-cigarettes. According to media reports, Hungary will impose a tax of 65 Hungarian forints per milliliter on e-liquid starting January 1, 2017 (1 Hungarian forint is approximately 0.024 RMB), and will raise the standard to 70 Hungarian forints per milliliter around July 1, 2017. Slovenia has already implemented a tax standard of 0.18 euros per milliliter on e-liquid since August 1 of this year.

With nearly a quarter of EU member states taxing e-cigarettes, taxation is no longer an isolated phenomenon. The current challenge facing the e-cigarette industry is: how widespread will this policy become?

The EU Economic and Financial Affairs Council recently submitted a request to the European Commission to introduce a tax category for new tobacco products within tobacco taxation, aiming to "create a fair and reasonable taxation treatment for emerging products in national markets, avoiding potential conflicts and legal ambiguities." The application emphasizes that regardless of the final solution adopted, a balance must be struck between fiscal revenue, tax management costs, and public health objectives.

Many newspapers believe that imposing the same level of tax on e-cigarettes as on traditional combustible tobacco products could lead to a sharp increase in e-cigarette prices. Other media believe that this move will serve as a catalyst for the formation of a unified tax system in the EU region.

Establishing a taxation system for e-cigarettes that can be universally applied across EU countries is a complex and daunting task. Francisco Oupa, a representative from Japan Tobacco International, pointed out: "Currently, due to a lack of data support related to sales dynamics and consumer behavior, market changes after tax implementation cannot be accurately predicted. If a unified tax policy is to be formed before 2017, time is very tight. Any hasty proposals or resolutions are very risky."

Member states also have different positions on this issue. While some countries support integration, others have no intention of taxing e-cigarettes.

Tim Phillips, a representative from an e-cigarette information website, believes: "Compared to traditional combustible tobacco products, e-cigarettes are more price elastic and should be treated with caution. Research shows that as the price of e-liquid increases, market demand will significantly decrease."

The Italian government has imposed a tax rate of 58.5% on e-cigarettes since January 2014, which immediately shrank its previously rapidly expanding market. As a result, in 2015, e-cigarettes brought only 5.2 million euros in tax revenue to Italy, compared to an expected fiscal revenue of 85 million euros. Oupa pointed to this data to highlight the negative impact of taxing e-cigarettes.

Oupa believes that e-cigarettes are still in their infancy, with a small scale, and regulators should be cautious when formulating a unified EU e-cigarette tax system. Oupa stated that the starting point and position of governments on unified taxation of emerging products should be good, but it must be recognized that the motivations supporting this position boil down to two: first, to increase fiscal revenue. However, due to the small scale, such products are still in the development stage. Second, the uncertainty caused by regional differences in Europe. Practice has proven that the integration of tax systems for traditional tobacco products over the years has not led to price consistency. On the contrary, the price differences are now greater than when the EU first imposed taxes on tobacco. Therefore, these two reasons are insufficient.

Oupa further analyzed: "We must have a reasonable structure and rate for consumption taxes. To encourage innovation in this emerging product, the tax rate at the initial stage should be kept as low as possible. Imposing a specific tax based on total nicotine content can be said to be an effective method, as this tax system depends on consumption levels and can reduce costs for e-cigarette manufacturers and importers."#p#分页标题#e#