Zero-nicotine products exempt from tobacco tax in Russia?

August 20 news: Russia recently announced minimum prices for nicotine products. It specifically noted that nicotine-free e-cigarettee-liquid and hookah tobacco mixtures are currently not subject to tobacco excise tax. According to reports, the Russian Ministry of Finance proposed a plan to set minimum prices for nicotine products in circulation and sale (excluding exports to destinations outside Russia and the Eurasian Economic Union). The draft government resolution was prepared by the Ministry of Finance and published on the legal portal website. In the formula used to determine the minimum prices of these products, tax rates similar to those applied to excisable goods, namely e-cigarette e-liquid and hookah tobacco, were used.

The proposal includes steps to calculate the minimum prices for heated tobacco products, e-cigarette e-liquid (nicotine e-liquid and nicotine-free e-liquid), and tobacco-free hookah mixtures. The formula in the draft is summarized in a general form as follows: minimum price = tax rate per unit of mass or volume × (1 + VAT rate) × markup coefficient. In this formula, the markup coefficient reflects production costs or the cost of imported products, as well as logistics and infrastructure maintenance expenses. Data on manufacturers' and importers' costs and purchase prices for the relevant product categories are also used in calculating these coefficients. Setting minimum prices is expected to affect the illicit segment of the nicotine products market. However, it is worth noting that honest wholesale and retail sellers already sell nicotine products at prices above the minimum level. Therefore, these businesses will not be affected after the draft resolution is adopted.