EU Considers Taxing E-Cigarettes

Financial Times 18th Feb 2015

“The European Commission is considering taxing ecigarettes in the same way as their traditional cousins in a move that would drastically increase the cost of the alternative smoking product and further hinder their take up.

The commission has asked excise duty experts from across the EU to consider the “best way to achieve fiscal equal treatment” between ecigarettes — where users inhale nicotine vapour — and normal tobacco products, according to a document seen by the Financial Times.

Steep duties are currently levied on traditional cigarettes but not on ecigarettes, making the tobacco-free alternatives much cheaper. The EU demands all member countries impose a minimum of a 57 per cent excise duty on every packet of cigarettes purchased in EU. By contrast, in most EU countries ecigarettes are only subject to the value added tax, which is about 20 per cent in most member states.

Tax policy makers from across Europe met in Brussels on Wednesday to discuss whether ecigarettes should be covered by excise duty.

Price has become one of the main reasons for people switching to ecigarettes, according to Natasha Kendall, tobacco analyst at Nielsen. She said over a third of ecigarette users surveyed by Nielsen said that the lower cost was one of the main benefits of the products.

The ecigarette market is highly fragmented, with users increasingly buying from specialised vape shops and online retailers. Sales from supermarkets, where brands owned by established tobacco companies dominate, have plateaued.

But Ms Kendall said more regulation, including increased taxes, of the ecigarette market would lead to the closure of smaller producers in the sector.

“You would see quite a lot of rationalisation with the introduction of any sort of regulation. It’s very much at the moment like the Wild West,” said Ms Kendall.

Tom Pruen, chief scientific officer at the Electronic Cigarette Industry Trade Association, said that there was no justification for a “sin tax” on ecigarettes as there was no clear demonstrable harm from the products.

British American Tobacco, one of the world’s largest tobacco companies and owner of the Vype ecigarette brand, said that any taxes applied to ecigarettes should reflect “the significantly reduced risk profile ecigarettes provide compared to regular cigarettes”.

The rapid growth of ecigarettes — which led some analysts to predict that they would overtake normal cigarettes in popularity within a decade — has slowed in recent months. Although their use has tripled in the UK since 2012, the proportion of smokers using them has been flat for 18 months, according to the latest survey.

In 2014 the global market for ecigarettes and other cigarette alternatives was worth $5bn, according to Euromonitor. It is expected to grow to $51bn by 2030. In Europe, roughly 30m have tried an ecigarette, according to a survey from Harvard published last summer.

One EU insider said: “There are no plans at present on the commission side to tax ecigarettes, but we are prepared to look at the issue in greater detail if this were to be considered a priority by EU member states.””