Category: Taxation

Taxation Situation
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Excise taxes on vapor and OTPs can present considerable administrative burdens on businesses.
By Bryan Haynes, Christina Sava and Robert Claiborne
Excise taxes on vapor products and tobacco products other than cigarettes, also referred to as “other tobacco products” (OTPs), present considerable administrative burdens on businesses dealing in these products. All 50 states impose excise taxes on most traditional OTPs, and have for a long time, but operators in the vapor category have been subject to rapidly shifting regulatory conditions as states update their OTP laws and other laws to account for vapor products.
Many of these laws are framed on traditional distribution models, and businesses’ innovations in routing taxable products to market can raise unique compliance questions. Recent legal changes have also raised new issues over the permissibility of state taxation of products coming in from another state. Where excise taxes are imposed on a product, the sale of such products requires licensure at various points in the supply chain, accurate bookkeeping, regular reporting, and tax remittance practices.
Typically, distributors and wholesalers of these highly regulated products may be the subject of audits by state revenue departments, and manufacturers and retailers may similarly be subject to audit depending on the auditing state. In our experience, it is a rare audit that does not result in an alleged deficiency. Some deficiency determinations are minor and easily paid while others can add up to hundreds of thousands—and even millions—of dollars due, plus interest and penalties. In such cases, it is imperative to engage the assistance of experienced counsel who can assist you in addressing the assessment.
A final deficiency determination can be crippling to a business. The audit process itself can be time-consuming and disruptive to normal operations, and any ensuing disputes will be even more so. It’s never a bad time to either establish an audit-readiness plan or clean up existing operating procedures to make sure a future audit and possible dispute go as smoothly as possible. We have drawn on our experience representing clients in such disputes to compile this list of best practices for avoiding or contesting OTP and vapor tax assessments.
Best Practices for Avoiding a Dispute

Understand your state’s licensure requirements. This tip should go without saying, but it is worth repeating given the rapid evolution of vapor products laws and innovations in businesses’ routing of taxable vapor or OTP products to market. If you do any business in traditional forms of tobacco, and begin selling vapor products, it would be prudent to confirm whether your state requires additional licenses, taxes or reporting for these products.

Know your regulator. For any highly regulated business, it’s important to be familiar with your primary regulatory agency and its agents and maintain a good relationship with them. Any time you are communicating with your regulator is a chance to make a good impression, so remain courteous and professional in your dealings with them, whether via email, by phone or in person. If there are occasions where you disagree with the regulator, you can do so respectfully and without being disagreeable.

Keep and organize accurate books and records. This tip is important for all business owners but especially for businesses that deal in excise-taxed products. Being able to produce accurate documentation of your activities can make all the difference in a dispute as well as prevent disputes. State laws typically establish the minimum record-keeping requirements. A good record-keeping system will include:

copies of invoices and receipts;

copies of bills of lading and other shipping documentation;

copies of all communications with state regulators; and

copies of documentation for any tax payments, tax reports and tax returns.
Make your records readily accessible as you will be asked to produce them during an audit. You will also want to promptly transmit records to your attorneys if you involve them in any phase of the matter. Verify whether your state requires you to maintain physical copies on-site or whether you can organize your records digitally.

Understand the applicable laws. This one is, again, obvious for all businesses but crucial for those dealing in highly regulated products. Keep track of the tax rate applicable to all of your product classes. If there is a question about whether your products qualify as taxable tobacco or vapor products, you should seek clarification and probably involve your attorney. Some laws, for instance, tax liquid nicotine but not certain other forms of nicotine while other laws tax products, such as vape products, that do not contain nicotine at all. Make sure you are signed up for alerts from your regulatory agency. If you don’t understand a change in law or policy, follow up with the regulator or experienced counsel for clarification. If you are going to seek a formal advisory opinion or even informal guidance from a state department of revenue, you will likely want to involve your attorney to ensure that you inform the department of all material facts and legal grounds that may distinguish your product or activities from coverage under the state’s excise tax laws.

File timely returns. Set up a system for making tax reporting easy and automatic. There are third-party providers that can assist if necessary. Filing thorough, well-prepared returns on time each month generates goodwill and can help prevent audits.

Periodically audit yourself. Set up periodic self-audits to ensure your reporting is accurate. Self-audits can help businesses mitigate issues that, if not discovered sooner, may result in large assessments. If you discover an issue, many state excise tax laws require that returns be corrected proactively. If you discover a major issue, it may be prudent to have a discussion with relevant taxing authorities but involve counsel early if you think you’ve discovered deficiencies. Some states have voluntary disclosure programs that may mitigate potential consequences from noncompliance.

If you are audited, make timely and thorough responses. If you are audited, it is critical to be responsive to auditors’ legitimate requests. Initial interactions with auditors can set the tone for the rest of the audit. Review requests for production thoroughly, note the deadlines and begin working on the responses early. Auditors appreciate well-organized productions, which are easier to provide if they are already organized and you’ve given yourself time to put together a thorough response.
Best Practices for Dealing with a Potential or Actual Dispute

Engage experienced counsel early. Consider contacting counsel the moment a request for records arrives. Counsel does not always have to respond on your behalf, but they can help you evaluate the legitimacy of requests and help you respond. You should contact counsel immediately upon receipt of a deficiency determination.

Be aware of deadlines. This one bears repeating because, in tax matters, missing a deadline can mean you have conceded to the assessment. Review the assessment carefully and note all deadlines. Review statutes, regulations and agency guidance to familiarize yourself with the appeal process, including any additional deadlines that might not have been identified in your notice.

Provide relevant information to your counsel as soon as possible and throughout the dispute. Is the disputed issue one that your business has previously discussed with the tax department? Has the tax department’s position changed at any point? Does the disputed issue concern products that had taxes paid on them in another state? Have there been any changes in the manner in which you conduct your business? What individuals or documents can address the facts in issue? These are just some of the questions your counsel may have, and there will be others depending on the nature of your dispute. It is important to make sure that you fully inform counsel of the relevant facts and documents early on and throughout the matter.

Keep perspective. Running a business is hard work, and a tax dispute will not make it easier. While you will naturally be eager for the dispute’s resolution, it is important to bear in mind that the dispute process can be lengthy. Most states route tax disputes through a maze of administrative processes before the taxpayer can have its day in court. Either party can have multiple stages for appeal. Also bear in mind that most disputes eventually settle. Keep a cool head, maintain professionalism and know that you’ll eventually be on the other side of this.
Proactive measures can help you streamline audits and mitigate the risk of tax assessments. If a dispute arises, early engagement with counsel is critical to developing and executing an effective strategy. Troutman Pepper’s tobacco team has substantial experience advising clients in vape and OTP tax matters and, when necessary, assisting them in disputing assessments. In 2022, we assisted clients in successfully disputing more than $45 million in claimed tobacco tax deficiencies.
When the taxman asserts a deficiency, you don’t have to resign yourself to “be[ing] thankful [he] don’t take it all.”[1] There is more that you can do before and after that point. Please let us know if we can help.
Bryan Haynes, Christina Sava and Robert Claiborne are attorneys for the law firm Troutman Pepper Tobacco Practice.
^[1] The Beatles, “Taxman,” on Revolver (1966).
February 22, 2023
Proposed EU Vape Tax Needs to be Done Properly

Unless properly structured, Europe’s tobacco and vapor tax plans may not achieve their public health objectives.
By Stefanie Rossel
The European Commission’s (EC) December 2022 proposal for an update to the 2011 EU tobacco excise directive came with a first: In addition to a significant hike in cigarette excise rates, the draft also calls for a bloc-wide vaping levy.
According to the proposal, the current minimum EU excise tax rate of €1.80 ($1.92) should increase to €3.60 per pack of 20 cigarettes. This would double excise duties in member states with low cigarette taxes (in eastern European countries, a pack of cigarettes can currently sell for under €3) and affect excise duties in countries such as Luxembourg and Austria, where cigarette prices are low relative to income. The EU hopes to generate an additional €9.3 billion in revenue from the tax harmonization, which would be a welcome windfall for pandemic-struck and inflation-struck member states. If enacted, the proposal would also increase taxes on hand-rolled tobacco.
E-cigarettes with less than 15 mg of nicotine per milliliter of liquid would attract a 20 percent excise duty, and stronger products would be subject to a duty of at least 40 percent. In the EU, nicotine content of e-liquids is limited to 20 mg per milliliter. According to the draft proposal, heated-tobacco products (HTPs) would attract a 55 percent excise duty, or a tax of €91 per 1,000 items sold.
The proposed legislation would harmonize the fragmented EU vapor market, where each member state taxes vapor and HTP products at its own rates. It is part of a push aimed at accelerating the reduction of smoking rates throughout the EU. As part of the common market’s Beating Cancer Plan, introduced by the EC in February 2021, health officials seek to lower the current EU smoking prevalence of 26 percent to 20 percent by 2025 and achieve a “tobacco-free generation”—that is, a smoking rate of below 5 percent—by 2040.
The draft was released only weeks after the EC imposed a ban on flavored HTPs to cut the growth in demand among younger consumers. Responses were mixed. While some argued that union-wide taxes are necessary because less harmful products still present risk, tobacco harm reduction advocates warned for unintended consequences.
Too High, Too Complex
David Sweanor
“Simply increasing cigarette taxes is a blunt instrument when trying to reduce the health toll from cigarette smoking,” says David Sweanor, adjunct professor of law at the University of Ottawa in Canada. “It is far more powerful than other standard anti-smoking measures but has limitations and constraints that are often overlooked. Price sensitivity is real, but many people who smoke cigarettes will seek to deal with increased costs through access to contraband, the cross-border trade, simply changing the way they smoke without achieving health improvements, or further diminishing their overall well-being by redirecting expenditures from healthier purchases to the purchase of cigarettes.”
Taxing low-risk alternatives reduces the incentive to switch from cigarettes and can make illicit cigarettes more competitive, according to Sweanor. In his view, it is akin to making alcoholics who give up drinking by taking up jogging pay a tax on running shoes. “It misses the point of how taxes can be justified due to the relative health impact of certain behaviors,” he says.
Dustin Dahlmann
Dustin Dahlmann, president of the Independent European Vape Alliance, believes that EU policy should be guided by scientific evidence. “Science around the world agrees that vaping is significantly less harmful than smoking,” he says. “E-cigarette taxes that are too high [to] prevent socially disadvantaged groups in particular from switching to e-cigarettes. In the first instance, there should not be excise duties for electronic cigarettes, as they are a means for smokers to switch to less harmful alternatives. If further harmonization of excise duties is considered, legislators should take into account the significant differences in risk profile between tobacco cigarettes and electronic cigarettes and apply the excise duties methodology accordingly, i.e., proportionality to the harm reduction benefits brought about by tobacco replacement products.”
In practice, this would mean a maximum excise duty of €1 per 10 mL or €0.10 per 1 mL of e-liquid, and it should be applied only to e-liquids with nicotine, according to Dahlmann. “The EU draft imposes a combination of an ad valorem and a specific volume base excise that would be an administrative burden for small and medium enterprises and fiscal authorities due to the additional complexity. Giving two options will lead to uncertainty, defeating the purpose of a harmonization of excise rates.”
Illicit Trade Could Increase
The question about how the EU’s revised tobacco tax directive would impact the illicit cigarette market is justified. The experience of France provides a cautionary tale. Following a tax increase of almost three times the EC’s minimum level, the illicit market in that country more than doubled, from 13.7 percent in 2017 to 29.4 percent in 2021, leading to an estimated loss of €6.2 billion in tax revenues in 2021, according to a KPMG report. In general, the study found, illicit consumption in the EU increased by 3.9 percent, or 1.3 billion cigarettes, in 2021, which corresponds to a loss of €10.4 billion in taxes.
How the suggested excise duty increase would impact markets with relatively low income and high smoking levels, such as Greece (42 percent smoking prevalence) and Bulgaria (38 percent), is anybody’s guess. “I have worked globally on illicit trade issues for decades,” says Sweanor. “There is much we can do to limit the trade, but the economics makes [illicit cigarette trade] so lucrative that it is hard to imagine bringing it under control so long as there remains a significant market for cigarettes. Markets meet needs, including illicitly. Cigarettes are extraordinarily inexpensive to make, and taxes and the huge profit margins of Big Tobacco create a business opportunity many people can be expected to see as a money spinner. The real answer is to facilitate disruptive technology that makes cigarettes as undesirable to consumers as unsanitary food or leaded petrol.”
To achieve the latter, the EC would have to acknowledge the harm reduction and smoking cessation potential of novel tobacco products. In February 2022, the EU Parliament became the world’s first elected chamber to endorse THR when it adopted a resolution on cancer prevention and treatment that notes that e-cigarettes “could allow some smokers to progressively quit smoking.” Dahlmann praised the move as a “landmark declaration” that would help reassure smokers of the benefits of switching to vaping. “All other EU institutions—and in particular the European Commission—should take this on board and ensure that policy follows science, not the other way around,” he said at the time.
Sweanor is less upbeat. “The taxation of low-risk products reflects an understanding of differential risks. But it fails to come to terms with the full magnitude of the harm from cigarette smoking and the enormous potential to dramatically reduce it. When we are looking at hundreds of thousands of annual deaths, surely it is a public health emergency—and policies should reflect that. Language such as “could allow some smokers…” and policies that limit the relative acceptability of low-risk alternatives indicate that the extent of the public health opportunity is not fully grasped.”
Differentiated Approach Required
Whether the EU is prepared to part ways with anti-novel nicotine product sentiment of the World Health Organization Framework Convention on Tobacco Control (FCTC), which the common market has ratified, remains to be seen.
“The EU is obligated to support tobacco harm reduction as a signatory to the WHO’s FCTC as stipulated in the introduction, article 1 (d) of the treaty,” says Dahlmann. “The FCTC requires the EU to not only allow reduced-risk products but to actively promote them. However, this definition is not actively supported by the WHO. The rule here is much more ‘quit or die.’”
“The WHO’s FCTC process has followed in the footsteps of narcotics protocols in being hijacked by ideologues who seek an abstinence-only approach on drugs where total abstinence is simply not a viable nor a humane goal,” Sweanor adds. “As with those narcotics protocols, caring governments that follow the Enlightenment principles of science, reason and humanism will either creatively skirt such guidelines or simply ignore them. This is something we are now seeing unfolding globally with cannabis policies.”
The goal of the new tax directive to create a smoke-free European society, he says, is noble and achievable—and far more quickly than envisioned in that 2040 goal. “But it requires bold rather than tentative steps. Policymakers should act in ways consistent with cigarette smoking being a public health crisis of enormous importance,” says Sweanor. “The best way to tackle this is by use of cross-elasticities, of empowering and facilitating people who smoke cigarettes to make healthier choices. This is accomplished by measures such as the widest possible cost differential between lethal cigarettes and low-risk alternatives. Given the horrendous death and disease tool from cigarettes, this should be a huge priority.”
“E-cigarettes need to remain accessible and affordable to smokers from all socioeconomic backgrounds who wish to quit smoking,” says Dahlmann. “E-cigarettes offer smokers an alternative that is 95 percent less harmful than smoking. Switching from tobacco to vapor has positive individual, social and economic implications and should be encouraged, not penalized by the tax system. If taxes make vaping more expensive than smoking, many smokers will lose an incentive to switch to the much less harmful alternative. We therefore would see no chance of achieving the EU’s ambitious goals.”
Before it is enshrined in law, the proposal will have to be agreed on by all EU member states. BAT already noted that this is merely the beginning of a long legislative process. “I assume there will be amendments, but we do not yet know their likely nature,” says Sweanor. “The proposal could be changed to help facilitate a rapid public health breakthrough as people abandon lethal cigarettes in huge numbers. Or it could be amended to make that a pipe dream.”
This article first appeared in Vapor Voice‘s sister publication Tobacco Reporter.
Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.

February 1, 2023
Georgia Ready to Consider Raising Tobacco Taxes

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In the United States, Georgia House Speaker Jon Burns said he was open to another healthcare proposal that has gone nowhere in the past – raising the state’s tax on tobacco products.
Georgia has the second lowest tobacco tax rate in the country.
“That’s one of the areas we’ll look at,” he said, reports WABE.
Burns has restructured the House committees in a way meant to encourage lawmakers to dig into complex healthcare issues, and he says a possible tobacco tax increase is an example of a healthcare policy that could bubble up from the committees.
January 23, 2023
Philippine Vape Sellers Must Register at Tax Bureau

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The Philippine Bureau of Internal Revenue (BIR) has requested that vape merchants register their businesses to avoid serious consequences in the future, reports the Manila Bulletin.
Criminal tax evasion charges will be filed against merchants that do not comply with revenue regulations, according to BIR Commissioner Romeo D. Lumagui Jr. Tax evasion charges were previously brought against five major importers and distributors of vapor products, totaling over PHP1 billion ($18.2 million).
Under the law, first-time offenders face a fine of PHP2 million and up to two years in jail. Second-time offenders face a fine of PHP4 million and up to four years in jail. Third-time offenders face a fine of PHP5 million and up to six years in jail. Foreign nationals caught breaking the law would face immediate deportation after serving the appropriate jail term.
In October, The Philippines Department of Trade and Industry (DTI) began consulting the public for the crafting of the implementing rules and regulations (IRR) of the country’s new vape laws.
January 12, 2023
Lawyer: ‘Cloudy Logic’ Behind Canada’s Vape Tax

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Canada is toughening up its regulatory regime over the manufacture and sale of vaping products.
As of Oct. 1, manufacturers and importers must be licensed or registered with the Canada Revenue Agency, must label their product with a vaping excise stamp, and pay an excise duty. Oct. 1 to Dec. 31 will be a transition period, after which retail stores can only sell stamped vaping products. These changes came from amendments to the Excise Act, 2001 and its regulations under the 2022 federal budget.
For taxation purposes, the changes mean that the feds effectively treat vaping products like tobacco products, says Robert Kreklewetz, an indirect tax, customs and trade lawyer at Millar Kreklewetz LLP.
A 20-pack of cigarettes is subject to $2.91 of federal excise duties, while the “roughly equivalent” amount of vaping liquid, two millilitres, attracts a duty of $1. He adds that this applies to liquid that does not contain nicotine.
“When vaping first came out, much like any new technology, the government was a little slow to react and slow to act,” says Kreklewetz. “It was a bit of a wild west situation in terms of how they were regulated from a product perspective and a wild west situation in how they were regulated from a taxation perspective. No special taxes, other than maybe our federal value added tax, would have applied – as it would to any other goods. But there were no special excise duties, and certainly no cigarette system in place for vapes. That’s all changed now.”
Canada also regulates vaping products through the Tobacco and Vaping Products Act, as well as the Food and Drugs Act, and has regulations restricting nicotine concentration and making rules for packaging and labelling.
Tax policy is usually aligned with public policy, and to attach excise taxes – sin taxes – to vapes, when they are a less harmful alternative to smoking, will provide less of an incentive for smokers to switch, says Kreklewetz.
“If you were looking at vapes as a way to get current smokers off of smoking and on to an alternative consumption of nicotine… every dollar that you put into tax on vaping is just a financial disincentive to getting off smoking,” says Kreklewetz. “If it costs me as much to vape as it does to smoke, why would I make the change?”
“That’s the cloudy logic that I see in the new taxation system,” he says. “The way the federal government is working these days, it’s running out of new sources of revenue. So, one might look at the vaping taxes as more of a tax grab than good public policy.”
November 8, 2022
China to Start Consumption Tax Nov. 1 for Vapes

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China’s Ministry of Finance will impose a consumption tax on e-cigarettes sold in China from Nov. 1, according to a notice published on Tuesday.
The taxation policy will further entrench China’s once-scattered e-cigarette industry into the country’s state-backed tobacco monopoly, a major generator of tax revenue for the country, according to Reuters.
According to the Ministry of Finance, a tax rate of 36 percent will be placed on the production or import of e-cigarettes, while an 11 percent tax will be placed on the wholesale distribution of e-cigarettes.
Experts said that the annual sales revenue of domestic e-cigarette makers is about RMB20 billion ($27.36 billion), so the tax may contribute an additional RMB10 billion to the government’s annual revenue, according to The Global Times.
China has long been the world’s largest producer of e-cigarettes, though consumption lags behind that of Western countries.
October 25, 2022
The Taking of Taxes

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South Africa’s National Treasury expects new taxation rules for e-cigarettes to be in place by the beginning of 2023.
By Timothy S. Donahue
The comedian Chris Rock once said, “You don’t pay taxes—they take taxes.” This can be especially true in heavily taxed countries like South Africa, where imposts include income tax (on both a personal and corporate level), value-added tax (VAT), dividends tax, capital gains tax and a wealth tax like estate duty. Now, it seems South African vapers should prepare to pay an additional tax if government officials have their way.
South Africa’s National Treasury manages national economic policy, prepares the South African government’s annual budget and manages the government’s finances. The agency says it will publish the draft Taxation Laws Amendment Bill 2022 containing the provisions on electronic nicotine-delivery systems (ENDS) and electronic non-nicotine-delivery systems (ENNDS) sometime in June or July.
Industry stakeholders will then have an opportunity to provide written comments on the draft legislation. Additionally, the country’s standing committee on finance will also have its own consultation process on the draft bill. The draft legislation will be formally brought forward for consideration at the medium-term budget policy statement expected sometime in October.
The government has proposed to introduce a specific excise tax on both the non-nicotine and nicotine liquid solutions used in e-cigarettes. Users could pay excise duty ranging from zar33.60 to zar346.00 ($2.08 to $21.38) per product, depending on the nicotine content and size of that product. The average excise rate for e-cigarettes is proposed at zar2.91 per mL.
Essentially, users could pay zar2.03 per mL of e-cigarette solution containing nicotine and zar0.87 per mL of e-liquid solutions that contain no nicotine if the draft proposals are accepted and become legislation in the current form. Products with a higher nicotine content, it is proposed, will attract a higher rate of duty compared with lower nicotine products.
“Unlike conventional tobacco products, these products are mostly unregulated in South Africa, hence the Department of Health has also started a process of amending the current tobacco control legislation to include these products in the regulatory framework,” the draft states. “Similarly, other governments around the world have started a process of regulating the consumption and use of ENDS through tax and nontax measures.”
Wesley Grimm, a senior associate, and Rudi Katzke, a partner, at Webber Wentzel, a law firm headquartered in Johannesburg, South Africa, say that the South African government is proposing to introduce a specific excise tax on vaping products using existing policy guidelines applicable to other excisable products, like tobacco products. They say that much like other excisable products, the demand for vaping products is largely inelastic and that short-term consumer resistance to the tax will likely dissipate.
A close up view of one and two hundred rand notes folded over in a young womens hand
“National Treasury omitted to deal with this occurrence in detail in a recent workshop with industry stakeholders. In our view, it will be interesting to see if National Treasury’s proposal to tax vaping products with a higher nicotine content at a higher rate than those products with a lower nicotine content will have any impact on consumer buying patterns,” says Grimm.
During the National Treasury’s Taxation of ENDS and ENNDS Workshop, the agency reiterated its position that the health risks associated with vaping remain “largely unknown,” according to Grimm. However, one of its stated objectives is to curb (and potentially end) the use of vaping products, including severely limiting access to the products by younger users.
“National Treasury insists that there is a health imperative to regulate and tax the vaping industry within its existing anti-tobacco framework. In our view, the proposal to tax vaping products does not necessarily support [the] government’s stated policy intention of reducing the consumption of tobacco products,” according to Grimm and Katzke. “More specifically, there is insufficient data to speculate on whether National Treasury’s proposed tax on vaping products will prevent youth use.”
The taxing of vaping products could have tragic unintentional consequences. Grimm and Katzke say that lawmakers should consider what happened in the traditional tobacco sector from March 2020 to August 2020, when South Africa banned all retail sales of traditional tobacco products, ostensibly to help stem the spread of Covid-19. By cutting off the supply of what it deemed “nonessential items,” the government hoped to prevent virus transmissions from people sharing cigarettes and thus prevent the health sector from being overwhelmed by sick cigarette smokers, according to government statements at the time.
The tobacco industry challenged that decision in court, claiming that the measure was disproportional and counterproductive. In December 2020, South Africa’s High Court agreed and declared the measure unconstitutional. However, significant damage had already been done to the lawful tobacco industry, according to Grimm and Katzke.
Credit: Enter Line Design
“Taxing vaping products will most likely stimulate the illicit trade in these products as has happened in the combustible tobacco sector,” they add. “Many commentators from the industry raised this point at the workshop, and National Treasury did not address the proliferation of the illicit cigarette and tobacco trade, or the likelihood that taxing the vaping industry will likely stimulate the illicit trade in these products.”
Already accounting for a third of the market in South Africa before the country’s Covid-19 lockdowns, the illicit tobacco trade soared to unprecedented heights during the tobacco ban. A recent study, conducted by the University of Cape Town’s Research Unit on the Economics of Excisable Products, found that an estimated 93 percent of smokers were able to purchase cigarettes on the illicit market during South Africa’s sales ban. Shortly after the ban was lifted, South African Revenue Service Commissioner Edward Kieswetter predicted it would take years to investigate and prosecute the corruption and illegal activities that had taken root in those four months.
A 2021 study, commissioned by the Vapour Products Association of South Africa (VPASA), analyzed the economic impact that the vaping industry has in South Africa. The study concluded that the industry’s total gross value-added contribution to GDP is zar2.49 billion, with an estimated zar710 million in resulting tax payments (mainly income tax and VAT) made in 2019. The VPASA report found that more than 350,000 South Africans use vaping products, that vaping product sales in 2019 amounted to zar1.25 billion and that the vaping industry generated 3,800 jobs.
The South African government plans to implement its proposed vaping tax on Jan. 1, 2023. The proposals must still go through the normal legislative cycle before being promulgated into law. The draft discussion document will consider comments from vape consumers, manufacturers and importers, which could have an impact on the commencement date of the proposed tax and on its final form. The draft bill, which is anticipated as early as June 2022, is expected to shed further light on the precise nature of the proposed vaping tax.
Grimm and Katzke say the government should carefully consider what it hopes to achieve by taxing vaping products. In their view, the goals of limiting youth usage and improving the health of South Africans “will not, necessarily, or directly,” be achieved by merely taxing vaping products. Instead, more understanding of the safety and efficacy of e-cigarettes and the impact that a vaping tax would have on consumers is needed.
“We suggest that government should help fund additional research into these aspects and continue to engage with industry in shaping its new tax policy,” say Grimm and Katzke. “Government should also take meaningful and decisive steps in combating the illicit cigarette and tobacco trade, publicize any successes on that front, and ensure that the lawful tobacco industry is better protected from illicit competitors.”

July 16, 2022
Oregon E-Cig Tax Smokes Revenue Projections by 300%
Credit: Nomad Soul
In its quarterly revenue forecast Oregon state economists released last week is an eye-popping number: revenues from a new tax on nicotine-based e-cigarettes and vaping products.
“Inhalant delivery [vaping] revenues, a new tax in 2021, continue to come in significantly above initial expectations,” the economists wrote. “Over the first year of the tax, actual collections have been three times as large as expected.”
Prior to 2020, the state didn’t collect any taxes on e-cigarettes.
That changed with Measure 108 in 2020 that included a suite of new policies aimed at reducing the harmful effects of tobacco use—most notably a $2 tax increase on every pack of smokes, according to Willamette Week.
The measure, which passed 66% to 34%, also included a tax of 65% of the wholesale price of vaping products.
In October 2020, right before the general election, the Legislative Revenue Office prepared an estimate of how much the new vape tax would raise and estimated revenues to be an estimated $10 million a year.
In 2021, the first full year of collections, the state took in nearly $30 million.
It’s not unusual for projected revenues from a new tax to be significantly low, especially if they deal with new products such as vapes or newly legal products such as recreational cannabis, which also significantly overperformed in the early years.
May 25, 2022
Indiana Cuts Vape Tax 40% Before New Tax Rules Start
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The governor of Indiana signed a bill last week that included provisions cutting the 25 percent tax that wholesalers were to be charged for closed-system vaping devices to 15 percent.
State lawmakers approved the higher rate last year for Indiana’s first tax on electronic cigarettes to start in July 2022. But the Legislature approved the lower rate with seven lines included in a 118-page bill on mostly technical tax law changes.
Sen. Travis Holdman of Markle, chairman of the Senate’s tax committee chairman, said the vaping device tax change was made to bring it in line with the 15 percent rate set last year for refillable vaping products, according to the Associated Press. Holdman said the intention was to have all vaping devices and products taxed the same.
Bryan Hannon of the American Cancer Society said the vaping device tax should be at least 20 percent to achieve parity with Indiana’s 99.5 cents-per-pack cigarette tax.
March 21, 2022
Indiana Bill Would Lower E-cigarette Excise Taxes
An excise tax on vaping products was set to take effect on July 1 in Indiana. A recently passed bill in the state’s Legislature, however, could lower those taxes before the new law goes into effect.
Credit: Adobe Stock / Luzitanija
Both the Indiana House and Senate have approved the measure that would reduce the tax on closed-system vaping products, such as disposable e-cigarettes, from 25 percent of the wholesale price to 15 percent.
Senate Bill 382 is likely headed to a House-Senate conference committee for minor negotiations, but the bill’s author expects the Legislature to send the bill to the governor. “I don’t anticipate any [significant] change. They approved it in the House; we’ll probably just leave it where it is,” said author Sen. Travis Holdman, told the Indianapoli s Business Journal.
Some lawmakers believe the tax rate for closed-system vaping products was set erroneously high last year; the reduction would match the 15 percent tax rate on the retail price of open-system products, such as refillable vaping pods. Under SB382, that rate would remain unchanged.
The tax reduction is part of a broader bill filled with minor tax corrections requested by the Indiana Department of Revenue and Gov. Eric Holcomb’s administration. Indiana’s tax on vaping products was created in the biennial budget near the end of last year’s legislative session. Lawmakers rejected a long-debated 50-cents-per-pack increase in the state’s cigarette tax, and in lieu of that, created the vaping-products tax.
Holdman said he does not know if the governor is on board with the vaping tax reduction’s being added to the Department of Revenue cleanup bill. A spokesperson for Holcomb said the governor will “review every piece of legislation that comes across his desk to make the best determination for all Hoosiers,” but declined to answer further questions about the tax reduction.
March 7, 2022