South Africa’s National Treasury (SANT) says the public comment period on its proposals to impose a specific excise tax on both the non-nicotine and nicotine e-liquids for vaping products will end on Feb. 7, 2022. The SANT published a draft discussion paper in December 2021 on the proposed taxation of electronic nicotine delivery systems (ENDS) and electronic non-nicotine delivery systems (ENNDS).
Traditional tobacco products in South Africa are subject to excise duties at a rate of 40 percent of the price of the most popular brand in each tobacco category, according to Longevity. When applied to e-cigarettes, users could pay excise duty ranging from ZAR33.60 to ZAR346.00 ($22.50) 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 and apportioned in a ratio of 70:30 between nicotine and non-nicotine elements.
Basically, users could pay ZAR2.03 per mL of e-liquid containing nicotine and 87 cents per mL of e-liquids that contains no nicotine, if the draft proposals are accepted and become legislation. Products with a higher nicotine content will attract a higher rate of duty compared with lower nicotine products.
Manufacturers and importers who become liable for the proposed excise taxes on e-cigarettes will need stringent certifications by accredited laboratories, which use either South African National Accreditation or International Laboratory Accreditation Co-operation (ILAC) approved methodologies.
According to 2021 study commissioned by the Vapor Products Association of SA, the vapor industry in 2019 contributed ZAR2.49 billion to South Africa’s GDP while paying ZAR710 million in taxes. More than 350,000 South Africans use vapor products.
The finance committee of Israel’s Knesset has approved a slightly modified version of the tax on vaping hardware and e-liquid that was imposed last November, reports Vaping360.
Although the committee reportedly eliminated a separate tax on disposable products, Israel will still have the highest vape tax in the world. Effective immediately, all vaping products will be subject to a tax equaling 270 percent of the wholesale cost, plus NIS15.6 ($4.94) per milliliter of e-liquid.
Both the finance and health ministries aimed to tax vaping products at the same rate as cigarettes. Maintaining that vaping is just as dangerous as smoking, the health ministry initially sought an even higher tax. According to Israel Hayom, Finance Committee Chairman Alex Kushnir “reduced the conversion formula by 30 percent compared to what the Ministry of Health wanted.”
Mississippi State Senator Davis Blount filed Senate Bill 2062, which would tax e-cigarettes and vaping products. The Northside Sun reported the bill calls for the same 15 percent excise tax as cigarettes.
“I continue to believe that electronic cigarettes and vaping products ought to be taxed at the same rate as regular cigarettes,” Blount told the Northside Sun. “There are different ways of taxing these products since some of them are in liquid form. I’m open to any way that works, but the simplest way is to just tax them like a pack of cigarettes based on their retail price.”
Two years ago, Blount authored a similar bill that was approved by the Finance Committee for a floor vote, where it missed the three-fifths majority for passage by one vote. A three-fifths majority is required on any tax-related issue, according to Senate rules.
Blount has gone for a more simplistic approach in this year’s bill. Instead of a 5 cent levy on every liquid milliliter of nicotine like in his previous bill, e-cigarettes would be taxed at the same 15 percent rate as conventional cigarettes.
According to the state Department of Revenue, Mississippi’s tobacco tax generated $145 million in revenue in fiscal 2021, which ended June 30.
A new proposal that would introduce a 75 percent wholesale tax on vapor products in Alaska could make switching from combustible tobacco products very expensive for smokers. If enacted, HB 110 (SB 45) would tax nicotine vapor products (including components) at a rate comparable to the rate on other tobacco products and cigarettes.
Credit: Eyegelb
Such a steep tax would markedly increase vapor products retail prices, which could limit the number of smokers that switch, according to Ulrik Boesen of the Tax Foundation. “While excise taxes on both cigarettes and vapor products can be a legitimate way to recoup some societal costs associated with nicotine consumption, it is hard to justify equal tax treatment between vapor products and combustible tobacco,” Boesen writes. “Worse than the disproportionate tax rate is the substitution that is likely to result in increased smoking as a result of the tax—a net negative for public health in Alaska. One recent study funded by the National Institutes of Health found that increasing taxes on vapor products would increase the number of smokers.”
Boesen recommends that lawmakers avoid price-based taxes. He says that for states seeking to recoup some societal costs associated with combustible cigarette consumption, taxes should be based on the e-liquid quantity. “Whether a device is expensive or cheap really does not matter for any harm resulting from use,” he writes. “For vapor products, the obvious choice is taxing the liquid by volume (that is, per ml). Such a design would actually target the harmful behavior and avoids taxing devices and components.”
In a statement accompanying the legislation, the bill sponsor, Rep. Sara Hannan (D), mentions youth use as the main reason for introducing the bill. While youth use of any nicotine product is a major issue, there has been marked improvements in tackling youth use in the last few years. In her statement, Rep. Hannan refers to Centers for Disease Control (CDC) data from 2018 where 21 percent of high schoolers reported vaping at least once in the last 30 days. In newer data from 2021, 11 percent reported use at least once in the past 30 days, and only 3 percent reported daily use.
The government of Malaysia has postponed implementation of a new tax on e-liquids following complaints from vapor companies and consumers, according to The Malaysia Reserve.
The proposal called for a duty of MYR1.20 ($0.29) per ml of vape liquid or gel, which could have more than doubled the retail prices of bottles for open-systems.
“We are not surprised by this deferment, considering the blowback from vape industry players and consumers over the high duty rate,” said CGS-CIMB Securities analyst Kamarul Anwar.
Vapor companies said the tax would make e-cigarettes more expensive than tobacco cigarettes and force the industry to compete with much-less expensive black market products.
“The tax rates implemented should be made with proportional risks of the product benefits to the hardcore smoking community,” Malaysian Vape Industry Advocacy President Rizani Zakaria told The New Straits Times in October.
The proposal also ran into opposition from medical groups. “The taxation levels for tobacco harm reduction products in Malaysia must remain risk-proportionate, benchmarked against high-risk products such as cigarettes,” Federation of Private Medical Practitioners Associations Malaysia president Steven Chow said in a statement last November.
Malaysia currently prohibits nicotine sales for non-medical purposes. Earlier this year, Health Minister Khairy Jamaluddin informed the World Health Organization that the country would legalize and regulate vaping products to prevent youth access.
South Africa’s National Treasury has outlined a proposal on the taxation of electronic nicotine delivery systems (ENDS), reports BusinessTech.
Credit: Skórzewiak
Among other measures, the agency is considering taxes on hardware and e-liquids, with higher-nicotine products attracting higher levies than low nicotine varieties.
While the market for ENDS is still in its infancy in South Africa, the National Treasury expects it to grow. The agency says it wants to learn from the experience of other countries where growth of ENDS has raised concerns about underage consumption. The agency said it is also aware of concerns about the potential of ENDS to undermine global tobacco control efforts and public health.
Vaping products are covered neither by South Africa’s Tobacco Products Control Act nor by the country’s Medicines Act. The government has proposed the Control of Tobacco Products and Electronic Nicotine Delivery Systems Bill in which it hopes to regulate vapor products in a similar way as cigarettes.
The bill was introduced for public comment in 2018, but remains in a draft form.
According to 2021 study commissioned by the Vapor Products Association of SA, the vapor industry in 2019 contributed ZAR2.49 billion to South Africa’s GDP while paying ZAR710 million in taxes. More than 350,000 South Africans use vapor products.
A proposal to impose U.S. federal taxes on vaping has been removed from the Democrats’ healthcare, education and climate change bill, reports The Wall Street Journal, citing people familiar with the matter. Nevada Senator Catherine Cortez Masto, a Finance Committee member in a tough re-election race, reportedly pushed to remove the tax and helped force its deletion.
The removed provision would have levied a tax on vaping products designed to parallel the existing federal cigarette tax rate of $1.01 per pack.
The move comes just days after the Vapor Technology Association (VTA) released a report that concluded the tax would cost thousands of jobs. “We have been meeting with numerous members of the House and Senate, and the Administration, to explain the absurdity of this tax, giving them multiple public health and economic reasons to strip it out of the bill,” said Tony Abboud, head of the VTA. “A tax can always come back, but if it does I doubt it will be as poorly considered as this one. There are much better alternatives.”
The tax had draw considerable criticism from vapor industry representatives and tobacco harm reduction advocates, who said it would in some cases make e-cigarettes more expensive than combustible cigarettes—a perverse outcome, given that vaping is widely believed to be less harmful than smoking.
Critics also noted the tax would be regressive. According to a recent Gallup poll, Americans with an annual household income of less than $40,000 are significantly more likely to vape than higher-income groups.
Vaping advocates welcomed the decision. “The evidence is clear that imposing a new excise tax on vaping products will discourage adults from quitting smoking and shut down small businesses already dealing with industry-crushing federal regulations,” Gregory Conley, president of the American Vaping Association, was quoted as saying by The Wall Street Journal.
A new report finds that combustible cigarettes will become less expensive than vaping products and nearly 43,000 jobs would be lost if the proposed nicotine tax contained in the Build Back Better bill (HR 5376) were to become law. The Vapor Technology Association (VTA) funded study, The Negative Economic Impacts of the New Nicotine Tax Imposed Only on Vapor Products In the Reconciliation Bill, conducted by economist John Dunham & Associates, is being billed as a comprehensive analysis of the negative effects that the proposed tax will have on smokers, the industry and the economy.
“Our analysis finds that the bill would not create anything close to parity with cigarette taxes but, rather, would tax vapor products at a much higher rate – up to nine times higher – than the tax on a pack of cigarettes,” the report states. “The proposed nicotine tax in the Reconciliation Bill would lead to a net price increase on vapor products at retail of about 53 percent (21.2 percent for a standard two-pack of closed-system pod products and 73.5 percent for a standard 60 milliliter bottle of open system e-liquid), while the price of cigarettes and other tobacco products would remain unchanged as they would not be subject to any additional federal tax.”
The study also concludes that the proposed nicotine tax would lead to a reduction of nearly 42,800 full-time equivalent jobs and the loss of $2.2 billion in wages and benefits, negatively impact the size of the overall economy which would fall by about $7 billion and would result in states and their localities losing $620 million in taxes while the federal government attempts to generate revenues.
“A pack of cigarettes contains approximately 204 milligrams of nicotine (10.2 mg/cigarette x 20 cigarettes per pack). Applying the proposed nicotine tax of 2.78-cents per milligram to cigarettes, means that the tax on a pack of cigarettes should be $5.41, not $1.01,” the study states. “Viewed another way, the federal tax on cigarettes, if applied to their nicotine content, would only amount to less than half a penny per milligram, not the 2.78-cents Congress seeks to impose on e-cigarettes ($1.01 per pack / 204 mg of nicotine per pack).”
As defined in the bill, the proposed tax would be equal to about $2.22 on the standard closed system nicotine vapor product (such as a two pack of JUUL pods), and a $10.01 on the standard average 60 milliliter bottle of nicotine containing e-liquid used in an open system vapor device,” according to the study.
If passed, the proposed tax would also lead to a loss of about 31.9 percent of vapor product sales or 3.7 million milliliters of e-liquid consumed. Of this loss, 61.2 percent would be the result of consumers switching to other tobacco products, including combustible cigarettes. An additional 18.5 percent of these lost sales would move to the black market, according to the study.
“Modeling suggests that a large portion of consumers would react by purchasing unregulated products over the black market or make their own e-liquids,” according to the study. “These figures (which reflect a price increase resulting from the tax of 53 percent) are conservative and are not out of line with other studies examining the substitution of vapor products and combustible cigarettes when taxes are imposed.”
The US House of Representatives has passed the portion of the Build Back Better Act that includes a controversial nicotine tax. The legislation will now head for the Senate. If passed, the bill would go to President Biden’s desk.
In a 220 to 213 vote, the House predictably voted mostly along partly lines for the legislation that has often been compared to the New Deal. Biden signed the second piece of his domestic agenda, a $1.2 trillion package focused on infrastructure improvements, into law earlier this week. He is expected to sign the social spending section if its passed by the Senate.
Democrats are planning on using a special budgetary process known as “reconciliation” to avoid the 60-vote filibuster threshold and pass the bill on a party-line vote, according to news reports.
The vote was delayed last night after the record for the longest speech in the US House of Representatives was broke by Kevin McCarthy, which went on until early Friday morning. The speech surpassed eight hours of continuous floor time. Towards the end of the speech, McCarthy joked that “my one minute is almost up,” noting that “personally I didn’t think I could do that long.” He then spent some time asking those around him to confirm that he had beaten the record.
In a release, Biden said for the second time in just two weeks, the House of Representatives has moved on critical and consequential pieces of his legislative agenda. “Now, the Build Back Better Act goes to the United States Senate, where I look forward to it passing as soon as possible so I can sign it into law,” he stated.
Experts say Congress’ latest attempt to tax nicotine is complicated, confusing and harmful to public health.
By Timothy S. Donahue
To help pay for an infrastructure bill, the U.S. Congress has again introduced an excise tax on next-generation nicotine products, such as e-cigarettes and snus. The excise tax would apply to nicotine vapor products using both natural and synthetic nicotine as well as nicotine pouches. Experts say the provision, which would ultimately be paid by tobacco consumers, goes against U.S. President Biden’s campaign promise to not increase taxes on those making less than $400,000, negatively impact tobacco harm reduction efforts, increase sales of combustible tobacco products and boost an already growing black market.
The nicotine tax has been removed and reintroduced to Biden’s Build Back Better (BBB) legislation at least three times. The proposed vapor tax provision is now part of the latest version of the administration’s social spending and climate bill. According to Ulrik Boesen, a senior policy analyst with the Center for State Tax Policy at the Tax Foundation, taxes on tobacco and nicotine products tend to serve at least two purposes: to improve public health and raise revenue. He claims that a nicotine tax could do that if it is properly designed.
Ulrik Boesen / Credit: Tax Foundation
“A good design means internalizing externalities related to consumption of a product,” Boesen stated. “With tobacco and nicotine product consumption, these externalities are the health risks connected to frequent use and [the] quantity consumed. Nicotine is the addictive substance in the products but not the harmful ingredient. In other words, the proposal does not target the harmful behavior directly.”
Taxing based on nicotine content would favor low-nicotine liquids and could encourage increased consumption in the quantity of liquid, according to Boesen. “For example, a vapor pod that has a nicotine content of 3 percent and contains 1 mL of liquid would be taxed at $0.83 whereas a vapor pod that has a nicotine content of 5 percent and also contains 1 mL of liquid would be taxed at $1.39 even if there is no difference, or even a negative differential, in broader health effects of the two pods,” he states, adding that the effects of the tax are most substantial for nicotine pouches, such that the category is unlikely to survive.
Other estimates show that a 60 mL bottle of e-liquid with 12 mg of nicotine e-liquid would be taxed at $20.02. A four-pack of 8 mL pods with 5 percent nicotine salt pods would be taxed at $4.45 and a 15-pouch can of 8 mg nicotine pouches would be taxed at $3.34 (alongside state and local taxes, the cost of a single can could grow to $20 in some states).
Bryan Haynes, a partner with the law firm Troutman Pepper who specializes in tobacco and vapor regulations, said that, at a minimum, the proposed nicotine tax is “a hastily written addition” that will “have a negative impact on tobacco harm reduction efforts and public health.” He said that it’s the first time the tobacco industry has seen an excise tax placed on an ingredient instead of a finished good. “This is an unprecedented type of tax that will ultimately drive former smokers back to combustible products,” said Haynes, adding that taxing an ingredient could also cause unforeseen issues for manufacturers, such as moving material between factories.
Bryan Haynes / Credit: Troutman Pepper
“If a company is producing nicotine or even synthetic nicotine, moving product from one factory to another could trigger the need for an Alcohol and Tobacco Tax and Trade Bureau (TTB) license, and when product is removed, so to speak, from their factory, they would be responsible for remitting the taxes,” explained Haynes. “There may be a way, for example, if the company removed the nicotine from their factory and transported it in-bond to another TTB factory that you could make that work. But it’s just not clear. There is the potential for a lot of unforeseen issues to arise the way the tax is currently being proposed.”
States often tax nicotine products by its cost. Boesen says the tax on the product will pyramid since the federal tax would be levied at the manufacturer level and the state tax is levied at the distribution level. “In effect, the state tax base includes the federal tax and becomes a tax on a tax. This means that even if the taxes on tobacco and other nicotine products are approximately equal at the federal level, by the time it reaches the consumer, the nicotine product will carry a higher tax (and often a higher price),” he states. “This is highly problematic when considering that cigarettes are much more harmful than nicotine products. That makes the federal tax proposal look like a harm-maximizing strategy.”
Credit: Tax Foundation
The bill also subjects synthetic nicotine products to the nicotine tax. Many in the industry have expressed concern that this provision could allow the U.S. Food and Drug Administration to assert authority over the substance. Synthetic nicotine is covered not only in the proposed tax bill but also in the Prevent All Cigarette Trafficking (PACT) Act, which bans the U.S. Postal Service from mailing any vaping products.
Azim Chowdhury, a partner at the law firm Keller and Heckman who specializes in vapor, nicotine and tobacco product regulation, said that’s just not possible and Haynes agrees. “The definition of a tobacco product in the Tobacco Control Act (TCA) is clear. It’s just not ambiguous; a product must be made or derived from tobacco, or a component or part of a tobacco product, to be a tobacco product,” said Chowdhury.
Azim Chowdhury
“Congress would have to change the Tobacco Control Act’s definition of a tobacco product in order to give FDA’s Center for Tobacco Products the authority to regulate synthetic nicotine products as tobacco products. That won’t happen overnight. I also see a scenario where synthetic nicotine could be regulated as a drug and that would be a whole different and more onerous regulatory regime.”
The FDA could, however, cite the inclusion of synthetic products in the PACT Act and the latest nicotine tax proposal in its lobbying efforts to change the TCA’s definition of tobacco, said Haynes. “I could see the FDA telling Congress, ‘You just amended the Internal Revenue Code to make these products subject to federal excise taxes just like tobacco-derived nicotine, so it’s not a big stretch to amend the Tobacco Control Act’ in the same way,” he explains. “That’s how I would do it. It’s not really a legal argument, but it could be a decent lobbying argument.”
It isn’t just vapers, business owners and attorneys that find fault with the proposed nicotine tax; researchers suggest the tax could also harm public health. Michael Pesko, an associate professor in the Department of Economics at Georgia State University, used a $1.4 million dollar grant from the National Institutes of Health (NIH) to conduct e-cigarette policy evaluation research, including the evaluation of e-cigarette taxes (Pesko receives no funding from the tobacco industry or related groups). Pesko found that e-cigarettes and other nicotine vaping products function as what economists call “substitutes” for conventional cigarettes.
“In practical terms, if e-cigarettes and cigarettes are substitutes, then raising the price of one on average leads people to increase use of the other. Given extensive peer-reviewed evidence indicating that these products are substitutes, an unintended but inevitable effect of increasing taxes on e-cigarettes is to increase cigarette use,” Pesko said. “Given that cigarettes are believed to be substantially more harmful than e-cigarettes, this effect on [combustible] cigarette use is concerning …. A wide array of research suggests that this boost in cigarette use as a result of large e-cigarette tax increases would significantly increase overall tobacco-related death and disease.”
Michael Pesko / Credit: GSU
These findings prompted Pesko to send a letter to Congress concerning the proposed vape tax. In the letter, he states that his research team’s economic evaluations of existing state and county e-cigarettes taxes found that increasing e-cigarette taxes to parity with the combustible cigarette tax rate would “sizably increase cigarette use across teens, adults and pregnant women compared to taxing tobacco products differentially in proportion to their health risk.”
Pesko said researchers found several concerning consequences of large e-cigarette tax increases:
Simulating the current bill’s e-cigarette tax on teen tobacco use indicates that this policy would reduce teen e-cigarette use by 2.7 percentage points but that two in three teens who do not use e-cigarettes due to the tax would smoke cigarettes instead. This would result in approximately a half million extra teenage smokers overall. This finding that teens substitute to cigarettes in response to e-cigarette taxes has also been documented using National Youth Tobacco Survey data.
The tax would raise the number of daily adult cigarette smokers by 2.5 million nationally and reduce adult e-cigarette users by a similar number.
For every e-cigarette pod eliminated by an e-cigarette tax, more than 5.5 extra packs of cigarettes are sold instead.
For every three pregnant women that do not use e-cigarettes due to an e-cigarette tax, one smokes cigarettes instead (study).
Pesko told Vapor Voice he was surprised to find that increased e-cigarette tax consistently resulted in substitution across various data sources. “And the magnitudes are fairly sizable,” he noted. “This is an unusual level of accordance for academic research.” Pesko believes that any tax on nicotine products should be based on quantity.
Boesen agreed. He stated that for vapor products, the “obvious choice” is taxing the liquid by volume (per mL), and for nicotine pouches, a tax by weight or per pouch is a straightforward solution. “It is the administratively simplest and most straightforward way for the federal government to tax these goods as it does not require valuation and as such does not require expensive administration,” he stated. “The nicotine tax proposal in the Build Back Better Act neglects sound excise tax policy design and by doing so risks harming public health. Lawmakers should reconsider this approach to nicotine taxation.”
Chowdhury said that the industry must do more and that interested stakeholders and consumers should reach out and push back on the nicotine tax because it will be devastating to the vapor industry. “It seems like the general industry feels like [this nicotine tax] won’t get through somehow, that some people will prevent it from being in the final bill, but I think it’s a huge risk,” said Chowdhury. “Without serious pushback, it could end up there; it could very well end up becoming law.”
Haynes said that if the nicotine tax bill ever makes it to Biden’s desk, “he’s going to sign it.”
