E-cigarette: The new tax should have a steering effect

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In the past six years, every request to the Federal Ministry of Finance about an imminent increase in tobacco tax has always received the following answer: "The federal government has not initiated any changes to the tobacco tax." Most recently, this stance was justified by the government's commitment in the coalition agreement that there will be no new taxes in the legislative period.

But now there is suddenly speed in the topic: In a draft law from the Ministry of Finance there are specific plans and amounts, and according to WELT information, a schedule already exists.

Smoking - or better, vaping - could soon become much more expensive for e-cigarette smokers.

A bill is to be submitted to the federal cabinet this week.

In addition to the Ministry of Finance, the Ministry of Agriculture and the Ministry of Health are involved in the law.

The necessary readings including a vote in the Bundestag on the so-called Tobacco Tax Modernization Act are to follow at the end of February and beginning of March.

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The final adoption of the new regulations could already take place at the meeting of the Federal Council on March 26th.

The new tax rates should apply from the beginning of 2022 at the latest.

German politicians apparently no longer want to wait for uniform steps in the European Union, whose commission is currently working on the amendment of the tobacco tax directive.

An important influence on the ministries is attributed to the drug commissioner of the federal government, the CSU politician Daniela Ludwig.

With reference to the fact that in Germany 127,000 people die every year as a result of smoking, Ludwig wrote in the latest drug report: "We now have several scientific proofs that smokers are at double the risk of a severe Covid-19 course."

There is a considerable risk of addiction to e-cigarettes if refill containers containing nicotine are used.

Obviously, the political view of the tobacco tax is gaining ground again, according to which the tax should also have a steering effect.

For the first time, additional tax for e-cigarettes

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What is in the draft law is tough: For the first time in Germany, e-cigarettes are to be subject to a levy on the nicotine content in addition to VAT.

In a first step, two cents per milligram of nicotine should be incurred.

With a conventional ten-milliliter bottle of liquid with the maximum permitted nicotine concentration of 20 milligrams per milliliter, this results in a nicotine tax of four euros.

This bottle currently costs around five euros, after this first tax bracket it would be nine euros.

After the planned second stage with four cents per milligram of nicotine, eight euros in taxes would be due for this bottle size with this nicotine content, the sales price could then be 13 euros.

All of this would correspond to an increase of 80 percent and 160 percent compared to today's price level.

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Much more moderate control steps are provided for the classic tobacco cigarettes.

Here, the Federal Ministry of Finance is planning an annual tax increase of around ten cents per cigarette pack the size of a machine.

The period starts in 2022 and ends in 2026.

And that should be seen straight away: Because in earlier years the tobacco companies passed every increase on to customers immediately and often with a surcharge.

In the case of fine-cut tobacco, which is particularly popular among smokers in times of the corona crisis, a tax surcharge of around 16 cents per year is set for a small pack of 40 grams.

The tax issue for steam devices will change significantly.

These are devices that, like the market leader Iqos from Philip Morris, heat short strips of tobacco and no longer burn them.

Surprisingly, the state has actually promoted these new cigarette products so far: the significantly lower tax rate for pipe tobacco compared to cigarette tobacco applies to tobacco sticks.

Instead of around two thirds, these sticks are only subject to tobacco tax at around one third of the sales price.

That should change now.

With the change in the law, these smoking variants are to be treated like other tobacco cigarettes.

The price per pack is likely to increase by several euros as a result.

Tax adjustment should bring the state twelve billion euros more income

When it comes to the question of what additional revenue this should bring to the state, the Ministry of Finance takes a step forward in the draft.

According to the paper, up to twelve billion euros more taxes in the years 2022 to 2026 are expected.

For comparison: the last tobacco tax increase so far was six years ago.

According to reliable calculations by tobacco experts, the federal government lost around two billion euros in additional income during the period.

Where the optimism of the current expectations comes from is questionable.

The tobacco tax is the largest consumption tax in Germany after the mineral oil tax.

Last year, the revenue was around 14.6 billion euros.

Compared to the previous year, this corresponds to an increase of almost three percent.

It remains to be seen whether the planned changes will provoke loud protests.

The three dominant tobacco companies Philip Morris, British American Tobacco and Imperial Tobacco / Reemtsma are not known for confrontation with tax policy.

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In addition, the intended increases in classic cigarettes are moderate.

With e-cigarettes, on the other hand, these companies do not play a significant role in sales.

Only Philip Morris with the Iqos brand has achieved a significant market share and this in the category of tobacco heaters created by the group itself.

It looks completely different in the e-cigarette trade, which is dominated by medium-sized companies.

Among around 3000 dealers are larger companies such as Innocigs, Intrade Concepts or Ex-Trade, but also dozens of small chain stores and even individual shops.

The industry mentions sales of the e-cigarette market for 2020 as 450 million euros.

The devices for vaporizing make up about 60 percent of this, the liquids 40 percent.

This means that a possible e-cigarette tax would relate to sales of currently only 180 million euros.

The vast majority of steamers are imported from China, the liquids come from Germany or other European countries.

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Liquid buyers could switch to other countries

Although a change in tax legislation was to be expected, the rush to go it alone is not understandable, say industry representatives of the e-cigarette.

“We see it in other countries: e-cigarette taxes keep tobacco smokers from switching and they keep smoking.

That goes against the health policy goals ”, says Dustin Dahlmann, chairman of the alliance for tobacco-free enjoyment and in his main job managing director of Innocigs.

The switch to the less harmful e-cigarette would "be completely stalled by the planned tax".

Lobbyists from the e-cigarette business also point out that if there is a high price difference, buyers could get their steam liquids online from neighboring countries.

In fact, there are no such taxes on liquids in France, for example.

In Italy, after initially high taxes on the nicotine content of e-cigarettes and, as a reaction to this, an increase in online purchases from abroad, politicians have withdrawn.

However, Germany would not stand entirely alone.

According to a study by the World Bank, Finland, Portugal, Estonia, Sweden, Slovenia, Hungary, Cyprus, Lithuania, Romania, Greece, Latvia, Croatia and Poland have had special taxes on e-cigarettes for years.

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