Electronic cigarettes will be subject to excise tax Industry insiders: push the industry on the right track

China Business Daily (Reporter Zhao Yiru Wang Tongxu)

On October 25, the Ministry of Finance and other three departments issued an announcement saying that a consumption tax will be levied on e-cigarettes, with a production (import) tax rate of 36%.

Industry insiders expect that the collection of excise tax will further put the e-cigarette industry on the right track and may drive up the price of e-cigarettes.

Industry on track

　　Electronic cigarettes refer to electronic transmission systems used to generate aerosols for people to smoke, including pods, smoking sets, and electronic cigarette products sold in combination with pods and smoking sets.

Cartridges refer to electronic cigarette components containing atomized substances, and smoking devices refer to electronic devices that atomize atomized substances into inhalable aerosols.

　　On October 25, the Ministry of Finance, the General Administration of Customs, and the State Administration of Taxation issued the "Announcement on the Collection of Consumption Tax on Electronic Cigarettes" (hereinafter referred to as the announcement).

The announcement shows that e-cigarettes will be included in the scope of consumption tax collection, and e-cigarette sub-items will be added under the tobacco tax item.

Electronic cigarettes are subject to an ad valorem rate-setting method to calculate and pay taxes. The tax rate for the production (import) link is 36%, and the tax rate for the wholesale link is 11%.

Taxpayers exporting electronic cigarettes are subject to the export tax rebate (exemption) policy.

Add e-cigarettes to the list of non-tax-exempt imported goods in the border-cigar market and tax them according to regulations.

The announcement will be implemented from November 1, 2022.

　　A reporter from China Business Daily asked RELX and other companies about the collection of consumption tax on electronic cigarettes, but has not yet received a clear reply.

　　"After managing with reference to cigarette regulations, the electronic cigarette industry has expectations for the collection of consumption tax. From the content of the announcement, the overall consumption tax rate of electronic cigarettes sold to the domestic market is slightly lower than that of domestic Class B cigarettes, while export electronic cigarettes have a slightly lower consumption tax rate. Cigarettes are applicable to the export tax exemption (rebate) policy. The announcement is generally in line with the industry's previous expectations, so it will not cause much impact." Xu Xiaoxin, an associate professor at the School of Social Development and Public Policy of Beijing Normal University, told a reporter from China Business Daily.

　　An e-cigarette industry practitioner told reporters: "From the overall point of view, with the successive introduction of recent policies, it can be said that the e-cigarette industry has already exhausted its profit margins, and the areas that need to be rectified in the industry have basically been rectified. Previously, e-cigarettes The industry is in a state of savage development, and it will gradually get back on track in the future.”

　　"In view of the fact that most of the income of my country's electronic cigarette industry comes from export business facing the international market, and the consumption tax on electronic cigarettes in the domestic market has little impact on the development of my country's electronic cigarette industry. At the same time, the release of the announcement has reduced the domestic market. The uncertainty of e-cigarette consumption tax is conducive to the stable development of the e-cigarette industry." Xu Xiaoxin said.

Prices may rise

　　Industry insiders predict that in the long run, the levy of this consumption tax will push up the price of e-cigarettes.

　　"The collection of consumption tax increases the comprehensive cost of selling electronic cigarettes, which will compress the profit margins of electronic cigarette companies, and gradually return the gross profit and net profit of electronic cigarettes to normal. In the short term, in order to gain market share in the competition with traditional cigarettes and different brands, e-cigarette brand companies will try to reduce the increase in the retail price of e-cigarettes and even maintain the price stability. Most e-cigarettes are 'digested' by companies rather than consumers. Consumption tax cost." Xu Xiaoxin said.

　　The above-mentioned practitioners in the electronic cigarette industry told reporters that although the price of electronic cigarettes has not changed at present, it will definitely rise in the future.

"However, it's hard to say how much it will rise. Brands will not bear the 36% of the entire consumption tax. It may be shared by component manufacturers and brands, and most of them will be shared by consumers. And the increase in each product The magnitude will also be different," the practitioner said.

　　An electronic cigarette salesperson also told reporters that not only will the price of electronic cigarettes increase, but the price increase may be very large.

　　"The collection of consumption tax is good for the industry, but not necessarily for enterprises. Because if the price rises, the sales of electronic cigarettes will decrease." The above-mentioned practitioner said.

　　However, some e-cigarette consumers told reporters that they did not care much about the rise in the price of e-cigarettes.

"On average, the increase of each pod may be only ten yuan, and this price is still acceptable."

　　The price increase brought about by the excise tax on e-cigarettes may promote changes in the industry's landscape.

　　"Because of the advantages of capital and scale, the top e-cigarette companies can more effectively resolve the impact of the consumption tax. Therefore, the collection of consumption tax on e-cigarettes and a series of policies that have been introduced to promote the management of e-cigarettes with reference to cigarettes are expected to promote the concentration of the e-cigarette market. With the improvement of the market, some small and medium-sized e-cigarette companies will withdraw from the market, which will generally benefit the leading e-cigarette companies currently occupying a dominant position in the market." Xu Xiaoxin said.