How Much Should Electronic Cigarettes Cost? Experts Discuss Taxes on ENDS

The event was participated by Russian and foreign healthcare and taxation specialists, market experts, government officials, and lawmakers.

The roundtable agenda covered various aspects of market turnover regulation of the new generation of nicotine-containing products that ranged fr om the health risks of Electronic Nicotine Delivery Systems (or ENDS) for consumers to the issues of taxation of such products. Executive Director of the Ye. T. Gaidar Institute for Economic Policy Sergey Prikhodko invited the round table participants to discuss proposals concerning the most important issues of innovative product regulation aimed at public health protection and efficient government control of the turnover of these products.

First Deputy Chairman of the Russian State Duma’s Committee on Budget and Taxes Sergey Katasonov emphasized the necessity of developing a new approach to regulation. His presentation titled ‘A Legislative Approach to the Taxation of the New Generation of Nicotine-containing Products’ addressed the issue of regulating the sale of ENDS. The speaker noted that new technologies in the field of nicotine consumption made it possible to reduce the harmful effects of smoking. Therefore, Sergey Katasonov emphasized the necessity of developing new legislation that would simultaneously reflect the extent of the health risks posed by these products by comparison with cigarettes and generate additional government revenue.

President of the Russian Cancer Society Dr. David Zaridze shared the results of many studies of ENDS. Russian and foreign researchers tested the content of e-liquids, the risks associated with ENDS consumption, the concentration of toxic substances in e-vapor and the biological fluid samples taken from the consumers of such products, and confirmed the fact that ENDS carried less health risks compared with smoking. Pointing out that e-vapor is less toxic than cigarette smoke, Dr. Zaridze went on to highlight the fact that lower toxin concentrations did not necessarily correlate directly with lower health risks. He argued that further, more lengthy clinical and population-based studies of this new product category were needed.

Dr. Delon Human, President and CEO of the Health Diplomats organization, clarified the attitudes of the regulatory authorities of various countries towards ENDS and their impact on public health. He emphasized that regulation of their consumption and taxation based on the evaluation of the health risk posed by innovative products might provide impetus for the customers to shift their preferences to less harmful tobacco and tobacco-containing products.

Donato Raponi, Senior Advisor of the Taj law firm (a Deloitte Tax Europe entity) and former head of the VAT and other turnover taxes division at the European Commission, informed the audience of the European Union’s experiences of regulating the sale and taxation of ENDS. He emphasized the difficulties associated with the introduction of the new laws relating to the taxation of electronic cigarettes and specified the mistakes that could trigger the emergence of illegal or counterfeit products. For example, the imposition of excessive taxes on ENDS could result in a shift of consumer preferences towards illegal products. More than 70% of the Russian vaping product market currently operates in a grey regulation zone, wh ere no taxes are paid, or semi-legal schemes of importing nicotine-free liquids and concentrated nicotine are applied. Mr. Raponi recommended that the tax burden on that industry be reduced until it became legalized. Over the course of last year, importers of e-liquids paid only RUB 55.6m in taxes. By comparison, sales of heated tobacco products yielded RUB 485m, and those of cigarettes – RUB 573bn of excises for the state budget.

In his presentation, Professor Alexey Trofimov from the N. M. Emanuel Institute of Biochemical Physics of the Russian Academy of Sciences discussed the results of scientific studies and science-based regulation of alternative nicotine delivery systems. He suggested that the Institute of Biochemical Physics should become a coordinator of Russian programs for studying the new products. Since 2008, the Institute has been actively involved in studies of nicotine-containing products, ENDS including.

The presentation by Head of the Gaidar Institute’s Tax System Development Department Natalia Kornienko and researcher at the same department Yelisey Leonov analyzed the taxation of ENDS in Russia. Ms. Kornienko shared the results of an economic analysis of Russia’s prevailing legislation and the estimated short-term regulatory effects under different scenarios of toughening or liberalizing ENDS related legislation.

The discussion that followed the presentations was actively joined by representatives of Russia’s ministries and government department (the RF Ministry of Economic Development, the Federal Antimonopoly Service of Russia, the RF Ministry of Finance, the Federal Tax Service of Russia, etc.), the Professional Alliance of Russian ENDS Market Participants, and the All-Russian movement Right for an Alternative.

The roundtable participants agreed that separate regulation procedures should be introduced for the alternative nicotine-containing products, as those products cannot be treated as traditional cigarettes. As the next-generation products are associated with lower consumer health risks by comparison with cigarette smoking, their regulation likewise should be made more liberal.

Presentation materials:

Zaridze, D. On Scientific Studies of Next-generation Nicotine-containing Products

Human, D. The Lower Risk Concept Potential for Disease Prevention and Healthy Life in Russia and Abroad

Trofimov, A. Scientific Research and Science-Based Alternative Nicotine Delivery Systems. Coordination of Process Participants

Raponi, D. E-cigarette Taxation in the EU

Kornienko, N. Nicotine-containing Products of the New Generation: In Anticipation of the Introduction of Risk-based Taxation