Dear Sir, Public consultation on excise duties applied to manufactured tobacco The Independent British Vape Trade Association (IBVTA) welcomes the opportunity to respond to this consultation. IBVTA is the UK s leading trade association for the vape industry, and the only one dedicated exclusively to the independent industry. All IBVTA members are free from any control or ownership by either the tobacco or pharmaceutical industries. At the EU-level, IBVTA is a founding member of the European Coalition for Independent Vape. As an organisation, we are opposed to proposals for an EU-wide excise regime for vape products. Vape products are not tobacco products and therefore should not be subjected to a tobacco style taxation regime The principle of non-discrimination as articulated by the Court of Justice and universally applied in EU policy-making states: The principle of equal treatment or non-discrimination requires that comparable situations must not be treated differently and that different situations must not be treated in the same way unless such treatment is objectively justified. 1 Vaping is not smoking, vape products are not tobacco products, and the overwhelming majority of the European vape industry is free from any control or ownership by the tobacco industry. It therefore follows that vaping must be treated differently under this principle and not subjected, under the same directive, to an EU-wide tobacco-style excise regime. Under the principle of non-discrimination, it is not only acceptable to treat vape products differently, it is a requirement. It would be bad for public health, sending some vapers back to smoking and discouraging smokers from switching to vaping Across the EU there are at least 15 million vapers, of whom 6.1 million have fully quit smoking as a direct result of vaping 2. We know from research produced by the UK Office of National Statistics 3 and others that 99.9% of vapers are current or former smokers, therefore when considering the harm associated with vaping; it is how harmful it is compared to smoking. Vaping is at least 95% less harmful than smoking 4. The Ramboll study concluded that the lack of evidence on the negative health s of vaping makes the case for imposing excise duty on e-cigs rest on weak foundations. Vaping has contributed to record low levels of smoking in the UK 5 and has significantly reduced smoking rates in other EU Member States. Despite this success, according to the Commission s own figures, 26% of the EU population and 25% of young Europeans aged 15-24 still smoke 6. This results in nearly 700,000 deaths every year 7. Policy makers at all levels should be focussed on reducing this figure. 1 Case 304/01 Sept 2004 Spain v European Commission para 31 2 http://www.ecigarette-research.org/research/index.php/research/research-2016/241-eurob 3 http://www.ons.gov.uk/ons/rel/ghs/opinions-and-lifestyle-survey/adult-smoking-habits-in-great-britain--2013/stb-opn-smoking-2013.html 4 https://www.gov.uk/government/news/e-cigarettes-around-95-less-harmful-than-tobacco-estimates-landmark-review and https://www.rcplondon.ac.uk/projects/outputs/nicotine-without-smoke-tobacco-harm-reduction-0 5 http://www.cancerresearchuk.org/about-us/cancer-news/news-report/2016-08-02-smoking-rate-hits-low-in-england#e031sygc4xsh9isg.99 6 http://ec.europa.eu/health/tobacco/policy_en 7 Ibid
If proposals for additional taxation are withdrawn, then vaping will continue to flourish and fulfil its potential in providing a viable and significantly less harmful alternative to tobacco products. However, if they do not then smokers will not make the switch and a once in a life time opportunity will have been missed. It is within this context that the debate surrounding the potential levying of excise on vape products must be considered. After all, EU policies, including taxation and the internal market, should be defined and implemented with a view to a high level of health protection. Article 168 of the Treaty on the Functioning of the EU enshrines this principle, when it states: A high level of human health protection shall be ensured in the definition and implementation of all Union policies and activities. 8 It would have a negative on the compliant, legitimate vape industry as some vape businesses are forced to close and as vapers go to the informal economy to buy vape products The overwhelming majority of vape businesses are independently owned SMEs employing a small number of people. Unlike VAT, excise is not a tax that companies simply collect, it is a tax that comes with significant costs. The independent vape industry does not have the experience of operating such a tax regime. We have calculated that implementing such a regime would cost a typical IBVTA manufacturing member 50,000 to implement and 40,000 annually to administer. These are significant sums of money, particularly coming on top of the vast sums of money the industry is currently spending to comply with the EU s Tobacco Products Directive (TPD). Compliancy costs associated with the TPD have already forced a number of businesses to close. We know from Italy and Portugal that excise would have the same. The arguments put forward in defence of this proposal do not stand up to scrutiny A number of Member States and the Commission argue that adopting different tax structures and rates for vape products across 28 Member States may affect competition and the functioning of the internal market, and may also encourage informal trade. Sadly, there is already a flourishing informal economy for vape products across the EU, a situation that is being exacerbated as a direct result of the TPD. This informal economy exists now and will only grow if the EU introduces this proposed new tax. This is exactly what happened when taxation was introduced in Italy and Portugal and would be replicated on an EUwide scale if this proposed excise regime is introduced. We know from experience that it would be costly and difficult to administer, and would generate very little income Take Italy 9 as an example: Following imposition of a tax of 3.73/10ml in 2014 demand collapsed from over 400m in 2013 to 97m in 2015. Vaping prevalence fell from 4.2% adults in 2013 to 1.2% in 2015. Revenue accruing from this tax on liquids for 2015 in fact amounted to 5,176,352, less than one twentieth of the amount expected. In 2015 the Italian tax authority AAMS cancelled the tax on non-nicotine products and in February 2016 published a decree that increased tax on e-liquids containing nicotine from 3.73 per 10ml to 3.85 per 10ml. This tax is substantial and disproportionate perhaps as high as doubling the retail price. The experiences of Italy and Portugal should be looked at in great detail by the Commission and Member States. Would an EU-wide excise regime be any different and would it generate significant income? Despite its success, vaping is still a niche industry and compared to the tobacco industry is tiny. Therefore, the tax base is going to be small. In addition to this, the introduction of any additional taxation will shrink that tax base further 8 http://eur-lex.europa.eu/lexuriserv/lexuriserv.do?uri=celex:12008e168:en:html 9 E-cigarette Intelligence, Italy: price drop triples vaping population, November 2016, 2 November 2016
as some vapers return to smoking or shop in the informal economy, as fewer smokers switch to vaping, and as some businesses are forced to close. The Irish Department of Finance, Tax Strategy Group, in 2015 calculated that a 50% per 10ml tax on e-liquid would generate a total annual income for the Irish Government of 8.3 million 10, a figure which at the time was considered overly generous. This compares with the 1.1 billion the Irish Government took in taxation from tobacco products in 2016. Due to the fragmented and diverse nature of the vape industry such an excise regime will be expensive to establish and operate. At present vape products are taxed as the consumer product that they are and are subject to 20% VAT in the UK. NRT products by comparison are only subject to 5% VAT. Vape products therefore start with adversely discriminatory tax treatment relative to NRT. This could be addressed by applying the VAT discount to vape products or removing it from NRT. It should not be further exacerbated by levying an additional tax on vape products. The EU rightly wants to move people away from smoking to less harmful alternatives. Vaping is demonstrably one such less harmful alternative that has already helped 6.1 million Europeans leave smoking behind for good. The overwhelming majority of these 6.1 million vapers buy their vape products from legitimate EU businesses that comply with domestic and EU regulations, which care about the quality of the products they sell, and which pay VAT and employee and business taxes. Instead of prematurely rushing to introduce an EU-wide excise regime for vape products, the EU should support the legitimate vape industry in helping smokers move to a significantly less harmful product. Yours faithfully Richard Hyslop Chief Executive, Independent British Vape Trade Association Consultation response: E-cigarettes Problem outline: The so-called electronic cigarettes are not covered by Directive 2011/64. Various Member States have introduced national tax regimes for electronic cigarettes and refill containers, adopting different tax structures and rates. The lack of a harmonised approach across countries may affect competition and the functioning of the internal market, and may also encourage informal (cross-border and online) trade. A precise estimation of such effects is difficult because of the lack of official market data for these products. The so-called Heat-not-Burn (HnB) products are new products that have been recently placed on the market in a few Member States. Being tobacco-based, these products are covered by the Directive, but their tax regime is not explicitly specified. This provides opportunity for different interpretations and the application of ad hoc tax categories in certain countries. In your opinion, should electronic cigarettes and refill containers be subject to excise duties? O O Yes Only in the case of e-liquids containing nicotine No O 10 http://www.finance.gov.ie/sites/default/files/160720%2otsg%2016-02%20general%20excises%20tsg%202016.pdf
Assuming a possible taxation of electronic cigarettes and refill containers, how should the tax rate on electronic cigarettes and refill containers be, compared with the tax rates applied to the following tobacco products? Much lower Lower More or less equivalent Higher Much higher Cigarettes Fine-cut tobacco for rolling of cigarettes Cigars/cigarillos Other smoking tobacco (such as pipe tobacco) How should the tax rate on heat-not-burn type tobacco be, compared with the tax rates applied to the following tobacco products? Much lower Lower Equivalent Higher Much higher Cigarettes O Fine-cut tobacco for rolling of cigarettes O Cigars/cigarillos O Other smoking tobacco (such as pipe tobacco) O The following questions are designed for respondents who are familiar with the issue at stake and the related technical aspects of Directive 2011/64. Non-expert respondents may wish to skip to the next section. In your opinion, what have been so far the of the introduction of excise duties on electronic cigarettes and refill containers in some Member States? Please indicate the perceived magnitude of the following s. No Marginal Moderate High Very high Overall decline in consumption Specific decline in the consumption by young people Increase in informal trade (online, cross-border shopping etc.) Better and safer products for consumers Improved market monitoring by public authorities
Reduced competitiveness for smaller players vis-à-vis large players Consumers switching to traditional tobacco products Market barriers for players to operate on the EU internal market Please express your agreement / ment with the following possible approaches for the harmonisation of tax treatment for electronic cigarettes and refill containers. Fully Neutral agree Fully agree Regulatory revision: Including electronic cigarettes and refill containers in the scope of the Directive, without setting any minimum tax rate Regulatory revision: Including electronic cigarettes and refill containers in the scope of the Directive, setting a minimum tax rate on liquids containing nicotine Non-regulatory option: promote the exchange of information and practices among Member States on the tax regulation of electronic cigarettes and refill containers In your opinion, what are the likely effects of an EU-wide harmonisation of the tax regime for electronic cigarettes and refill containers on the functioning of the EU internal market? Very unlikely Unlikely Likely Very likely Reduction of market obstacles to operate across the borders Increased competition Better control on cross-border movements Assuming a hypothetical (tax-induced) price increase of 20% for refill liquids used in electronic cigarettes what would the likely reaction of the typical user of electronic cigarettes?
Very unlikely Unlikely Likely Very likely The user would maintain the current level of consumption The user would significantly reduce the level of consumption The user would quit electronic cigarettes The user would purchase these products from informal sources (online, cross-border shopping, etc.) The user would increase the consumption of traditional tobacco products Assuming a hypothetical (tax-induced) price increase of 50% for refill liquids used in electronic cigarettes what would the likely reaction of the typical user of electronic cigarettes? Very unlikely Unlikely Likely Very likely The user would maintain the current level of consumption The user would significantly reduce the level of consumption The user would quit electronic cigarettes The user would purchase these products from informal sources (online, cross-border shopping, etc.) The user would increase the consumption of traditional tobacco products Please express your agreement / ment with the following possible approaches for the harmonisation of tax treatment for Heat-not-Burn type of products. Fully Neutral agree Fully agree Regulatory revision: Introduce in the Directive a new definition O
and tax category for Heat-not- Burn type of products Regulatory revision: revise the text of the Directive to clarify which tax category applies to Heat-not-Burn type of products O Non-regulatory option: draft a recommendation to Member States providing guidance on the applicable tax regime for Heat-not-Burn type of products based on the existing categories of the Directive The Independent British Vape Trade Association 64 Victoria Street, London SW1E 6QP www.ibvta.org.uk