Taxing vape products : a very bad idea

Introduction

During its December 17 meeting, the Federal Council opened a consultation procedure concerning a partial revision of the Law on the taxation of tobacco products and, more specifically, the presentation of a legal basis for a taxation of electronic cigarettes.

This taxation will not affect the devices but only the e-liquids.

The tax will be 77% lower than the tax applied to traditional cigarettes. The Federal Council wishes, therefore, to take into consideration the fact that e-cigarettes are less harmful and to not discourage vapers from using e-cigs to quit smoking. 

Despite the Federal Council’s announcement, this will have significant consequences on smokers who wish to switch to vaping to quit smoking. We now know that the secret of a successful smoking cessation, lies in the high level of nicotine used in eliquids.

The bill states that for refillable containers (open system), the e-liquid's nicotine level will be used as the reference for the tax calculation. This means, the tax will mainly affect vapers who are quitting smoking, i.e. those who need the highest concentration of nicotine to make the transition from tobacco cigarettes.

The tax rate will be calculated based on a nicotine intake equivalence value to regular cigarettes. A tax rate of 0.02 franc per milligram/millilitre of nicotine is proposed. This means that for a 10ml bottle with 20mg of nicotine, the tax will be CHF 4 !!!

For non-refillable or disposable electronic cigarettes (closed system), the calculation will be based on the quantity of liquid with or without nicotine. The tax rate will be calculated based on a value equivalent to the amount of liquid consumable compared to a pack of traditional cigarettes. The tax rate should be set at 0.50 francs.

It would be interesting to study whether the costs of implementing and monitoring such measures would be offset by the actual tax revenue.

This taxation should bring in about 15.5 million francs in the perspective of co-financing the OASI and the DI.

However, this is only on paper !

Can we learn from neighbouring countries' experiences ?

The Federal Council should perhaps study the case of some of our European neighbours who have already taken the step of taxing electronic cigarettes.

Italy was the first country in Europe to introduce taxes on vaping in 2015, with high hopes for tax revenues, but has had to reconsider. Indeed, with an explosion of the black market and smuggling, the official vape industry collapsed, and with it the hopes of revenue for the government. As a result, less than 4 years later, the country has gone backwards and reduced taxation by 80% hoping to stop the crisis.

Estonia went even further. After an unfortunate experience like Italy's, it simply withdrew its taxation on vape products.

The UK has, as usual, adopted a completely opposite policy in acknowledging vaping as a major smoking cessation tool. Not only are vape products not taxed, but the UK government even funds advertising campaigns to encourage smokers to switch to e cigarettes.

What consequences can be expected ?

The consequences will not only be economic, but also health related.

The Federal Council justifies its approach by wanting to protect the young against a possible addiction to nicotine. While the basic principle is commendable, the process is much less. 

What will happen if vape products become unaffordable for smaller budgets ?

If you live near a border, you’ll simply start shopping outside of Switzerland, or leave your shopping list with a frontier colleague.

And on top of that, the black market and smuggling will develop, and everyone will lose out. Little tax revenue for the Confederation, since there will be fewer legal sales, and the vape industry will suffer economically.

Worse still, some vapers, discouraged by rising prices, will turn to cheap Asian e-commerce sites to buy products that are dubious both in terms of hygiene and the health risks involved, and that don’t question the consumer’s age.

In any case, the buying behaviour of vapers will be modified and certainly not in a positive way.

Conclusion

If the Federal Council timidly recognizes the usefulness of e-cigarettes when it comes to quitting smoking, it’s far from a clear statement regarding the acknowledgement of ecigs as a decisive tool in the fight against smoking.

If enforced, this tax on electronic cigarettes will have significant effects.

On the economy, with a terrible hit to an entire sector of activity.

On health, with a definite impact on smoking cessation for many smokers, as well as a health risk for consumers who will venture onto unsafe products.

In any case, this tax will not have the expected results in terms of tax revenues in Switzerland but will be a boon to the economies of our European or Asian neighbours.