Customs officers in Hong Kong reported that the agency had impounded more than 650 million black market cigarettes worth HK$2.25 billion ($287.8 million) last year, the largest annual cash value in more than two decades, according to media reports.
The seized cigarettes would have generated about HK$1.54 billion in tax revenue, also a record, over the same period, according to an undisclosed source.
Last year’s total number of cigarettes seized was lower than the 732 million impounded in 2022, although the value was higher. Last year’s record seizure coincided with a 31 percent tobacco tax increase in February, which raised the average cost of a pack of 20 cigarettes by HK$12 to more than HK$70.
A pack on the black market costs HK$18 to HK$38.
The source said the confiscated tobacco products were stored in government warehouses currently, pending court proceedings or further investigations before being destroyed and buried at landfill sites.
He added customs officials would boost efforts to combat crime syndicates that tried to take advantage of busy logistics services in the run-up to the Lunar New Year to smuggle cigarettes into the city.
A new tax will hit vapers in the United Kingdom despite warnings it will punish people who have switched to e-cigarettes after quitting smoking.
The plans for the levy, which will likely increase the cost of vaping liquid by at least a quarter, will be unveiled in the Budget in March.
A government source told The Mirror it was now almost inevitable that a tax on vaping will be introduced as part of the Spring Budget, which Chancellor Jeremy Hunt will announce on March 6.
Ministers are looking to copy European countries such as Germany and Italy that already have levies on vapes.
A 10ml bottle of e-liquid, which a typical vaper would get through in a week, costs around £4 at present. In Germany, a £1.40 vape tax is slapped on 10ml bottles, with plans to double this to £2.80 in 2026.
Italy, which in 2014 became the first country to tax e-cigarette fluid, charges a £1.10 levy on 10ml bottles.
Beginning January 1, 2024, Belgium will introduce a new tax on e-liquids used in electronic cigarettes. The tax will be set at 15 cents per milliliter.
The move has received criticism from both users and retailers who fear that it will lead to increased costs and a potential shift back to traditional tobacco cigarettes.
The spokesperson for the federal Finance Minister defended the tax, stating that it aligns with Germany’s tax rate, which is also set to increase in the coming years, according to media reports.
They further clarified that the goal is not to encourage people to return to smoking combustible cigarettes but to recognize that e-cigarettes are also tobacco products and should be used as a temporary measure to quit smoking.
Experts say Congress’ latest attempt to tax nicotine is complicated, confusing and harmful to public health.
By Timothy S. Donahue
To help pay for an infrastructure bill, the U.S. Congress has again introduced an excise tax on next-generation nicotine products, such as e-cigarettes and snus. The excise tax would apply to nicotine vapor products using both natural and synthetic nicotine as well as nicotine pouches. Experts say the provision, which would ultimately be paid by tobacco consumers, goes against U.S. President Biden’s campaign promise to not increase taxes on those making less than $400,000, negatively impact tobacco harm reduction efforts, increase sales of combustible tobacco products and boost an already growing black market.
The nicotine tax has been removed and reintroduced to Biden’s Build Back Better (BBB) legislation at least three times. The proposed vapor tax provision is now part of the latest version of the administration’s social spending and climate bill. According to Ulrik Boesen, a senior policy analyst with the Center for State Tax Policy at the Tax Foundation, taxes on tobacco and nicotine products tend to serve at least two purposes: to improve public health and raise revenue. He claims that a nicotine tax could do that if it is properly designed.
Ulrik Boesen / Credit: Tax Foundation
“A good design means internalizing externalities related to consumption of a product,” Boesen stated. “With tobacco and nicotine product consumption, these externalities are the health risks connected to frequent use and [the] quantity consumed. Nicotine is the addictive substance in the products but not the harmful ingredient. In other words, the proposal does not target the harmful behavior directly.”
Taxing based on nicotine content would favor low-nicotine liquids and could encourage increased consumption in the quantity of liquid, according to Boesen. “For example, a vapor pod that has a nicotine content of 3 percent and contains 1 mL of liquid would be taxed at $0.83 whereas a vapor pod that has a nicotine content of 5 percent and also contains 1 mL of liquid would be taxed at $1.39 even if there is no difference, or even a negative differential, in broader health effects of the two pods,” he states, adding that the effects of the tax are most substantial for nicotine pouches, such that the category is unlikely to survive.
Other estimates show that a 60 mL bottle of e-liquid with 12 mg of nicotine e-liquid would be taxed at $20.02. A four-pack of 8 mL pods with 5 percent nicotine salt pods would be taxed at $4.45 and a 15-pouch can of 8 mg nicotine pouches would be taxed at $3.34 (alongside state and local taxes, the cost of a single can could grow to $20 in some states).
Bryan Haynes, a partner with the law firm Troutman Pepper who specializes in tobacco and vapor regulations, said that, at a minimum, the proposed nicotine tax is “a hastily written addition” that will “have a negative impact on tobacco harm reduction efforts and public health.” He said that it’s the first time the tobacco industry has seen an excise tax placed on an ingredient instead of a finished good. “This is an unprecedented type of tax that will ultimately drive former smokers back to combustible products,” said Haynes, adding that taxing an ingredient could also cause unforeseen issues for manufacturers, such as moving material between factories.
Bryan Haynes / Credit: Troutman Pepper
“If a company is producing nicotine or even synthetic nicotine, moving product from one factory to another could trigger the need for an Alcohol and Tobacco Tax and Trade Bureau (TTB) license, and when product is removed, so to speak, from their factory, they would be responsible for remitting the taxes,” explained Haynes. “There may be a way, for example, if the company removed the nicotine from their factory and transported it in-bond to another TTB factory that you could make that work. But it’s just not clear. There is the potential for a lot of unforeseen issues to arise the way the tax is currently being proposed.”
States often tax nicotine products by its cost. Boesen says the tax on the product will pyramid since the federal tax would be levied at the manufacturer level and the state tax is levied at the distribution level. “In effect, the state tax base includes the federal tax and becomes a tax on a tax. This means that even if the taxes on tobacco and other nicotine products are approximately equal at the federal level, by the time it reaches the consumer, the nicotine product will carry a higher tax (and often a higher price),” he states. “This is highly problematic when considering that cigarettes are much more harmful than nicotine products. That makes the federal tax proposal look like a harm-maximizing strategy.”
Credit: Tax Foundation
The bill also subjects synthetic nicotine products to the nicotine tax. Many in the industry have expressed concern that this provision could allow the U.S. Food and Drug Administration to assert authority over the substance. Synthetic nicotine is covered not only in the proposed tax bill but also in the Prevent All Cigarette Trafficking (PACT) Act, which bans the U.S. Postal Service from mailing any vaping products.
Azim Chowdhury, a partner at the law firm Keller and Heckman who specializes in vapor, nicotine and tobacco product regulation, said that’s just not possible and Haynes agrees. “The definition of a tobacco product in the Tobacco Control Act (TCA) is clear. It’s just not ambiguous; a product must be made or derived from tobacco, or a component or part of a tobacco product, to be a tobacco product,” said Chowdhury.
Azim Chowdhury
“Congress would have to change the Tobacco Control Act’s definition of a tobacco product in order to give FDA’s Center for Tobacco Products the authority to regulate synthetic nicotine products as tobacco products. That won’t happen overnight. I also see a scenario where synthetic nicotine could be regulated as a drug and that would be a whole different and more onerous regulatory regime.”
The FDA could, however, cite the inclusion of synthetic products in the PACT Act and the latest nicotine tax proposal in its lobbying efforts to change the TCA’s definition of tobacco, said Haynes. “I could see the FDA telling Congress, ‘You just amended the Internal Revenue Code to make these products subject to federal excise taxes just like tobacco-derived nicotine, so it’s not a big stretch to amend the Tobacco Control Act’ in the same way,” he explains. “That’s how I would do it. It’s not really a legal argument, but it could be a decent lobbying argument.”
It isn’t just vapers, business owners and attorneys that find fault with the proposed nicotine tax; researchers suggest the tax could also harm public health. Michael Pesko, an associate professor in the Department of Economics at Georgia State University, used a $1.4 million dollar grant from the National Institutes of Health (NIH) to conduct e-cigarette policy evaluation research, including the evaluation of e-cigarette taxes (Pesko receives no funding from the tobacco industry or related groups). Pesko found that e-cigarettes and other nicotine vaping products function as what economists call “substitutes” for conventional cigarettes.
“In practical terms, if e-cigarettes and cigarettes are substitutes, then raising the price of one on average leads people to increase use of the other. Given extensive peer-reviewed evidence indicating that these products are substitutes, an unintended but inevitable effect of increasing taxes on e-cigarettes is to increase cigarette use,” Pesko said. “Given that cigarettes are believed to be substantially more harmful than e-cigarettes, this effect on [combustible] cigarette use is concerning …. A wide array of research suggests that this boost in cigarette use as a result of large e-cigarette tax increases would significantly increase overall tobacco-related death and disease.”
Michael Pesko / Credit: GSU
These findings prompted Pesko to send a letter to Congress concerning the proposed vape tax. In the letter, he states that his research team’s economic evaluations of existing state and county e-cigarettes taxes found that increasing e-cigarette taxes to parity with the combustible cigarette tax rate would “sizably increase cigarette use across teens, adults and pregnant women compared to taxing tobacco products differentially in proportion to their health risk.”
Pesko said researchers found several concerning consequences of large e-cigarette tax increases:
Simulating the current bill’s e-cigarette tax on teen tobacco use indicates that this policy would reduce teen e-cigarette use by 2.7 percentage points but that two in three teens who do not use e-cigarettes due to the tax would smoke cigarettes instead. This would result in approximately a half million extra teenage smokers overall. This finding that teens substitute to cigarettes in response to e-cigarette taxes has also been documented using National Youth Tobacco Survey data.
The tax would raise the number of daily adult cigarette smokers by 2.5 million nationally and reduce adult e-cigarette users by a similar number.
For every e-cigarette pod eliminated by an e-cigarette tax, more than 5.5 extra packs of cigarettes are sold instead.
For every three pregnant women that do not use e-cigarettes due to an e-cigarette tax, one smokes cigarettes instead (study).
Pesko told Vapor Voice he was surprised to find that increased e-cigarette tax consistently resulted in substitution across various data sources. “And the magnitudes are fairly sizable,” he noted. “This is an unusual level of accordance for academic research.” Pesko believes that any tax on nicotine products should be based on quantity.
Boesen agreed. He stated that for vapor products, the “obvious choice” is taxing the liquid by volume (per mL), and for nicotine pouches, a tax by weight or per pouch is a straightforward solution. “It is the administratively simplest and most straightforward way for the federal government to tax these goods as it does not require valuation and as such does not require expensive administration,” he stated. “The nicotine tax proposal in the Build Back Better Act neglects sound excise tax policy design and by doing so risks harming public health. Lawmakers should reconsider this approach to nicotine taxation.”
Chowdhury said that the industry must do more and that interested stakeholders and consumers should reach out and push back on the nicotine tax because it will be devastating to the vapor industry. “It seems like the general industry feels like [this nicotine tax] won’t get through somehow, that some people will prevent it from being in the final bill, but I think it’s a huge risk,” said Chowdhury. “Without serious pushback, it could end up there; it could very well end up becoming law.”
Haynes said that if the nicotine tax bill ever makes it to Biden’s desk, “he’s going to sign it.”
Russia wants to increase the excise tax on cigarettes by 20 percent next year to help plug holes in its budget, reports Reuters. The government is also eying the oil and mining industries for additional revenues.
The move, estimated to bring in around RUR340 billion ($4.54 billion) a year, comes as Russia faces a prolonged budget deficit amid weak oil prices and after Moscow offered Belarus a $1.5 billion loan.
“When it is difficult, everyone should be involved in solving the problems which the country and its people are facing,” Prime Minister Mikhail Mishustin told a government meeting on Wednesday.
He described the proposal, yet to be finalized, as “slightly increasing taxes on a number of profitable sectors.”
The price of a pack of cigarettes will rise by about $0.07 next year in Australia, according to a story in the Herald Sun.
The increase will see the government face a potential re-election tussle with tobacco companies and retailers, who are still smarting over plain packaging laws.
Cigarettes were the only sin tax targeted by Treasurer Wayne Swan’s big-cutting budget. Last year’s budget saw an increase on taxes on beer and cut the number of duty-free cigarettes Australians could bring home after travelling overseas.
The duty free cuts last year were set to raise $175 million by 2015.
A pack of 25 cigarettes will be $0.07 more expensive from the first half of 2014, after a change in indexation that sees tobacco excise keep pace with salary rises. Budget papers did not reveal how much this would raise.
California lawmakers chose not to make smokers pay more for health insurance, but they may be more willing to make smokers pay more for cigarettes.
A new bill proposing to raise the tax on tobacco by $2 per pack of cigarettes cleared its first two committee votes last week in predictably partisan votes. SB 768, by Sen. Kevin de León (D-Los Angeles), would raise the price of cigarettes to more than $8 a pack and generate about $1.4 billion a year. De León proposes the money be used to offset costs of medical care for tobacco-related diseases, anti-tobacco education and smoking-cessation programs.
The Senate Governance and Finance Committee approved the bill in a 5-2 vote and the Senate Committee on Health approved it 6-2. All “yes” votes were Democrats. All “no” votes were Republican.
“Taxpayers pay $3.1 billion a year to subsidize this industry,” de León told the health committee, citing an estimate for California’s annual medical costs for tobacco-related diseases and health problems.
“On a fiscal level, the price is much too high, and taxpayers have been footing the bill for much too long,” de León said.
California, which hasn’t increased taxes on tobacco since 1998, now charges $0.87 cents on each pack of cigarettes and ranks 33rd in the country in tobacco taxation. De Leon’s bill would move the state into fourth place.
In an unusual move that has attracted some criticism, India’s Uttar Pradesh state government has slashed the VAT on cigarettes and cigars from 50 percent to 25 percent.
According to a report in the latest issue of the BBM Bommidala Group newsletter, the decision to reduce VAT was taken at a meeting of the state cabinet, which is hoping to halt the loss in revenue that followed an increase in VAT last year.
The level of VAT levied on cigarettes and cigars was increased in 2012 from 12.5 percent to 50 percent.
Expext a hike in the price of cigarettes if local authorities support moves to increase taxation on cigarettes in the Pacific Islands, where a high percentage of deaths are related to diseases caused by non-communicable diseases (NCDs).
The proposed increase in tax, which is supported by the World Health Organization, is aimed at discouraging smoking. The addisional funds would be used to bolster the public health systems, according to a story in the Fiji Times.
One in every three adults in Fiji is at risk of premature death from heart disease, cancer and chronic respiratory diseases caused by NCDs and WHO director for the prevention of NCD Dr. Douglas Bettcher said increasing taxation on cigarettes in Pacific Islands could reduce deaths from NCDs.
“This is really important for the Pacific because there is a crisis in NCDs — heart diseases, cancer and chronic respiratory diseases, which are caused by smoking, tobacco use, obesity, lack of physical activity and harmful use of alcohol,” Bettcher said. “NCDs are the biggest killers in the world today, they’ve taken over from communicable diseases.
“Of the 63 percent of all deaths in the world due to NCDs, over 80 percent of those deaths are in developing countries like the Pacific Islands and of these, 36 million deaths from NCDs every year, about 14 million of those are premature, meaning people dying under the age of 70.”
Bettcher said when viewed in the context of global trends, the statistics in the Pacific were alarming.
“The world average is 20 percent and many high-income countries are achieving 10 percent. In the Pacific, the crisis has reached epidemic proportions.
“In countries like the Marshall Islands, the risk is 60 percent and in Fiji, the rate is 30 percent. This means that three in every 10 adults have a very high risk of prematurely dying from a NCD.”
Smokers in some Hungarian villages will not have local access to cigarettes after a new law allowing only state-licensed tobacconists to sell cigarettes comes into effect in May, according to an MTI-EcoNews story quoting the opposition Socialist lawmaker, Csaba Toth.
As was reported here on April 3, the country’s parliament adopted legislation in September last year for the establishment of a state monopoly of the retail sale of tobacco products on July 1, 2013.
The National Tobacco Trade Non-profit, which is overseeing the establishment of the monopoly, said that 15,633 applications for the retail sale of tobacco had been submitted by the February 22 deadline stipulated in the initial tender.
No applications were submitted in the case of 1,417 villages, however; so new tenders have been invited.
But since the winners of the new round of tenders would be announced only on April 23, said Toth, there would not be enough time for the shops to open on May 1, the deadline after which only licensed tobacconists may sell cigarettes.
This would encourage black market trading and result in a drop in excise tax revenues, he added.
