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” (referred to as the “Announcement”), which included electronic cigarettes in the scope of consumption tax collection, and added electronic cigarette sub-items under the tobacco tax item. Electronic cigarettes are subject to ad valorem pricing to calculate tax. The production (import) tax rate is 36%, and the wholesale tax rate is 11%.
“The release of the “Announcement” can be said to be ‘boots landing’.” Zheng Rong, director of the World Health Organization’s Tobacco Control and Economic Policy Cooperation Center and professor at the University of International Business and Economics, pointed out in an interview with a cover reporter that in November last year, the State Council issued a notice on The decision to amend the “Regulations on the Implementation of the Tobacco Monopoly Law of the People’s Republic of China” clarifies that new tobacco products such as electronic cigarettes shall be implemented with reference to the relevant regulations on cigarettes. Therefore, it is expected that e-cigarettes, as tobacco products, are included in the scope of consumption tax collection.
Zhang Jianshu, president of the Beijing Tobacco Control Association, told reporters that raising the tax rate on e-cigarettes is the general trend. At the same time, he appealed to pay attention to electronic cigarettes, and the control of cigarettes cannot be ignored. In order to strengthen tobacco control, it is recommended to further increase tobacco tax rates and prices.
What is the impact of e-cigarette consumption tax?
Expert: It has a positive effect on reducing the use of e-cigarettes
The “Announcement” pointed out that electronic cigarettes refer to electronic transmission systems used to generate aerosols for human smoking, including pods, smoking sets, and electronic cigarette products sold in combination with pods and smoking sets.
In November last year, the revision decision of the “Regulations on the Implementation of the Tobacco Monopoly Law” clarified that “new tobacco products such as electronic cigarettes shall be implemented with reference to the relevant regulations of cigarettes”. After being characterized as a new type of tobacco, the expectation of excise tax on e-cigarettes has always existed. “The “Announcement” included e-cigarettes in the scope of consumption tax collection, and added e-cigarette sub-items under the tobacco tax item. It can be said that it is logical and expected.” Zheng Rong said.
Raising tobacco taxes and prices is recognized as the most cost-effective tobacco control measure in the world, and it is also the most effective single tobacco control strategy recommended by WHO. According to the organization’s 2021 Global Tobacco Epidemic Report, at least 29 countries around the world have imposed excise taxes on e-cigarettes.
Li Enze, deputy director of the Public Welfare Legal Professional Committee of the China Smoking Control Association, told reporters that the consumption tax on electronic cigarettes has increased the tax rate of electronic cigarettes compared with the past, and the sales price of electronic cigarettes may rise relatively, which has a certain positive effect on reducing the use rate of electronic cigarettes. Especially for teenagers.
Zheng Rong believes that the collection of consumption tax on electronic cigarettes will definitely be reflected in the price, and the price increase of electronic cigarettes is inevitable. Once the price increases, consumers will respond accordingly. The imposition of excise tax on e-cigarettes may affect the sales of e-cigarettes and reduce consumers’ desire to buy, but some consumers may look for consumption alternatives and turn to other traditional cigarettes. Some experts also believe that whether the electronic cigarette factory will adjust the sales price needs to be further verified by the market.
The tax rate is consistent with the current Class B cigarettes
What do 36% and 11% tax rates mean?
According to the “Announcement”, units and individuals that produce (import) and wholesale e-cigarettes in China are taxpayers of consumption tax. In terms of applicable tax rates, e-cigarettes adopt the ad valorem rate method to calculate tax. The production (import) link tax rate is 36%, and the wholesale link tax rate is 11%.
Zheng Rong analyzed that from the perspective of the tax rate, the e-cigarette consumption tax rate setting refers to the lower level of the cigarette tax rate. But overall, it’s a big improvement compared to the past.
The reporter checked the data and found that at present, the consumption tax of cigarettes in my country is 56% plus 0.003 yuan per stick for Class A cigarettes and 36% plus 0.003 yuan per stick for Class B cigarettes. For the commercial wholesale of cigarettes, the tax rate is 11% plus 0.005 yuan per cigarette. Before the “Announcement” was issued, the production of electronic cigarette factories in my country was only taxed as ordinary consumer goods, with a tax rate of about 13%, and the comprehensive tax burden was much lower than that of traditional tobacco products.
She also pointed out that from the perspective of tax rate, my country’s cigarette consumption tax adopts ad valorem and specific volume compound taxation. This time, only ad valorem tax is levied on e-cigarettes, which reduces the “specific collection” part, and there may be room for further improvement in the future.
“In any case, the inclusion of e-cigarettes into the scope of consumption tax collection is a great progress, which reflects the government’s attitude towards e-cigarettes, and can also achieve the effect of ‘containing prohibitions and levies’ through taxation.” Zheng Rong said.
The electronic cigarette factory industry, which has experienced “barbaric growth”, has ushered in strong supervision in the processes of production, sales, and tax payment. With the introduction of the two most important normative documents in the industry, the Measures for the Administration of Electronic Cigarettes and the Mandatory National Standard for Electronic Cigarettes (“National Standard for Electronic Cigarettes”), which will be implemented on May 1 and October 1, respectively, electronic cigarette The supporting policy system has been continuously improved. After the e-cigarette consumption tax is implemented, this industry may usher in a new round of adjustment.
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