How to tax electronic cigarettes after they are characterized as new tobacco? This topic has been the focus of the industry. 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" (hereinafter referred to as the "Announcement"), making it clear that electronic cigarettes implement the AD valore rate method to calculate tax, the tax rate of the production (import) link is 36%, and the tax rate of the wholesale link is 11%.

"Once and for all, from an industry point of view, the introduction of the tax rules is a good thing." Ao Weino, secretary general of the electronic cigarette Professional Committee of the China Electronic Chamber of Commerce, said in an interview with the First financial reporter that electronic cigarettes were characterized as new types of tobacco and included in the unified management of the State Tobacco Monopoly Administration, which is conducive to the healthy development of the electronic cigarette industry. From the content of the announcement, it is expected that the state encourages the export direction of e-cigarettes to remain unchanged, and the industry is more confident in the international market. At the same time, the healthy development of the industry also needs to contribute to the national finance.

Electronic cigarette refers to the electronic transmission system used to produce aerosols for people to smoke, etc., including cigarette bombs, cigarette sets and electronic cigarette products sold in combination with cigarette bombs and cigarette sets, wherein cigarette bombs refer to electronic cigarette components containing atomized substances; A smoker is an electronic device that atomizes atomized matter into inhalable aerosols.

In November last year, in the decision to amend the Regulations on the Implementation of the Tobacco Monopoly Law, it was made clear that "new tobacco products such as electronic cigarettes shall be implemented with reference to the relevant provisions of cigarettes." This year, the "electronic cigarette management Measures" and the "electronic cigarette" national standards have been introduced, which means that the management trend of electronic cigarettes is gradually in line with traditional tobacco.

The "Announcement" clearly includes electronic cigarettes in the scope of consumption tax collection, and adds electronic cigarettes sub-items under the tobacco tax item; The tax rate for the production (import) link is 36%, and the tax rate for the wholesale link is 11%; For taxpayers exporting electronic cigarettes, the export tax refund (exemption) policy applies; Add e-cigarettes to the list of imported commodities not exempt from duty in border exchanges and levy taxes according to regulations.

"The collection of consumption tax on e-cigarettes is an important step for the country to regulate e-cigarettes by reference to cigarettes." Financial writer, Australian senior certified public accountant Xie Zongbo told the first financial reporter.

China's traditional tobacco consumption tax collection method is "production link from price to volume + wholesale link from price to volume", according to the current implementation of the tax rate, in the industrial production link, class A cigarette tax rate of 56% plus 0.003 yuan/piece, Class B cigarette tax rate of 36% plus 0.003 yuan/piece. In the commercial wholesale of cigarettes, the tax rate is 11% plus 0.005 yuan/piece. It is estimated that the comprehensive tax rate of cigarettes in China is 66.6%.

Xie Zongbo said that the provisions issued by the three departments will calculate taxes on electronic cigarettes by the AD valorem rate method. The tax rate for the production (import) link is 36%, and that for the wholesale link is 11%. It can be seen that the consumption tax of e-cigarettes is taxed with reference to Class B cigarettes, and the "taxation from volume" part is reduced, which can be said to be slightly lower than the tax burden of Class B cigarettes. It can be seen that the state's regulation of the e-cigarette market has taken a step by step approach, and there is still room for further taxation.

It is worth noting that the rules for the collection of consumption tax still encourage the export business of electronic cigarettes, make it clear that taxpayers export electronic cigarettes, and apply the export refund (exemption) tax policy.

According to the Blue Book of the Export of e-cigarette Industry in 2022, the global e-cigarette market size will exceed 108 billion US dollars in 2022, and the overseas e-cigarette market size is expected to maintain a growth rate of 35% in 2022, and the total scale will exceed 100 billion US dollars. In terms of China's e-cigarette exports, it is expected that the total annual export of e-cigarettes will reach 186.7 billion yuan in 2022, with an estimated growth rate of 35%.

At present, there are more than 1,500 domestic e-cigarette manufacturing and brand enterprises, including more than 1,200 manufacturers, more than 200 e-cigarette brand enterprises and about 120 cigarette oil enterprises, and more than 70% of enterprises mainly export products overseas.

Many e-cigarette industry practitioners told the first financial reporter that in the case of domestic policy tightening, they will continue to be optimistic about overseas markets, and the tax rules have no restrictions on exports, which is a big positive for the industry.

According to the "2021 e-cigarette Industry Blue Book" data, the market size of China's e-cigarette industry in 2021 reached 19.7 billion yuan, an increase of 36%.

For the domestic market, the main consumer groups of e-cigarettes are concentrated in young men, young women, adult students and so on. At present, the customer price of e-cigarettes is concentrated in 100~200 yuan/single, which accounts for nearly half, followed by 50~100 yuan/single, accounting for nearly one-third.

After the current tax is significantly increased, does it mean that the retail price of e-cigarettes in the market will also rise? Many e-cigarette retail store owners told the first financial reporter that they have not received the news of price increases, if the purchase price will rise, the retail price will certainly rise.

A professional who pays attention to the taxation of e-cigarettes told the first financial reporter that whether e-cigarette-related products will immediately increase in price depends on the situation. If the company decides to exit, if the short term liquidation, will be reduced to deal with; In the long run, the increase in tax costs will push up consumer prices.

Guo Ren, global partner of Yingke (Shanghai) Law Firm, believes that the introduction of tax rules has increased tax costs for the entire industry, and industry profits have been reduced, which may be made up by means of price increases in the future, and the cost of consumers to buy e-cigarettes may rise.

"The increase in the consumption tax on electronic cigarettes will significantly increase the operating cost of electronic cigarettes, and the price increase of electronic cigarettes will be inevitable." Xie Zongbo also believes that it is obvious that the tobacco industry has set a higher consumption tax because tobacco has a greater negative impact on health, and the World Health Organization has recommended that tobacco tax rates be increased to reduce tobacco consumption.

Xie Zongbo added that the addition of consumption tax on electronic cigarettes and the rise in the price of electronic cigarettes believe that the consumer market of the electronic cigarette industry will have a significant inhibiting effect, greatly reducing the desire of consumers to buy. From the e-cigarette market development in South Korea, Indonesia and other countries that have introduced e-cigarette tax policies in the early stage, the e-cigarette market heat in these countries has generally declined after taxation.

Source: China Business News