Italian industry fears new tax will add 600% to e-liquid price

Written by || 7 August, 2014 || Business news analysis , Regulatory news analysis |

Italian sausage 300x180Italy’s Council of Ministers has approved a controversially high new tax on e-cigarettes, taking it one step further to possible enactment in law this autumn.

The decree to introduce the tax, which would add an estimated 600% to the price of e-liquids and which it is feared may have a devastating effect on the Italian e-cig market, was approved last week by the council.

The tax would be imposed only on e-liquid and not on hardware such as cartridges or batteries. It is based on the principle that e-cigarettes should be taxed at 35.1%, that being 60% of the 58.5% tax rate for cigarettes.

But a complex formula – based on the price of a kilogram of tobacco, the number of cigarettes that can be made from it, the number of puffs obtained from those cigarettes, and the number of puffs obtained from a millilitre of e-liquid – is required to calculate the exact level of taxation. It does not take into account the concentration of e-liquid.

This formula is expected by the industry body ANAFE (Associazione Nazionale Produttori Fumo Elettronicoto) to lead to a figure of about €2.40/ml, or 600% of the typical retail price of €0.40/ml. Earlier proposals discussed between ANAFE and the government had looked at a much lower level of about €0.20ml, and at concentration-based tax rates.

The AAMS (Amministrazione Autonoma dei Monopoli di Stato) – the Italian monopolies organisation, which is part of the national customs and monopolies agency – will determine the crucial numbers which equate e-cigarette puffs to tobacco puffs, using information supplied by producers.

The proposal will now go to parliament, where it will most likely be addressed between 1st September and 4th October, ECigintelligence understands.

The council will then have to approve the text again, with any variations proposed by the parliament. In its most recent consideration of the proposed law, the council is understood not to have altered the text.

Early this year, a tax of 58.5% on the sale of e-liquid – the same percentage as on cigarettes – was struck down in the courts.

What This Means: Even if there is a certain logic to the approach of establishing a level of equivalence between e-cigs and combustible cigarettes, then applying a tax based on that equivalence but at a rate lower than for tobacco products, this latest Italian proposal may be so open to legal challenge that its basis is fatally undermined before it has even been implemented.

The omission of nicotine concentration as a factor in setting the tax rate on e-liquids also suggests a lack of understanding of the technology and how it is used.

However, this is no time for complacency about the Italian market. As we recently reported, it already faces severe problems, and whatever the fate of this particular tax proposal may be, it is unlikely to help.

– Barnaby Page ECigIntelligence staff

Photo: Ryan Snyder