Suppliers of novel nicotine products to the Russian market face new licensing requirements and tax increases over several years as the government overhauls its regulatory system.
The Russian Ministry of Finance developed proposals to tighten regulation of production and sales in the tobacco industry last year.
The ministry believed that due to the presence of many different regulators in the industry – the Ministry of Agriculture, the Ministry of Health, the Ministry of Internal Affairs, the Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing (Rospotrebnadzor), the Federal Tax Service and the Federal Customs Service – as well as a fragmented legal framework, there had been almost no “effective control mechanisms” over the production and circulation of tobacco products and alternatives.
That situation had led to an increase in the illegal production and trafficking of tobacco products (including e-cigarettes), according to the Ministry of Finance. It therefore proposed establishing a new regulatory system similar to that applied to alcohol – and to achieve this, several significant changes are introduced in Federal Law 389, signed by president Vladimir Putin in July this year.
One regulator, an electronic licence register, and tax increases
Under the new regime, a single regulator will oversee the market, replacing the current diverse group of regulatory bodies.
Licences will be required from 1st March 2024 for the production, storage, import and export of manufactured tobacco products as well as other nicotine-containing products and raw materials, and manufacturers will also be required to register some equipment used in production.
Starting this month, an electronic register of these licences has come into operation. The register contains information about issued, suspended and revoked licences, allowing regulatory authorities to quickly check the status of licences.
Retailers, however, will not require licences.
Production volumes and sales figures will have to be reported to the government using the national track-and-trace system, Chestny Znak (Honest Sign). From 1st December 2023, only appropriately marked e-cigarettes (with or without nicotine) can be sold.
Taxes are also set to increase for alternative products, as well as for combustible cigarettes.
The excise tax rate on e-liquids is RUB20 (€0.20) per ml in 2023, subsequently rising by RUB1 (€0.01) per ml each year, so that it will be RUB21 (€0.21) per ml in 2024, RUB22 (€0.22) per ml in 2025, and RUB23 (€0.23) per ml in 2026.
Critics cite more bureaucracy, little effort against black market
Many analysts in Russia have criticised the plans, which they say will lead to higher prices and further bureaucratisation of the industry while doing little to address the issue of illicit supplies of tobacco products – which now account for 12.1% of the Russian market, mostly in border regions, according to the National Scientific Centre of Competence in the Field of Combating Illegal Trafficking in Industrial Products.
Further changes also look likely. For example, the Ministry of Finance has recently proposed that tobacco and nicotine-containing products, including e-liquids and heated tobacco consumables, should be marked with digital tax stamps. This is expected to take effect from 1st March 2024.
The Russian e-cigarette market is expected to be worth $504m (€472m) this year, according to ECigIntelligence forecasts, rising slightly to $509m (€477m) in 2024 and $534m (€501m) in 2025. The current vaping population is around 2.6m, most of whom also use combustibles.
– Eugene Gerden ECigIntelligence contributing writer
Photo: Vitali Adutskevich