Why taxing e-liquids may not be quite such a bad thing for the vapour trade

Can a tax on e-liquids actually help the e-cigarette industry? It sounds counter-intuitive even to suggest that’s possible, but the Polish experience – one might almost call it the Polish experiment – is interesting, and could well be worth keeping an eye on to see how things pan out.

Of course, no one wants to pay out for anything if they don’t have to. And there were cries of woe as long ago as mid-2017 that a proposal by Poland’s Ministry of Finance to introduce a PLN0.70 (€0.17) per ml excise tax on e-liquids would “destroy the legal market”.

Since then the saga has rumbled on, with the government deciding in 2018 to impose tax from 1st January 2019 but with the rate set at zero for the first 18 months, giving the vapour industry “time to prepare” for the day when actual payments would begin to be due.

By the time that grace period expired on 1st July this year, the COVID-19 crisis was in full swing, and the finance ministry pushed back the date for taxation to commence by another three months to reduce the industry’s cash and red-tape burden. And now those three months are up.

As it now stands, since 1st October nicotine-containing e-liquids are to be taxed at at PLN0.55 (€0.13) per ml, slightly less than was first suggested in 2017 and a little below the EU average of €0.146, though not the lowest rate. This is likely to mean an increase in prices, and the fear has not gone away that this may lead to vapers turning either to the black market or back to combustible cigarettes neither of which, for various obvious reasons, would be a good thing.

Subscribe to our Newsletter

Join in to hear about news, events, and podcasts in the sector

    See more

    But how realistic, in practice, are these fears? That’s where it becomes interesting, and where we wait to see what happens next.

    According to a Ministry of Finance official, the imposition of excise tax “results in an extension of the National Tax Administration’s control over potential illegal production or sales”. In other words, the very existence of the tax gives the authorities power of oversight “to eliminate any potential black market which could appear in relation to the new taxes”.

    Looked at that way, the tax system might actually held curb the illegal market, rather than giving it a boost. It’s a truism generally accepted by established industry, after all, that regulation and standards help legal operators by keeping the cowboys down. So might taxation work the same way?

    Counter-intuitive, maybe but let’s see.

    Photo: James Qube

    Author default picture

    Aidan Semmens