More taxes on vapor products in Q1 2020

As the new decade commenced, the number of countries that have chosen to levy taxes on vapor products continues to grow. Ecuador created a new excise tax category for electronic cigarettes and heated tobacco products which entered into effect on 1 January 2020.

Several amendments to the Impuesto a los Consumos Especiales – ICE, the national excise tax law, were contained in the Organic Law of Simplification and Tax Progressivity, which was published in Supplement number 111 of the Official Register on 31 December 2019. Among these changes were an expansion of the types of tobacco products subject to the excise tax. The new category, which is the same for heated tobacco products (HTP) and e-cigarettes, is defined as “tobacco products, tobacco substitutes or substitutes in any form, including tobacco from heated tobacco consumables, liquid containing nicotine to be administered through nicotine delivery systems.”  

The ad valorem tax for this new category of vapor products is set at 150%, the same rate applied to other tobacco products. According to the revised Article 76 of the Internal Tax Code, the tax will be based on the manufacturer’s selling price net of the Value Added Tax (VAT) and the ICE itself plus a minimum thirty percent (30%) trade margin. In the case of imports, the ex-Customs price replaces the net ex-factory price.

Egypt enacts vapor products taxation

One month after Ecuador introduced its national excise tax to e-cigarettes and heated tobacco products, Egypt took similar action. A comprehensive reform of tobacco products taxation effective as of 25 February 2020 introduced taxes on vapor products for the first time.

The legislation defines e-liquid as “any liquid that can be consumed through electronic cigarettes, whether containing or not nicotine”. The tax is based on the volume of liquid and set at EGP 2 (USD 0.13) per ml.

Heated tobacco products are defined as “manufactures tobacco which emits upon consumption a vapor (aerosol) without combustion of the tobacco. The tobacco could be in the form of tobacco sticks, capsules or any other form.” In contrast to the ad valorem tax levied in Ecuador, Egypt’s tax on HTP is a specific amount based on the weight of tobacco. This is the approach most commonly used in Europe and Asia. The initial rate to be applied is EGP 1400 (USD 88.88) per kilogram of tobacco.

Changes in other markets

Republic Act 11467, signed into law by President Rodrigo Duterte of the Philippines on 22 January 2020, contains changes to the national internal revenue code including the recently introduced tax on heated tobacco products. The Law increased the tax from PHP 10 to PHP 25 per pack of 20 heated tobacco units. The annual indexation was also amended to an additional specific levy of 2.5 pesos per pack for each of the next three years. Starting on 1 January 2024, the tax will be increased by 5% per annum.

Finally, a tax on heated tobacco products came into effect in the Central Asian Republic of Kyrgyzstan in January 2020. The tax was approved in July 2019 and set at the rate of KGS 610 (USD 7.19) per kilogram of tobacco.