U.K. Government proposes new tax category for heated tobacco

The U.K. Government has issued a draft proposal to create a new excise tax category for heated tobacco. The proposed addition to the Tobacco Products Duty Act (TPDA) 1979 was announced by HM Revenue & Customs on 6 July 2018.

The plan to create a new tax category was first signaled by HM Treasury in March 2018 when it released the results of its public consultation on the tax treatment of heated tobacco products which was concluded in June 2017.

Heated tobacco is not currently covered by the TPDA which maintains four tax categories for different tobacco products:

• cigarettes
• cigars
• hand rolling tobacco (HRT)
• other smoking tobacco and chewing tobacco

With the obvious exception of chewing tobacco, these products are all forms of combustible tobacco, thus they do not adequately capture heated tobacco products which are not burned but generate a vapor through an electronic heating device.

Heated tobacco products are relatively new in the UK but they have shown growing acceptance among smokers in numerous European and Asian markets. The government’s objective in creating the new category is to “provide clarity and certainty and ensure that heated tobacco is captured within the tobacco regime efficiently.”

Legislative action

Legislation will be introduced in Finance Bill 2018 to 2019 to amend the TPDA to include heated tobacco. The Finance Bill will also contain provisions to allow for the making of regulations to provide a description of heated tobacco in the Tobacco Products Order 2003. Passage will also allow amendments to secondary legislation that addresses, among other issues, the holding and movement of excise goods. A specific rate of duty per kilogram of heated tobacco will be set at Budget 2018.

Following the adoption of HMRC’s proposed amendments to the TPDA, the UK joins more than a dozen markets in Europe, including Hungary, Italy and Poland that have created new tax categories for heated tobacco products. With the sole exception of Portugal, each of these countries applies a specific excise tax based on the weight of the heated tobacco mixture.