After the consumption tax launched, will the price of electronic cigarettes increase?

China News Service, October 28, recently, the Ministry of Finance of the People's Republic of China, the General Administration of Customs, and the State Administration of Taxation issued the "Announcement on the Collection of Consumption Tax on Electronic Cigarettes" (hereinafter referred to as the "Announcement"), which included electronic cigarettes in the scope of consumption tax collection, and add the electronic cigarette sub-item under the tobacco tax item.

This means that the e-cigarette consumption tax will be officially implemented in my country.

E-cigarette regulation is aligning with traditional cigarettes

In recent years, the domestic e-cigarette industry has developed rapidly. At the same time, the industry also has uneven product quality, such as the addition of unsafe ingredients, leakage of e-liquid, and inferior batteries in a large number of products. Serious quality and safety hazards.

Regarding the collection of consumption tax on electronic cigarettes, "this is the general trend, and it is a means for relevant departments to strengthen tobacco control work and conduct supervision." said Zhang Jianshu, president of the Beijing Tobacco Control Association,

In November 2021, the State Council issued the "Decision on Amending the Regulations on the Implementation of the Tobacco Monopoly Law of the People's Republic of China", adding Article 65 "Electronic cigarettes and other new tobacco products shall be implemented with reference to the relevant provisions of these Regulations on cigarettes". Tobacco is officially included in the regulation of the tobacco system.

In March and April 2022, the "Administrative Measures for Electronic Cigarettes" and the national standards for "Electronic Cigarettes" were successively released, and flavored electronic cigarettes other than tobacco flavors and electronic cigarettes that can be added with atomizers are prohibited from being sold in China.

Will the price of e-cigarettes rise?

The "Announcement" mentioned that e-cigarettes are subject to ad valorem pricing to calculate tax. The tax rate for the production (import) link is 36%, and the tax rate for the wholesale link is 11%.

"At present, in the tax collection and management of my country's cigarettes in the production process, the consumption tax rates of Class A and Class B cigarettes are 56% and 36% respectively. The taxation standard of electronic cigarettes is the same as that of Class B cigarettes, which is relatively loose, which is also in line with the lower taxation of electronic cigarettes in the international market than traditional cigarettes. The practice of cigarettes." Guohai Securities analyst Lu Guanyu said.

Previously, e-cigarettes were only levied a 13% value-added tax as a common consumer product. After the implementation of the new tax rate, the comprehensive cost of e-cigarettes may usher in an increase. Will the price of e-cigarettes rise because of this?

Some specialty stores said that the price of e-cigarettes in the store has not been raised yet, but it is uncertain whether the price will rise after the implementation of the consumption tax.

According to the analysis, in terms of price system, due to their certain user base, brand premium and cost control ability, leading brands may adopt a strategy of not raising prices or raising prices less to consolidate and seize market share, while small and medium-sized e-cigarette companies may be affected by Due to the cost problem, the price of its products will increase to a certain extent.

Will the industry landscape change?

Previously, the "2021 Electronic Cigarette Industry Blue Book" jointly released by the Electronic Cigarette Industry Committee of the China Electronic Chamber of Commerce and others showed that the market size of China's electronic cigarette industry in 2021 will reach 19.7 billion yuan, a year-on-year increase of 36%, maintaining a relatively high growth rate.

The "2021 Electronic Cigarette Industry Blue Book" also shows that by the end of 2021, there are more than 1,500 electronic cigarette manufacturing and brand-related enterprises in my country, including more than 1,200 electronic cigarette manufacturers, more than 200 electronic cigarette brand enterprises and about 120 enterprises. smoke oil company.

Affected by a series of regulatory measures, the e-cigarette industry has undergone a round of "shuffling". After the implementation of the consumption tax, will the industry pattern change?

"Generally speaking, the implementation of strict supervision in the electronic cigarette industry is more conducive to the development of large enterprises, because the market is more standardized and the standards are more clear, but some small enterprises may face elimination." Zhang Jianshu said.

The "Announcement" proposes that the export tax rebate (exemption) policy shall apply to the export of electronic cigarettes by taxpayers.

At present, more than 70% of the more than 1,500 electronic cigarette manufacturers and brand enterprises mainly export their products overseas. It is estimated that the total export value of e-cigarettes in China will reach 186.7 billion yuan in 2022, with a growth rate of 35%.

"In the future, the export of electronic cigarettes will continue to enjoy the 13% tax rebate policy, which proves that the export of electronic cigarettes will continue to be encouraged by the policy. While my country's electronic cigarette exports account for a large proportion, the export tax rebate policy is conducive to the sustainable development of the industry." Huaxi Securities believes.