To tax or not to tax? Response to EU on taxing vaping and other reduced risk products

European Commission consultation: the Commission is consulting on applying excise duties (i.e. tax) to vape products and other reduced risk alternatives […]


European Commission consultation: the Commission is consulting on applying excise duties (i.e. tax) to vape products and other reduced risk alternatives to smoking – see here for consultation page with online form for interested parties to complete – please do add your response.

New Nicotine Alliance response: I have been working as an Associate Member of the New Nicotine Alliance to put together a briefing for this consultation. The NNA summarises the main points: EU Tax policy – harmful to health – our briefing.

There is no case on principled or practical grounds to apply excise duties to vaping products and other products that offer a much safer alternative to smoking. The value to health and wellbeing associated with switching from smoking to vaping will exceed any benefits arising from revenue collection.

Main briefing: The full briefing: Revision of the Tobacco Excise Directive: Implications for low-risk nicotine products (24 pages – PDF)

Summaries: the Executive summary and Conclusion of the briefing are reproduced below.

Idealised excise regime
Summary: idealised excise regime

Executive summary of the report

Executive summary

  • The possible revision of the Tobacco Excise Directive creates both risks and opportunities for consumers and public health. The choices made by policy-makers and legislators will have consequences for smoking prevalence and therefore significant implications for human health.
  • The opportunity is to create a European Union excise regime for the emerging recreational nicotine market that will incentivise smokers to switch to products that cause much lower risk to health than cigarette smoking. These products are all ‘smoke-free’ and include e-cigarettes and vapour products, smokeless tobaccos, heated tobacco products, and novel forms of tobacco and nicotine – all are likely to be 90-100% lower risk than smoking. Recent innovation has greatly increased the potential of these products – to the point where they may ultimately marginalise cigarette smoking and radically reduce the burden of smoking-related premature deaths, which stands at 700,000 per year in the European Union.
  • The risk is that excise duties, if carelessly applied to smoke-free nicotine products, will create adverse changes in demand in favour of smoked tobacco products. It should be a high priority in any tax policy impact assessment to assess and avoid unnecessary disease and death to the extent possible. Experience so far, for example in Italy, suggests that authorities do not yet have a sufficient grasp of the underlying economics of low-risk smoke-free nicotine products to make adequately precautionary policy on excise duties for these products.
  • The economic evidence to date suggests that e-cigarettes have quite high price elasticities and a positive cross-elasticity with conventional cigarettes. It follows that excise duties applied to e-cigarettes are likely to increase smoking compared to not applying such duties.
  • We argue that the most important public health distinction is between products that involve combustion and ‘smoke-free’ nicotine products that have no combustion. Any public health distinctions within these two categories are of far less importance than the difference between them. Excise policy should be broadly focussed on substantially different treatment between the two categories and less on different treatment within these categories, aiming for broadly equivalent taxation strategy within each category, with variation only to address practicalities.
  • The EU principle of ‘non-discrimination’ does not prevent different treatment of combustible and non-combustible products, in fact it requires different treatment. The principle is defined: Non-discrimination means that comparable situations should not be treated differently, and that different situations should not be treated in the same way, unless there are objective grounds for doing so. The treaties also require EU policies to secure a high level of health protection. In this respect, the situation is very different for smoked and smoke-free products.
  • European Union policymakers will try to balance the triple objectives of protecting public health, raising revenue, and containing tax administration costs. This paper makes two main arguments with respect to the trade-offs implicit in these objectives:
    1. The societal value of quitting smoking is so high that other sources of revenue or expenditure saving should be sought rather than risking benefits that arise from switching from smoking to smoke-free products. The social benefit, primarily years of extra life, arising from a single successful quit is estimated at £72,000 by England’s Department of Health, while lost excise revenue would be £11,000. If viewed as an investment, this has an extremely high benefit-cost ratio and would be deemed ‘very high value for money’.
    2. If duties are set at rates low enough to meet the public health imperative to create a fiscal incentive to switch from smoking to smoke-free nicotine products, then the costs of tax administration are likely to undermine the cost-effectiveness of this revenue raising option.
  • In terms of tax discrimination, a relevant comparator for e-cigarettes is the sale of nicotine replacement therapy (NRT) over the counter (i.e. outside clinical settings). Both categories do negligible harm to health and both can assist in achieving a health benefit through smoking cessation. NRT attracts a tax break in many jurisdictions through application of a reduced VAT rate – 5% rather 20% in the UK. However, recent research suggests that e-cigarettes are much more likely to support successful smoking cessation than over-the-counter NRT. E-cigarettes therefore start with adversely discriminatory tax treatment relative to NRT. This could be addressed by applying the VAT discount to e-cigarettes or removing it from NRT. It should not be further exacerbated by levying an additional tax burden on e-cigarettes.
  • It is difficult to establish a reliable tax base for e-cigarettes and vapour products. This report considers an ad valorem approach and specific duties on liquid volume and nicotine mass.  The challenge is down to fundamentals, notably:
    • the divisibility of the products into many separate components: nicotine, liquid diluent, flavourings, device, heating element, battery and so on;
    • the diversity of products available, and the scope for product, commercial or consumer innovation that would facilitate tax avoidance;
    • the ease of international cross-border internet purchases and compactness of key product components such as liquid nicotine concentrate, which can be purchased at a cost of a few cents per day for a typical user.
  • For e-cigarettes and vaping products, we recommend:
    • No imposition of excise duties on public health and practicality grounds;
    • Further study of the economics and public health impacts of these products;
    • If, contrary to our advice, these products are included in the Tobacco Excise Directive, a minimum excise duty constraint should allow for a zero rate. This would allow member states discretion to pursue tobacco harm reduction strategies and tax simplification;
    • The concept of a maximum excise duty rate relative to smoking tobacco should be implemented to reflect the very substantial difference in risk and to respect the EU treaty principles of proportionality and non-discrimination.
  • The case for applying excise duties to non-combustible ‘smoke-free’ tobacco products (smokeless tobacco products or heated tobacco products) is weak on public health grounds for the same reasons as for e-cigarettes.
    • For the same reasons as apply for e-cigarettes, the minimum excise duty for such products should be set at zero, and a maximum set at some fraction (say 30%) of the lowest level of duty applied to any smoking tobacco in each member state.
    • Duties for smoke-free tobacco products should be specific duty per kg of tobacco.

Conclusion of the report


Policymakers re-assessing the Tobacco Excise Directive face a serious challenge. This is because it is possible for the choices they make to result in harm to the health of European Union citizens, including serious disease and premature death.  With that comes a responsibility to ‘first do no harm’ enshrined in the EU treaties as a commitment to secure a high level of health protection in all policies.

This has been a minor risk so far because the directive has focussed only on combustible tobacco products. The possible inclusion of non-combustible, smoke-free products could adversely or positively shape the incentives to switch from high-risk to low-risk products.

This area of policy is fraught with the danger of unintended consequences and because such consequences carry mortal dangers and real flesh and blood harms, they should be assessed and avoided with the utmost care. In addition, consideration of applying excise coincides with the implementation of the regulatory burdens and restrictions of the Tobacco Products Directive (2014/40/EC).  There is thus the danger that these measures will compound in their impact on smoke-free alternatives and, in doing so, serve to protect the cigarette trade, increase smoking and harm the health of EU citizens.

The Royal College of Physicians summarises the challenge for policymakers as follows:

A risk-averse, precautionary approach to e-cigarette regulation can be proposed as a means of minimising the risk of avoidable harm, e.g. exposure to toxins in e-cigarette vapour, renormalisation, gateway progression to smoking, or other real or potential risks. 

However, if this approach also makes e-cigarettes less easily accessible, less palatable or acceptable, more expensive, less consumer friendly or pharmacologically less effective, or inhibits innovation and development of new and improved products, then it causes harm by perpetuating smoking.  Getting this balance right is difficult. (Section 12.10 page 187)

We urge the European Commission, European Council and member state tax authorities to take great care in striking the balance between public health, revenue raising and administrative costs.  The institutions involved should conduct thorough impact assessments, take a hard look at the risks of causing harm to health and then think again about imposing excise duties on products that are already helping millions of Europeans to improve their health and wellbeing and have the potential to help millions more.

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13 thoughts on “To tax or not to tax? Response to EU on taxing vaping and other reduced risk products”

  1. For decades now the “ROI/financial model” of a successful quitter has been used to justify the millions spent in Public Health Tobacco Control expenditure. I expect that the EU’s tax decision will demonstrate if in fact these calculations are indeed considered accurate or as I expect were simply formulated to use impressive numbers to justify excise duty and Public Health Tobacco Control funding. But then again considering the EU are in denial that e-cigs actually reduce smoking and the millions of EU smokers now vaping are purely anecdotal, they will more likely simply ignore the facts as they did when Article 20 of the TPD was formulated.

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  4. No government would or will pass up such an opportunity to slam us with another tax! It’s called greed,and it is one battle in this war we cannot win!

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  7. Jonathan Bagley

    At least, when the UK Government copies the EU (we will have left) in levying excise duty on ecigs, the money raised will be spent in the UK. Not mine though. I’ve got several years’ supply of 72% nic in the cellar.

    1. Just to be clear, EU sets harmonised rules for member states’ taxation (minimum duties etc). It doesn’t collect the revenue. That goes straight to governments.

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