Taxing electronic cigarettes would be a mistake in the fight against smoking

Media release

Paris, Wednesday, September 23, 2015 — The decline in smoking seen in the last few years has revealed the French government’s dependence on tax revenues from tobacco consumption. Taxing electronic cigarettes with the aim of offsetting tax losses from lower tobacco use could have major impacts on public health. France is at a turning point in tobacco consumption patterns, and any special tax on electronic cigarettes could compromise the fight against smoking.

The heavy weight of taxes on tobacco in France

According to European directive 2011/64/EU1 in force, member state must adopt a hybrid tax structure for traditional cigarettes.

• The benchmark price for 2015 is €340 per 1,000 cigarettes, or €6.80 for a pack of 20 cigarettes.

• The tax portion in the selling price of a pack of cigarettes amounts to €5.48, or 80.63%.

• The remainder is shared between the retailer and the manufacturer (about 8% and 12% respectively of the total price).

The lower volumes in purchases of traditional cigarettes that was most pronounced between 2001 and 2004 (-34%) and again between 2011 and 2014 (-17%) is caused partly by a sharp boost in the price of tobacco (up 49% between 2001 and 2004 and up 17% between 2011 and 2014) but also by the development of illicit markets and by the advent of electronic cigarettes. Since 2000, tax revenues from tobacco have continued to rise, with consumption falling in volume but not in value, except in 2007 and in 2014, when there was a slight shift. We may be nearing a point where increased excise duties may no longer be enough to offset the decline in sales by volume.

Few arguments favour behavioural taxation of electronic cigarettes

Up to now, only a handful of jurisdictions tax electronic cigarettes: two American states plus Italy and Portugal. The European Union (EU) considered taxing electronic cigarettes but has not yet made a decision. The French government had envisaged introducing a tax in its 2014 budget, though the idea was rejected.

• An alternative to tobacco

While offering an experience similar to that of tobacco, electronic cigarettes do not have the same chemical properties and, even if they can be an addictive product, they produce effects that are far less harmful to the human body. They provide nicotine without the tars and carbon monoxide produced by the burning of tobacco. They are also a more effective way to quit smoking than current nicotine-containing substitutes and could even benefit from favourable tax treatment.

• Relative harmlessness

As for passive vaping, the issue is whether the aerosol emitted by electronic cigarettes contains hazardous substances. With tobacco smoke, the pollution is mostly particulate. With electronic cigarettes, it is mainly gaseous. According to the Dautzenberg Report prepared for the Office français de prévention de tabagisme, the risks from the droplets contained in electronic cigarette aerosol are theoretically more than 100 times lower than from exposure to tobacco smoke.

Taxing electronic cigarettes would be a mistake in the fight against smoking
The use and distribution of electronic cigarettes are now regulated. Most restrictions on traditional cigarettes now apply to electronic cigarettes. The difference lies in taxation. The presence of nicotine in some e-liquids may pose a problem. But political courage lies in acknowledging and affirming the essential role that e-cigs could play in the fight against smoking. By keeping e-cigs among the everyday consumer products subject to the VAT, the French public authorities would show their goodwill and their long-term vision.

Prepared by Frédéric Sautet, Associate Researcher at the IEM, the study “Taxing electronic cigarettes would be a mistake in the fight against smoking” is available on our website.

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The Institut économique Molinari (IEM) is an independent, non-profit research and educational organization. Its mission is to promote an economic approach to the study of public policy issues by offering innovative solutions that foster prosperity for all.

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Information and interview requests:

Cécile Philippe, PhD

Director, Institut économique Molinari

cecile@institutmolinari.org

+33 6 78 86 98 58