The positive aspect of the tax proposals is that non-combusted tobacco and other inhaled nicotine products will be taxed and treated differently to regular cigarettes, due to their potential reduced risk profile. This means that current tobacco regulations will not apply to e-cigarettes and heat-not-burn products (although these are not yet on the market). Manufacturers will thus be free to advertise products, and consumers will be allowed to use them in public places.
The decree was discussed on 31st July 31 by the Council of Ministers and will be discussed by the Parliament for formal approval in September. This should be good news to advocates of tobacco harm reduction - those in public health who believe that smokers can benefit by switching to consuming nicotine without the accompanying smoke from cigarettes.
But it is not so simple.
Over the past two years with the growing prevalence of e-cigarette use in Italy (there are almost 800,000 users already in Italy, according to DOXA-ISS) the Ministry of Finance has made numerous attempts to bring e-cigarettes under some form of regulation, which would allow them to impose an excise duty on the products. They have failed in each attempt, due to successful lobbying by consumer groups, small manufacturers and retailers. But all that is now likely to change, due to a clever tax proposal that pretends to acknowledge the differential risk of e-cigarettes vis-à-vis traditional smoked tobacco.
The tax problem is to find a nicotine equivalent between e-cigarettes and regular cigarettes, and then apply a proportionate reduction.
In brief, the decree arbitrarily equates 10 ml of e-liquid to 80 cigarettes, and then proposes a tax for e-cigarettes equal to 60% of the excise paid on regular cigarettes. As cigarettes are taxed at 133.12 Euro per 1000 cigarettes, the excise on 80 cigarettes is around 10.65 Euro. Therefore, the tax on a 10 ml e-liquid will be 6.39 Euro (60% of 10.65 Euro).
Given that the retail price of a 10 ml e-liquid bottle is currently around 6 Euro, the price including the new tax will effectively double the price and be devastating for e-cigarette users and a deathblow to the liquids’ businesses that feed the predominantly 2nd and 3rd generation e-cigarette market in Italy.
Negotiations are still in progress, and the latest rumour is that a new arbitrary proposal, equating e-cigs and tobacco cigarettes on the basis of the number of “puffs”, is being discussed. This new proposition appears to be even more devastating, leading to a 2.41 Euro tax on a single ml, with a 10 ml e-liquid bottle topping a final price of 35 euros!
Rather bizarrely, the decree goes into elaborate detail to create a bespoke regulatory framework for a product that does not yet exist in the market: heat-not-burn (HNB) cigarettes. The current proposal will classify these as “inhalation products” in the same category as e-cigarettes, instead of as “smoking products”.
Phillip Morris International (PMI) expects to launch the new product in 2015 and to produce 30bn HNB cigarettes by 2016. An article in Il Corriere della Sera on 22nd July 2014 hints that PMI’s €500m investment in its Bologna facility, where the HNB cigarettes will be produced, could be one of the reasons why the Ministry is considering classifying HNB cigarettes as “inhalation products”.
Commenting on the proposal, Prof Dr Riccardo Polosa, Professor of Internal Medicine and Director of the Centre for the Prevention and Treatment of Tobacco Addiction at the University of Catania, said “Smoking products to become inhalation products? This is ridiculous. Besides combustion, it must be noted that smoke can also be generated by non-combustible chemical phenomena”
“But this is not the only distortion,” added Polosa “the distinction between tobacco (e.g. combustibles, heatables, chewables, dissolvables) versus non tobacco products (especially e-cigs) is evident, and proportional and rational taxation should reflect just that!”