Study on Excise Duty and National Regulatory Framework Policy on Alternative Smoke-Free Nicotine Products

2020
Māris Jurušs, Zane Utināne

Excise duty covers also categories of tobacco products that are not harmonized throughout the European Union, such as the liquid used in electronic cigarettes - is not a taxable object in all Member States. The same refers to other modern alternative products, such as heated tobacco and other alternative tobacco-free products (tobacco-free nicotine pouches, for example). Otherwise, it also creates differences between countries in terms and conditions of market research and traceability of this product. Liquid used in electronic cigarettes and heated tobacco in Latvia has been a taxable object, but tobacco-free nicotine pouches are not. A proposal has been submitted to the Saeima, which envisages a ban on placing nicotine-containing pouches and other tobacco substitute products on the market in Latvia. This is not an evaluated proposal. As the experience of other countries has shown, nicotine pouches should be regulated, not banned. This would give both: fiscal effects about two mln. EUR and reduce the risk of illegal market development. Tobacco-free nicotine pouches are allowed in Estonia, Scandinavia and elsewhere in the EU. With the implementation of a ban on nicotine-containing pouches in Latvia, consumers will also be free to buy it online in online stores, thus excise duty and VAT will go to the budgets of other countries. Experience in other countries shows that problems arise, because consumers get their product in illicit markets, including online, without any product quality controls, user age verification, thus creating a tax gap. According to surveys, the goal of buying nicotine pouches is mostly to quit smoking or to switch to a safer way to smoke. Instead, it is necessary to improve the ability to conduct a more accurate and wider market analysis of this product, while fighting the looming illicit trade on the internet. Existing health surveys could be used to this end, improving the methodology for developing these surveys to include questions that would help consumers identify their choice of purchase of these products - legal or illegal market, online tools or face-to-face. As regards the recommended excise duty policy on altenrative products and nicotine pouches, Lithuania's experience should be taken into account when imposing a disproportionately high excise duty on cigarettes contributed to the growth of the illegal market. Therefore, equating the tax rate with the high level of Estonia – 89.63 EUR / kg (compared to Sweden, where it is 22 EUR / kg) would not be rational and fiscally advantageous due to the black market risks. Considering the same arguments, excise rates on other alternative products, such as liquid used in electronic cigarettes and heated tobacco, should not be increased very rapidly.

Keywords
akcīze, nodokļi, cigaretes, nelegālais tirgus
Hyperlink
https://drive.google.com/file/d/1Ant6VX3cLsjPx5J0srLcOESgl71e-hCs/view

Jurušs, M., Utināne, Z. Pētījums par akcīzes nodokļa un valsts regulējuma politiku attiecībā uz alternatīviem bezdūmu nikotīna izstrādājumiem. Rīga, 2020. 28 p. Available: https://drive.google.com/file/d/1Ant6VX3cLsjPx5J0srLcOESgl71e-hCs/view.

Publication language
Latvian (lv)