Beijing to Start Taxing E-Cigarettes, Tightening Restrictions

Three Chinese governmental bodies released a joint announcement on October 25 regarding new consumption taxes for e-cigarettes, which will be implemented from November 1, 2022. According to the new laws, which have been approved by China’s Ministry of Finance, General Administration of Customs and the State Taxation Administration, e-cigarettes will be taxed on an ad valorem basis. The rate for production (imports) will be 36%, while that for wholesale will be 11%.

Previously, e-cigarette manufacturers and brands paid corporate income tax and value-added tax, and the implementation of the newly announced rules will mark a complete change. According to Time News, Zheng Zhi, an expert in the e-cigarette industry, said that consumption tax on e-cigarettes is mainly levied on brand owners. If they want to maintain their previous profits rate, they need to double the price of cartridges, but consumers may not buy them.

Zheng Zhi also mentioned the “Rules for the Administration of E-Cigarette Transactions,” which stipulate that e-cigarette enterprises cannot adjust prices at will, and should publicize the price adjustment information at least three months in advance. As the expert then believed, “It is just the beginning of the implementation stage. After one week, we can see whether there is a general price increase and whether consumers will accept it or not.”

Affected by the new regulation, some e-cigarette store owners are hoarding goods urgently ahead of the price increase. “Shopkeepers have increased their orders today, and related products on the trading platform are basically sold-out!” Liu Xu, marketing director of an e-cigarette brand in China, said in an interview with Time News.

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At the beginning of this year, China also implemented regulations on the flavoring of e-cigarettes. Since October 1, authorities have officially banned the sale of fruit-flavored e-cigarettes, and enterprises have developed tobacco-flavored products one after another. Therefore, some e-cigarette brands say they are not sure whether their products will increase in price for the time being. “Not sure yet. The current product price is cheaper than the previous fruit-flavored ones, leaving room for tax increase,” said Du Ying, the founder of e-cigarette brand ChillMist.

However, there are many enterprises focusing on export business in the e-cigarette industry, which will not be affected by the new taxation policy. Moreover, because China encourages e-cigarette enterprises to export products to earn foreign exchange, the stocks of some e-cigarette enterprises engaged in exports have also risen a lot.

Zou Yang, general manager of Shenzhen Zinwi Bio-tech Co., Ltd., a tobacco and oil enterprise, said in the report that e-cigarettes used for export are exempted from consumption tax and enjoy the policy of 13% tax refund rate. The tobacco and oil produced by the company are mainly used for export products, “So it has little impact on us,” said Zou.

At 16:00 EST on October 25, the share price of RLX Technology, a leading Chinese e-cigarette company, traded at $1.14 per share, up 14%, with the largest intraday increase of 15%. On the same day, the stock price of Smoore International, a company focused on vaping devices and components, closed up 4.77%.