1 Case 304/01 Sept 2004 Spain v European Commission para 31 2. It - - PDF document

IBVTA Presentation to the Fiscalis Project Group (Tobacco) Brussels 17th January 2017 Introduction The Independent British Vape Trade Association is the UK’s leading trade association for the vape industry, and the

• nly one dedicated exclusively to the independent sector. All IBVTA members are free from any ownership or control

by the tobacco or pharmaceutical industries. At the EU-level, IBVTA is a founding member of the European Coalition for Independent Vape. As an organisation, we are opposed to the proposals for an EU-wide excise regime for vape products because:

• 1. Vape products are not tobacco products and therefore should not be subjected to a tobacco style taxation

regime,

• 2. It would be bad for public health, sending some vapers back to smoking and discouraging smokers from

switching to vaping,

• 3. It would have a negative impact on the compliant, legitimate vape industry as some vape businesses are

forced to close and as vapers go to the informal economy to buy their vape products,

• 4. The arguments put forward in defence of this proposal do not stand up to scrutiny and the proposal goes

against core EU principles, and

• 5. Critically, we know from experience that it would be costly and difficult to administer, and would generate

very little income compared to the wider costs associated with this proposed tax.

• 1. Vape products are not tobacco products and therefore should not be subjected to a tobacco style taxation

regime Vape products – e-cigarettes and e-liquids – represent a market-based, user-driven, public health insurgency. No public money has been spent, yet smokers are switching and cutting down as a direct result of vaping. The principle of non-discrimination as articulated by the Court of Justice and universally applied in EU policy-making states: The principle of equal treatment or non-discrimination requires that comparable situations must not be treated differently and that different situations must not be treated in the same way unless such treatment is objectively justified.1 Vaping is not smoking, vape products are not tobacco products, and the overwhelming majority of the European vape industry is free from any control or ownership by the tobacco industry. Smoking actually damages people’s health and leads to premature death, whereas vaping does not. Smoking costs taxpayers’ huge sums of money whereas vaping saves taxpayers’ money. It therefore follows that vaping must be treated differently under this principle and not subjected, under the same directive, to an EU-wide tobacco-style excise regime. Under the principle of non-discrimination, it is not only acceptable to treat vape products differently, it is a requirement.

1 Case 304/01 Sept 2004 Spain v European Commission para 31

• Ref. Ares(2017)494749 - 30/01/2017

• 2. It would be bad for public health, sending some vapers back to smoking and discouraging smokers from

switching to vaping Across the EU there are at least 15 million vapers, of whom 6.1 million have fully quit smoking as a direct result of

• vaping2. This should be a cause for celebration, not extra taxation!

There is never a situation in which it is better to smoke than to vape. We know from research produced by the UK Office of National Statistics3 and others that 99.9% of vapers are current or former smokers, therefore when considering the harm associated with vaping; it is how harmful it is compared to smoking. According to Public Health England and the Royal College of Physicians, vaping is at least 95% less harmful than smoking4. This was a point considered by the Ramboll study which concluded that the lack of evidence on the negative health impacts of vaping “makes the case for imposing excise duty on e-cigs rest on weak foundations.” Vaping has contributed to record low levels of smoking in the UK5 and has significantly reduced smoking rates in

• ther EU Member States. Despite this success, according to the Commission’s own figures, 26% of the EU

population and 25% of young Europeans aged 15-24 still smoke6. This results in nearly 700,000 deaths every year7. Policy makers at all levels should be focussed on reducing this figure. Conventional nicotine replacement therapies, with their 90%8 failure rate are not capable of doing this, but vaping could and is. If proposals for additional taxation are withdrawn, then vaping will continue to flourish and fulfil its potential in providing a viable and significantly less harmful alternative to tobacco products. However, if they do not then smokers will not make the switch and a once in a life time opportunity will have been missed. It is within this context that the debate surrounding the potential levying of excise on vape products must be considered. After all, EU policies, including taxation and the internal market, should be defined and implemented with a view to a high level of health protection. Article 168 of the Treaty on the Functioning of the EU enshrines this principle, when it states: A high level of human health protection shall be ensured in the definition and implementation of all Union policies and activities.9

• 3. It would have a negative impact on the compliant, legitimate vape industry as some vape businesses are

forced to close and as vapers go to the informal economy to buy their vape products The overwhelming majority of vape businesses are independently owned SMEs employing a small number of people. Unlike VAT, excise is not a tax that companies simply collect, it is a tax that comes with significant costs. The independent vape industry does not have the experience of operating such a tax regime. We have calculated that implementing such a regime would cost a typical IBVTA manufacturing member £50,000 to implement and £40,000 annually to administer. These are significant sums of money, particularly coming on top of the vast sums of money the industry is currently spending to comply with the EU’s Tobacco Products Directive (TPD). Compliancy costs associated with the TPD have already forced a number of businesses to close. We know from Italy and Portugal that excise would have the same impact.

• 4. The arguments put forward in defence of this proposal do not stand up to scrutiny and the proposal goes

against core EU principles We have already explained why we believe this proposal goes against the EU principles of high level health protection and non-discrimination.

2 http://www.ecigarette-research.org/research/index.php/research/research-2016/241-eurob 3 http://www.ons.gov.uk/ons/rel/ghs/opinions-and-lifestyle-survey/adult-smoking-habits-in-great-britain--2013/stb-opn-smoking-2013.html 4 https://www.gov.uk/government/news/e-cigarettes-around-95-less-harmful-than-tobacco-estimates-landmark-review and

https://www.rcplondon.ac.uk/projects/outputs/nicotine-without-smoke-tobacco-harm-reduction-0

5 http://www.cancerresearchuk.org/about-us/cancer-news/news-report/2016-08-02-smoking-rate-hits-low-in-england#E031SyGC4XSH9isg.99 6 http://ec.europa.eu/health/tobacco/policy_en 7 Ibid 8

Director of the Duke Centre for Smoking Cessation and a Professor in the Department of Psychiatry and Behavioral Sciences at Duke University Medical Centre, speaking at the Global Forum on Nicotine (Warsaw, Saturday 6th June 2015): http://gfn.net.co/downloads/2015/Plenary%202/Jed%20Rose.pdf

9 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12008E168:EN:HTML

A number of Member States and the Commission argue that adopting different tax structures and rates for vape products across 28 Member States may affect competition and the functioning of the internal market, and may also encourage informal trade. Are these concerns justified? Sadly, there is already a flourishing informal economy for vape products across the EU, a situation that is being exacerbated as a direct result of the TPD. This informal economy exists now and will only grow if the EU introduces this proposed new tax. Just look at tobacco products. Cigarettes are subject to an EU-wide excise regime, and as a direct result there is a flourishing trade in fake/counterfeit cigarettes right across the EU. In addition to this, the price of cigarettes varies significantly across the EU with the result that people travel from the UK to the continent specifically to buy cheaper cigarettes. This is exactly what happened when taxation was introduced in Italy and Portugal and would be replicated on an EU- wide scale if this proposed excise regime is introduced. However, with vaping it would be even worse as vape products, unlike tobacco products, have a significant online presence, making it very easy for vapers to buy their vape products online tax-free from outside the EU.

• 5. We know from experience that it would be costly and difficult to administer, and would generate very little

income compared to the wider costs associated with this proposed tax We do not need to speculate on this critically important topic. We know from the experience of Italy and Portugal that an excise regime along the lines of the one being considered by the EU does not work. Take Italy10 as an example:  Following imposition of a tax of €3.73/10ml in 2014 demand collapsed from over €400m in 2013 to €97m in 2015.  Vaping prevalence fell from 4.2% adults in 2013 to 1.2% in 2015.  Revenue accruing from this tax on liquids for 2015 in fact amounted to €5,176,352, less than one twentieth

• f the amount expected.

 In 2015 the Italian tax authority AAMS cancelled the tax on non-nicotine products and in February 2016 published a decree that increased tax on e-liquids containing nicotine from €3.73 per 10ml to €3.85 per 10ml.  This tax is substantial and disproportionate – perhaps as high as doubling the retail price. The market collapsed, vapers either went back to smoking or bought unregulated products tax-free from the informal economy, businesses closed, and, critically very little revenue was generated. In Portugal, they were levying a tax of €0.60/ml resulting in the cost of a 10ml bottle of e-liquid increasing by €6.00! Due to the negative impact this tax had, it has been reduced to €0.30/ml. However, the damage has already been done. The experiences of Italy and Portugal should be looked at in great detail by the Commission and other Member States. Would an EU-wide excise regime be any different? The Commission’s current consultation asks about the impact of excise rates of 20% and 50%. If implemented this would see the price of a £5 bottle of e-liquid rise to £6 or £7.50. These are significant rises that could not be absorbed by the manufactures, so would be passed onto the end consumer. As in the case of Italy and Portugal, this would result in vapers going back to smoking, and fewer smokers switching to vaping in the first place. Worryingly it would also lead to the increase in the informal economy as people bought poorer quality e-liquid at a lower price and free from any form of taxation and regulation. Many vapers may also take to mixing their own liquids at home. Would an EU-wide excise regime generate significant income?

10 E-cigarette Intelligence, Italy: price drop triples vaping population, November 2016, 2 November 2016

• No. Despite its success, vaping is still a niche industry and compared to the tobacco industry is tiny. Therefore, the

tax base is going to be small. In addition to this, the introduction of any additional taxation will shrink that tax base further as some vapers return to smoking or shop in the informal economy, as fewer smokers switch to vaping, and as some businesses are forced to close. The Irish Department of Finance, Tax Strategy Group, in 2015 calculated that a 50% per 10ml tax on e-liquid would generate a total annual income for the Irish Government of €8.3 million11, a figure which at the time was considered

• verly generous. This compares with the €1.1 billion the Irish Government took in taxation from tobacco products in

2016 and the €1.1 billion they took from taxation on alcohol. Due to the fragmented and diverse nature of the vape industry such an excise regime will be expensive to establish and operate. We know in practice that a tax of this nature will generate very little income. In Italy, it brought in €5,176,352, less than one twentieth of the amount expected. Italian vapers are no different to vapers anywhere else in Europe so we can say with some certainty that the experience in Italy would be replicated on an EU-wide scale. Conclusion At present vape products are taxed as the consumer product that they are and are subject to 20% VAT in the UK. NRT products by comparison are only subject to 5% VAT. Vape products therefore start with adversely discriminatory tax treatment relative to NRT. This could be addressed by applying the VAT discount to vape products or removing it from NRT. It should not be further exacerbated by levying an additional tax on vape products. Taxes work brilliantly at suppressing demand. That is the justification for the very high levels of taxation on alcohol and tobacco. It is also the justification for a new sugar tax, soon to be introduced in the UK. It therefore stands to reason, that any additional tax on vape products will curb take-up and see some vapers going back to smoking, after all that is exactly what happened in Italy and Portugal. The EU rightly wants to move people away from smoking to less harmful alternatives. Vaping is demonstrably one such less harmful alternative that has already helped 6.1 million Europeans leave smoking behind for good. The

• verwhelming majority of these 6.1 million vapers will be buying their vape products from legitimate EU businesses

that comply with domestic and EU regulations, which care about the quality of the products they sell, and which pay VAT and employee and business taxes. We know the taxation of vape products has been a complete failure from a public health and revenue generating

• perspective. You know this too! So why are you even considering this proposal? A proposal you know will generate

little revenue, will close businesses across the EU, and which runs counter to your wider objective of reducing the number of smokers. Thank you. The Independent British Vape Trade Association 64 Victoria Street, London, SW1E 6QP www.ibvta.org.uk All IBVTA members are free from any control or ownership from the tobacco or pharmaceutical industries

11 http://www.finance.gov.ie/sites/default/files/160720%2oTSG%2016-02%20General%20Excises%20TSG%202016.pdf