The National Treasury is proposing to impose a tax on both the non-nicotine and nicotine solutions in e-cigarettes (EC), and is asking for public comment by 7 February 2022.
The National Treasury published a draft discussion paper in December 2021 on the proposed taxation of e-cigarettes (ECs). The National Treasury defines e-cigarettes as battery powered devices that do not burn or use tobacco leaves but vaporise e-liquid solutions for inhalation.
In its discussion paper, the Treasury notes the uncertainty of e-cigarettes’ health risks, so it seeks stakeholder engagement on its proposal for the taxation of ECs.
The National Treasury proposes to introduce a specific excise tax on both the non-nicotine and nicotine solutions used in ECs and intends to use its existing policy guidelines applicable to other excisable products to do so. For example, traditional tobacco products are subject to excise duties at a rate of 40% of the price of the most popular brand in each tobacco category.
For EC users, that would mean paying R2.03 per mL of EC solution nicotine-containing nicotine and R0.87 per mL of nicotine-free EC solution, if the draft proposals are accepted and become legislation. It is also proposed that EC products with a higher nicotine content will attract a higher duty rate.
Certain stakeholders may question that the Treasury’s proposed EC tax extends to nicotine-free liquids, as it does not necessarily support the government’s stated policy intention of reducing the consumption of tobacco products. The use of ECs as a means of quitting tobacco products is well established, with a Cochrane review showing that nicotine-containing ECs resulted in increased odds of quitting than nicotine-free ECs.
It could also generate a knock-on illicit trade in e-cigarettes, as has already happened in the tobacco sector.
Manufacturers and importers who would be taxed on ECs will need stringent certifications by accredited laboratories, which use either South African National Accreditation or International Laboratory Accreditation Cooperation (ILAC) approved methodologies. Where such certifications are not available, a penalty rate of duty is being proposed.
Comments on the draft discussion document are due by 7 February 2022.
Source: Webber Wentzel
