Electronic cigarettes eventually become "smoke". After China imposed a consumption tax on electronic cigarettes on November 1, China's supervision of electronic cigarettes has gradually become in line with traditional tobacco; the electronic cigarette industry may completely bid farewell to the "era of huge profits", and the market will be reshuffled.
China News Service reported on the 2nd that an article published in the latest issue of China News Weekly, a subsidiary of China News Service, made the above judgment.
Recently, the Ministry of Finance, the General Administration of Customs, and the State Administration of Taxation of China jointly issued an announcement stating that the consumption tax will be levied on e-cigarettes from November 1, and the tax rate will be 36% (production link) + 11% (wholesale link). Previously, China only levied 13% value-added tax on e-cigarettes as ordinary consumer goods. The e-cigarette consumption tax is based on the tax rate of Class B cigarettes, but there is no specific tax increase.
This news is considered to be the "last boot landing" for the strong supervision of the e-cigarette industry.
The e-cigarette industry is "savagely growing". According to iiMedia Research, in 2013, the market size of China's e-cigarettes was 550 million yuan (RMB, the same below). The number of e-cigarette companies in China has also grown rapidly from 45,400 in 2013 to 168,400 in 2020.
However, the problems of electronic cigarettes have also begun to be exposed-the uneven product quality, unlicensed operation and other industry chaos are frequent. To this end, China has continuously increased the supervision of e-cigarettes, and in the past two years, it has ushered in a period of intensive policy release.
In November 2021, the State Council of China issued an amendment to the Regulations on the Implementation of the Tobacco Monopoly Law of the People's Republic of China, and electronic cigarettes were officially included in the regulation of traditional tobacco. This year, the successive implementation of two major regulatory measures, the Measures for the Administration of Electronic Cigarettes and the Mandatory National Standards for Electronic Cigarettes, also means that the supervision of electronic cigarettes is gradually aligning with traditional tobacco.
E-cigarettes may usher in a surge in prices next. The introduction of consumption tax will inevitably increase the cost of e-cigarettes, thereby reducing the profit margins of e-cigarettes. Zhongtai Securities has calculated the impact of the production link consumption tax rate of 36% and the wholesale link consumption tax rate of 11% on the profit of e-cigarettes. Based on the calculation of a pod with a terminal price of 33 yuan, the total tax burden of each link before taxation is 4.3 yuan, and the incremental tax burden after taxation can reach 8.2 yuan to 14.2 yuan, that is, the highest tax burden becomes the original 3. times more.
At the same time as the price increase, the e-cigarette market may be reshuffled. For the top brands, the price increase will help the company to further consolidate its dominant position. Guosheng Securities analyzed that leading e-cigarette companies can rely on multiple advantages such as scale, automation, and strong bargaining power to stabilize the impact of tax increases. With SMEs taking the lead in retiring, industry concentration is expected to continue to increase.
According to Ao Weinuo, secretary general of the Electronic Cigarette Professional Committee of the China Electronic Chamber of Commerce, taxation is expected. The New Deal further encourages the export of e-cigarettes. Ao Weinuo said that the scope of consumption tax is only for products sold in China, and the export of electronic cigarette products is exempt from the consumption tax involved in this policy, and enjoys the original 13% tax rebate policy.
Overseas exports are the focus of China's e-cigarette industry. According to the "2021 Electronic Cigarette Industry Blue Book", the domestic market size (retail) of electronic cigarettes in China in 2021 is expected to be 19.7 billion yuan, a year-on-year increase of 36%; during the same period, China's total electronic cigarette exports reached 138.3 billion yuan, a year-on-year increase of 180%.