New legislation in China has taken effect as of the 1st of November, which continues to change the landscape of the Chinese vaping industry. Last year changes were made that established a need for Chinese E-Cigarette companies, to obtain a license to be able to continue selling to customers.
Along with this change, the requirements and regulations that were introduced triggered a wave of closures, especially in hardware manufacturing. And these new changes could bring even more issues for Chinese vapers and manufacturers.
The new vaping tax implemented in China
On the 1st of November, the Chinese government implemented a new tax on vaping products. This consumption tax includes a 36% tax on the production or import of E-Cigarettes and an 11% tax on wholesale distribution in China. China’s Ministry of Finance has announced that E-Cigarette products will now be a sub-item under the tobacco tax item list.
Companies that have a license from the tobacco monopoly authorities (STMA) to produce E-Liquids, or companies that have obtained/licensed the use of a registered trademark or another company’s E-Cigarette products, will have their consumption tax calculated differently depending on how the products are sold or produced. Similarly, for E-Cigarettes made through an OEM, it is down the company that owns the trademark is liable for the consumption tax.
- Producers and wholesalers pay tax based on the sales of the production and wholesale of E-Cigarettes.
- Companies that sell E-Cigarettes through an agency in the production process must pay tax based on the sales of the distributors or agents to the e-cigarette wholesaler.
- Importers of E-Cigarettes must pay tax based on the component taxable price.
- Companies engaged in processing E-Cigarettes in the production cycle must calculate the sales of trademarked e-cigarettes and the sales of OEM e-cigarettes separately; if they are not accounted for separately, they must pay consumption tax together.
Is there a concern about exports? A later announcement clarified that exports of E-Cigarettes are eligible for the tax refund and exemption policy. This means that although the internal Chinese vaping industry is expected to feel the pinch, exports will not see the same treatment.
What is concerning though is the potential for more Chinese E-Cigarette companies to begin struggling to keep up with the added tax. Not to mention the added cost that very likely could be transferred to consumers in China.
These changes come from China’s further clampdowns on vaping products that saw flavoured vapes banned. Having started in October, only tobacco-flavoured vapes are to be sold in China.
Are there any positives from these changes?
One thing is for sure, with the increasing legislation in China, it has begun a crackdown on requirements for E-Cigarettes and vape products in an effort to improve quality. These include regulations on the battery, ceramic coil, nicotine content, and flavours.
What these changes do help is establish a greater baseline for good quality products. Ensuring that vape products meet these criteria could help in reducing the presence of fake disposables and lower-quality E-Liquids that have begun to flood the market.
The largely untapped market of potential vapers
The Chinese vape industry has seen a similar explosion in growth as most of the world these past few years. With a smoking population of around 300 million, China is a prime spot for pushing the quit-smoking journey with the aid of vaping.
And yet the rate of E-Cigarettes usage in China is far behind other countries such as the UK and US; a mere 1.5% compared to 30%. Therefore, there is significant room for expansion but with these latest regulation changes, it may become harder to do so. Only time will tell if more high-quality vaping products will make their way into the Chinese market.