English/Policy

Electronic cigarette, that’s how the market burns | Il Fatto Quotidiano

Il Fatto ecig

The event is scheduled between Thursday and next Tuesday. According to leaks from the Treasury, the Under Secretary for Economy, Ms Paola De Micheli, will make the first step to solve a botched job that threatens to get complicated. Across the table, there will be the varied world of electronic cigarettes threatening havoc after the Constitutional Court rejected the maxi-tax which has crippled an industry already in crisis, bringing it almost to collapse.

Match reopened

The deficit amounts to €117 million a year. Since December 2014, there is a new tax, but it is also likely to be overcome by the ruling that equates e-cigs to tobacco products.

The pensions time bomb, in fact, is not the only one the government has to defuse. There is the risk of a new litigation on e-cigs which could block a market that is showing signs of recovery. In fact, it is not just small manufacturers: multinational companies have also sensed the business opportunity.

First things first. On Thursday, the Constitutional Court rejected the maxi-tax decided by a decree passed by Letta’s government, which has imposed a 58.5 percent tax on the sale price. Taxes on cigarettes – the ruling says – are “justified by the disfavour towards a product recognised as seriously harmful to health” but “this assumption cannot be found in relation to the marketing of products containing substances” other than nicotine. Particularly since the tax also applied to hardware parts, such as the battery charger or the cable to connect the charger to the device. Taxing them as if they were tobacco products was “totally unreasonable”, according to the Constitutional Court.

The deficit for 2014 was €117 million, while €115 million are at risk in 2015, even though in December the regulation was overcome by the decree to reorganize excise duties. Industry groups, such as Anafe (Confindustria), as well as Imperial Tobacco, believe that the new tax is likely to be overwhelmed by the ruling. The genesis of a regulation that brought e-cig manufacturers and retailers to protest indefinitely in front of Palazzo Chigi should be studied. Only two years ago, the market was exploding and the word “e-cig” was popping up everywhere.

Today, only about a thousand of the 4,000 stores are still open, the number of workers has fallen by over two-thirds (to 2,500) and revenue fell to €300 million in 2014 from €450 million in 2013 (a 60 percent decrease in the first six months of 2015). The tax has many fathers: it was sponsored by an across-the-board array of people which included important names, such as the former Under Secretary for Economy Mr Alberto Giorgetti, the former Treasurer of the Democratic Party Mr Ugo Sposetti, to finish with the powerful National Tobacconists Federation, to which the former law prohibited the selling of e-cigs (the federation is now entering the business since the ban has been removed), with support from the Monopolies, as well. In April 2013, Giorgetti tried to include the regulation in Monti’s government decree on payments, but has had no success. In June, once at the ministry, he managed to pass it in the “Vat and Labour” decree. Even when the Budget Committee has passed an amendment – tabled by the Democratic Party – to cut the tax to 25 percent (from the initial 58.5 percent), someone’s hand has erased everything in the Stability Law. The maxi-tax – the associations criticised – would have killed the market, causing prices to increase by 250 percent. And so it was.

Now, the government has two problems: covering the deficit and defusing future litigation. The impact for 2014 is rather limited, as the Treasury itself has curiously admitted that it has never counted on that money: so far, only “€7,392” of the €117 million have been paid. The government must act immediately – probably with a decree – as the shortfall will have to be recorded in the balance sheet. As for 2015, the deficit could exceed €100 million, as proceeds will not exceed €11 million, the trade associations assumed.

In December, in fact, the troubled decree to reorganize excise duties amended the tax by equating e-cigs to new tobacco products, such as smokeless cigarettes that heat pods, manufactured by Philip Morris in its new plant in Crespellano, near Bologna, inaugurated by Prime Minister Matteo Renzi. Both cigarettes had a 50 percent discount on the sale price – calculated with a complex procedure that equates e-cigs to traditional cigarettes – which rewards mainly the American giant, not changing the tax borne by e-cig producers. The latter have filed another appeal to the Regional Administrative Court (TAR), which could rule as soon as early July.

Now, Renzi’s government wants to defuse the risk and, mindful of the head-on collision occurred under Letta’s government, asks the industry for a solution. This time, multinationals are also involved. “Equating e-cigs to tobacco products is wrong, and the Constitutional Court itself has said that – says Mr Valerio Forconi of Fontem Ventures, the company under which British giant Imperial Tobacco has been the first to launch its own e-cig in Italy. “We believe they should be taxed less than any other tobacco product.” “In addition to having crippled the market, the maxi-tax has helped the illegal market grow dramatically – Mr Forconi continues – there are websites that sell products, which are potentially very harmful, without any supervision.” According to data, 80 percent of sales pass through here now. Two months ago, a circular of the Monopolies announced strict controls, which have never been carried out.

Imperial Tobacco was not the only one to sense the business opportunity in a market that was worth only $1.5 billion worldwide in 2013, but that is likely to grow to almost $48 billion in 2048, according to estimates by Bloomberg. As reconstructed by Il Fatto Quotidiano, tobacco giants such as Japan Tobacco (Camel) and British American Tobacco (Lucky Strike and Pall Mall) will enter the Italian market by year-end, as well. JTI with its E-Lites, BAT with Vype, which has been on the UK market for over a year. Philip Morris, whose Solaris has debuted in Spain, is considering the idea. “We have not set a final date yet – the vice president of BAT Italia, Mr Giovanni Carucci, explained – the important thing for us is having a clear taxation.” It is up to the Government to intervene.

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