December 2022
Joyce Wen and Teresa Huang
In recent years, the regulation of the e-cigarette industry in the Chinese mainland has been gradually strengthened. Specifically, in 2021, the revised Regulation on the Implementation of the Law of the People’s Republic of China on Tobacco Monopoly stipulates that new tobacco products such as e-cigarettes shall be regulated with reference to the relevant provisions of the Regulation on cigarettes, and in March 2022, the Measures for the Administration of E-Cigarettes were issued as well. On October 2, 2022, the Ministry of Finance, the General Administration of Customs and the State Taxation Administration further issued the Announcement on the Collection of Consumption Tax on E-Cigarettes (hereinafter referred to as the “Announcement”), which includes e-cigarettes in the collection scope of consumption tax and added the subheading of “e-cigarettes” under the taxable item of “cigarettes.” The Announcement was implemented on November 1, 2022.
1. Clarified the objects of taxation.
The Announcement clarifies that “E-cigarette” means the electronic delivery systems used to produce aerosols for inhalation by people, among others, including cartridges, cigarette devices, and e-cigarette products sold in the form of combinations of cartridges and cigarette devices. Therefore, it should be noted that the objects of the consumption tax on e-cigarettes include cartridges, cigarette devices, and e-cigarette products sold in the form of combinations of cartridges and cigarette devices.
2. Clarify the taxpayers of consumption tax
The Announcement stipulates that the taxpayers of consumption tax in the e-cigarette production stage refer to the enterprises that have obtained the Tobacco Monopoly Production Enterprise License and have obtained or been licensed to use the registered trademarks of others’ e-cigarette products. The taxpayers of consumption tax in the e-cigarette wholesale stage refer to enterprises that have obtained the Tobacco Monopoly Wholesale Enterprise License and operate e-cigarette wholesale business. The taxpayers of consumption tax in the e-cigarette import stage refer to the entities and individuals that import e-cigarettes. On the issue of taxpayers, it is reminded that enterprises only engaged in the e-cigarette product OEM business do not belong to the taxpayers of consumption tax on e-cigarettes.
3. Clarified the tax rate
The Announcement stipulates that e-cigarettes are taxed on an ad valorem basis at a fixed rate. The tax rate for production (import) stage is 36%, and the tax rate for wholesale stage is 11%.
In addition, it should be noted that the Announcement provides that taxpayers exporting e-cigarettes shall still be subject to the export tax refund (exemption)policy. Therefore, the export of e-cigarettes should not be affected by this Announcement.
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