China: Consumption Vape Tax to go Into Effect This November

The Chinese industry had operated within a grey area for years, then in the last couple of years a movement towards regulating started. As part of this trend, the Ministry of Finance has just announced a tax rate of 36% on the production or import of vapes and an 11% tax on the wholesale distribution of the products.

Meanwhile, a new bill which went into effect earlier this year, will ban 122 vape flavours as proposed by the State Tobacco Monopoly Administration (STMA), including numerous fruit and alcohol flavours. The new measure also amends the country’s tobacco monopoly, extending it to e-cigarettes, which forces local businesses to register with the tobacco authority.

Moreover local manufacturers must now obtain an additional licence to prove they are in possession of sufficient funds for production, and an adequate facility and equipment that meet the set standards. Subsequently the STMA has just published a guidance outlining the process for Chinese e-cigarette manufacturers to obtain the required manufacturer licence.

Chinese brands are suffering due to imminent restrictions

As a result of the direction that China is taking, shares in Chinese consumer brands have suffered. In fact, last year a Relx shareholder filed a lawsuit in the US against the Chinese e-cig manufacturer, accusing the company of not taking into account imminent Chinese regulations when applying for the US initial public offering (IPO) in October 2020.

The class action lawsuit was initiated in the US District Court for the Southern District of New York, by Investor Alex Garnett, who bought 300 shares at $27.87. He said that he and other investors “sustained substantial damages in connection with their purchases of shares” in RLX Technology, which is one of the biggest manufacturers, distributors and sellers of vaping products in China

According to an article by ECigIntelligence, Garnett accused RLX of not taking into account the aim of Chinese regulators to tighten the regulations governing vaping products in the country, in their registration statement for the IPO. “RLX’s discussions of risk factors did not even mention, much less adequately describe the risk posed by, China’s ongoing effort to establish a national standard for e-cigarettes that would bring them into line with ordinary cigarette regulations,” reads the complaint, which calls for a jury trial.

Read Further: Reuters

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