Bloomberg – E-cigarettes are poised to transform the way people consume tobacco.
The tax, which is set to begin next year, will help pay for their production, distribution and marketing, the industry’s chief executive, Rob Walker, said on Thursday.
The government’s move comes after an international coalition of tobacco companies and health experts argued the tax is ineffective because it doesn’t provide enough of a cut to help cigarette makers or discourage others from investing in research and development.
The e-cigarette tax will be set at the highest rates on tobacco products, which will cost about $2.50 a pack in the U.S. and about $4.50 in Europe.
If the tax were levied at $2 a pack, the top rate would rise to $4 a pack by 2020.
E-cigarette makers are expected to spend at least $1 billion to get the tax on the books, according to estimates from Deloitte & Mervis LLP.
That includes spending on marketing and distribution, according for a statement from Walker.
“The E-cigarette Tax is the result of a thorough review of the economics of this new technology,” Walker said in the statement.
“E-cigarettes provide the industry with a new way to reduce the risk of tobacco addiction and reduce the harm of tobacco to the environment.”
Eliminating the tax will save tobacco companies about $1.5 billion a year, according the industry.
The bill also creates incentives for tobacco companies to create more e-cigarettes, said Scott Besser, a senior vice president at the American Tobacco Institute.
The tobacco industry wants to see the price of e-cigs fall from $4 to $2 by 2020, said Bessest, who has studied the industry for several years.
The new tax will also be paid for by cutting tobacco taxes across the board.
It’s the second tax on e-Cigs, following a separate tax in the European Union on tobacco.
For many, the E.C.T. will be an unwelcome addition to the landscape.
Smokers are concerned about the health risks of e and nicotine, including the inhalation of toxic chemicals and the risk they pose to bystanders, said Robert Dolan, director of tobacco prevention and education at the Institute for Safe Cosmetics.
A majority of smokers have quit smoking for some reason, and there are also fears that a tax will discourage people from switching, he said.
Bessest said the new tax would be effective in the United States and Canada as well as in Europe, where there are a few e-cig brands.
There are some other tax changes in the bill that could benefit smokers, including allowing states to opt out of e cig taxes altogether and allowing for sales of nicotine patches that contain nicotine.
Other changes include allowing e-juice to be sold at grocery stores and restaurants.