The policy and practical details of the e-cigarette excise tax, which will be introduced in November, are becoming clearer, including pricing.

With the implementation of the consumption tax policy on e-cigarettes, the State Administration of Taxation also clarified the relevant collection and administration matters and interpreted them, so as to implement the new policy in place.

The State Administration of Taxation issued an interpretation of the “Announcement of the State Administration of Taxation on Matters related to the Collection and Administration of Consumption Tax on e-Cigarettes” on April 27, giving an interpretation of the tax policy on e-cigarettes, including taxpayers, taxable objects and taxable prices. Among them, the tax price is explained in detail in the way of cases.

According to the Announcement of the Taxation Administration of the General Administration of Customs of the Ministry of Finance on the Imposition of Consumption Tax on E-Cigarettes (hereinafter referred to as Announcement No. 33), taxpayers who produce or wholesale e-cigarettes shall be taxed on the basis of the sales volume of the production or wholesale e-cigarettes. Taxpayers in the e-cigarette production link who sell e-cigarettes on a commission basis shall pay tax according to the sales volume of distributors (agents) sold to e-cigarette wholesale enterprises. Taxpayers who import e-cigarettes shall pay tax according to the constituent taxable price.

The relevant person in charge of the State Administration of Taxation interpreted that, for example, an e-cigarette consumption tax taxpayer produced e-cigarette products holding trademarks and sold them to e-cigarette wholesale enterprises in December 2022, and the sales volume excluding VAT was 1 million yuan. The taxpayer should declare and pay e-cigarette consumption tax of 360,000 yuan (1 million yuan ×36%) in January 2023.

The responsible person said that if the taxpayer entrusts the dealer (agent) to sell the same e-cigarette product, and the sales volume of the dealer (agent) to the e-cigarette wholesale enterprise excluding VAT is 1.1 million yuan, then the taxpayer should declare and pay the consumption tax on e-cigarette at 396,000 yuan (1.1 million yuan ×36%) in January 2023.

What is the impact of this specific regulation on the “assessable price” of excise duty on e-cigarettes?

Shi Zhengwen, a professor at the China University of Political Science and Law, told China Business News that in the process of collecting consumption tax, some manufacturers will set up affiliated distributors to offer relatively low prices to distributors, and then the distributors will offer relatively high prices to wholesalers in order to achieve the purpose of less tax. The above specific policies have closed the potential loophole of e-cigarette manufacturers to avoid tax by means of consignment sales, and the real production price will be used as the basis for tax calculation.

When interpreting the consumption tax payers in the e-cigarette production process, the relevant person in charge of the State Administration of Taxation said that in accordance with the provisions of the No. 33 announcement, those who produce e-cigarettes by OEM processing shall be declared and paid the consumption tax by the enterprises holding the trademark. Therefore, enterprises only engaged in processing e-cigarette products are not e-cigarette consumption tax taxpayers.

In practice, some e-cigarette production enterprises not only produce their own trademark e-cigarettes, but also provide processing for other brands. In this case, No. 33 announcement is clear to separate accounting of sales, and only pay tax on the sales of their own trademarks, while processing is declared and paid consumption tax by enterprises holding trademarks. However, if not accounted for separately, consumption tax shall be paid together.

The person in charge also said that according to the relevant provisions, when the taxpayer produced for self-use taxable consumer goods without similar consumer goods sales prices, it is necessary to use the national average cost profit rate calculation to form the taxable price, the national average cost profit rate of taxable consumer goods by the State Administration of Taxation to determine. Therefore, according to the actual situation of the production and operation of the e-cigarette industry in China and the relevant departments, the average profit margin of the national e-cigarette cost is tentatively determined to be 10%.

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Allison Wang

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