The need for a balanced approach to e-cigarette taxation

Since 2010, decision-makers and health authorities in Saudi Arabia have been stepping up their efforts to protect public health from the dangers of smoking tobacco-based cigarettes.

In the last few years, the government has increased taxes on cigarettes, banned smoking in many public places and established anti-smoking campaigns and clinics.

Additionally, in early 2021, the Kingdom banned tobacco sales to teenagers under 18 and smoking in areas where minors are present. These are indeed much-needed policies to protect public health.

However, in 2022, the country applied an exponential customs duty rate on electronic cigarettes; this move was part of its drive to diversify its revenue streams further. However, the consequence is that e-cigarette costs have drastically increased; consequently, adult smokers are now faced with a far more expensive alternative to tobacco-based cigarettes.

It is important to point out that leading international research and public health authorities, including the UK’s National Health Service have recognized e-cigarettes technology as a better alternative to tobacco products and useful for adult smokers looking to reduce or stop smoking tobacco cigarettes.

Furthermore, a report published earlier this year revealed that higher e-cigarette taxation is associated with a decrease in e-cigarette use and an increase in tobacco cigarette smoking among 18- to 25-year-olds.

This, in turn, raises the longstanding predicament of balancing the introduction of new regulations with potential unintended consequences that could derail some of the positive aspects and intentions of said regulations.

According to recent data from the World Health Organization, tobacco kills up to half its users and as many as 8 million people per year. In addition, the organization states more than 7 million deaths result from direct tobacco use. In comparison, 1.2 million deaths result from nonsmokers exposed to secondhand smoke. In the Kingdom alone, a report noted that 70,000 Saudis die from smoking-related diseases each year.

When these facts and the Kingdom’s 12-year focus on reducing the usage of tobacco cigarettes are taken into account, a more measured approach to the taxation of e-cigarettes is needed to enable adult smokers to access better, reasonably priced alternatives to tobacco cigarettes.

Here, a risk-proportionate approach, where higher taxes apply to the more harmful products, has proven its worth by encouraging users and consumers to ditch bad habits entirely or favor less dangerous and better alternatives. This approach, in short, is defined as the harm reduction principle. Globally, public health institutions such as the US-based Centers for Disease Control and Prevention warn that smoking tobacco can cause cancer, heart disease, stroke, lung diseases and diabetes, among other conditions.

The CDC also says smoking increases the risk of tuberculosis, certain eye diseases and immune system problems, including rheumatoid arthritis.

The volume of cases and the severity of these diseases significantly challenge local health providers and local economies; a report estimating the cost of smoking and secondhand smoke exposure in Gulf Cooperation Council countries showed a purchasing power parity rate of $34.5bn in 2016, equivalent to 1.04 percent of the GCC’s gross domestic product. This is relatively low compared with other high-income countries but still highlights how important it is for people to have better alternatives to tobacco cigarettes.

Another reason authorities could take a more balanced approach to tax e-cigarette products is to keep adult consumers from seeking cheaper and noncompliant e-cigarette products. Unfortunately, this will almost certainly give rise to illicit trade activities and the appearance of counterfeit and unauthorized products on the market.

The US Food and Drug Administration says that many counterfeit, unapproved or unauthorized products are produced in unregulated facilities with unverified and potentially hazardous ingredients and pose a serious health concern to consumers.

The FDA further notes that these products could potentially find their way into children’s hands.

Moreover, unregulated black market products are costly to governments due to the potential increases in healthcare costs, expenditure associated with anti-counterfeit operations and, of course, lost tax revenue on legitimate products.

Ultimately, the benefits associated with the availability of quality e-cigarette products at a fair price outweigh the potential gains from a blanket tax increase.

A sustainable public-private partnership approach is needed, which would enable a mutually beneficial partnership between regulators and private businesses. It could be within a collaborative framework that aims to further crack down on the illicit trade of e-cigarettes, bolster investment avenues and safeguard government revenues while protecting adult consumers from the detrimental effects of illegal and substandard products.

• Robert Naouss, external affairs director, MENA at RELX International.