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 The tax, which was adopted in January, is set at half the rate of
that on traditional cigarettes. The controversy centers on the fact
that the lower rate is applied to both electronic cigarettes and to
tobacco products such as Marlboro HeatSticks, which Philip Morris is
launching in Italy alongside a 500 million euro ($568 million)
factory investment.
E-cigarette companies say applying the discount to tobacco products
is unfair, and designed to help Big Tobacco. The firms and industry
experts also say the method of calculating the tax is too
complicated and gives an unfair discount to Philip Morris' products.
"It's unjust," said Massimiliano Mancini, president of
ANAFE-Confindustria, a national trade association of e-cig and
e-liquids producers. "It's clear that this legislation has been
drafted for other interests than just taxing the e-cigs." He
declined to elaborate.
Philip Morris would not comment on whether the new law gave it an
advantage. "We have shared our views with the government via public
hearings just like our competitors and others," a spokesman told
Reuters by email.
It pledged last year to make HeatSticks and other "reduced risk"
products in a new factory in Bologna. Shortly before the plant's
inauguration, the firm's CEO in Italy, Eugenio Sidoli, told the
Senate Finance Committee that he welcomed the new tax rules, saying
they would create "a certain and stable" regulatory outlook for the
kind of investment his company was making.
Italy is one of the first countries to tax e-cigarettes; the
European Union is considering the idea. The devices do not use
tobacco, which contains hundreds of toxins, but instead heat liquids
laced with nicotine. Many scientists agree the products are probably
safer than conventional cigarettes.
Other new devices such as Marlboro HeatSticks do use tobacco and
have not yet been tested to the same degree. Unless studies prove
they are as safe as e-cigarettes, e-cig firms say, they should not
be taxed at the lower rate.
In all, Italy collects around 12 billion euros a year in tobacco
taxes. Philip Morris' products account for 7.5 billion euros of
that, according to the testimony Sidoli gave the Senate committee
last October.
But Italy's tobacco tax take has declined by more than 500 million
euros since 2013. The government has said that's partly due to the
rise in e-cigarette sales. It began to think about taxing the
devices in 2013 and initially introduced a tax that more than
tripled e-liquid prices, and also applied to batteries and chargers
sold with e-cigarettes.
That tax was blocked by Italian courts as too confusing, forcing
Rome to rethink its plans. But e-cigarette distributors and some big
tobacco companies object to the latest scheme, too.
The drawn-out controversy has hurt the industry in Italy, e-cig
backers say. While e-cigarette use has been growing globally, the
number of regular "vapers" in Italy has slumped to 255,000 from
almost half a million in 2013, health ministry figures show.
Thousands of e-cigarette shops have closed.
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Italy's Economy Ministry declined to comment.
"ABSENCE OF COMBUSTION"
Italy's new law assumes that e-cigarettes are safer and should be
taxed at a lower rate than traditional cigarettes. The e-cigarette
lobby welcomes this but objects to extending that discount to other
new products, such as the tobacco-based systems sold in Italy by
Philip Morris and Japan Tobacco International (JTI), which heat
tobacco in pen-like devices. The Philip Morris system uses tobacco
sticks that look like mini cigarettes while JTI's system, called
Ploom, uses aluminum pods filled with tobacco.
Philip Morris says HeatSticks, which it is also testing in Japan,
are potentially less harmful than traditional cigarettes "because
they are not intended to be lit on fire and smoked, but rather
heated and vaped."
But neither it nor JTI include health claims in their marketing for
heat-not-burn products. Philip Morris expects to have more
scientific evidence during the first half of this year, its CEO told
analysts earlier this month.
Even so, Italian lawmakers said in the tax decree that a tax
discount on such products was justified by the "absence of
combustion" which gives them "minor toxicity" compared with
traditional cigarettes.
Valerio Forconi, Corporate Affairs and Legal Director in the Italian
branch of tobacco giant Imperial Tobacco, says the principle of the
tax is wrong.
Imperial, whose subsidiary Fontem Ventures plans to launch a new
e-cig model in Rome in March, does not object to the tax charge, he
said, but believes it is too high compared to tobacco products.
Philip Morris' HeatSticks can be lit and smoked, according to
Forconi. This makes Italy perhaps "the only country in the world"
that effectively gives Philip Morris a tax discount on smoking.
Philip Morris said HeatSticks should not be lit and smoked. "If
burned," the spokesman said, "the experience would not be
pleasurable."
(Additional reporting by Giuseppe Fonte and Steve Scherer in Rome;
Edited by Simon Robinson)
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