Vaping: Cool or not cool?

Juul Labs, based in the US, had been on an expansion spree since its commercial operations in 2015. Recently, however, it has been forced to take a step backwards after American regulators raised questions about its health safety in the aftermath of scores of deaths associated with vaping.

Vaping was first introduced in the market in 2003, utilizing a cigarette-looking instrument with a battery-powered heating element that vaporizes an aerosol to produce vapor when sucked. Over the years, vaping has evolved into more sophisticated forms, including Juul’s version that uses a proprietary e-liquid nicotine formulation.

In many of the countries like the Philippines where vaping has become popular, the merits of e-cigarette smoking have been subjected to scrutiny. Juul, which currently accounts for more than 60 percent of the e-cigarette market in the US, is busy defending its belief that vaping is less addictive than cigarette smoking.

Aside from the health issue, though, governments are laying siege on Juul and other e-cigarette manufacturers with taxation legislation following the global trend to impose taxes on cigarettes and other tobacco products. The Philippines, where Juul had two months ago started operations, is no exception.

In response to an earlier column on e-cigarettes and vaping, Juul sent a copy of its comments on House Bill No. 1026 which was passed by the House of Representatives in late August with the intention of raising further the excise tax on electronic nicotine delivery systems (ENDS) and vaping products.

‘Hastily amended’

Juul decries the passage of the bill “after just over a week of deliberations” that was “hastily amended on the floor to include, amongst others, a provision mandating an increase in excise tax on ENDS/vapor products without the benefit of any committee hearing.”

Furthermore, Juul opines, the amendment “comes less than a month after Republic Act 11346 was signed into law on July 25, which imposes excise tax on ENDS for the first time.”

The bill has been forwarded to the Senate, and while there will be fresh deliberations that may or may not radically affect the wordings in the final bill to be forwarded to the President for signing into law, Juul is concerned that its views may not be given consideration.

According to the Juul paper, HB 1026 raises excise taxes on ENDS and vapor products by 200 percent, which is “onerous as it might just kill the category. As such, there is nothing to tax and no revenues collected.”

Harm reduction capacity

Seven points of contention on HB 1026 are laid out in Juul’s comments, with four of them dealing with taxation. The first states that the excise tax rate “should be proportional to harm posed by ENDS compared to combustible cigarettes.”

Specifically, Juul argues that many countries now recognize the harm reduction capacity of ENDS. It cites studies conducted by the UK’s Public Health England in 2014 and 2108, which concluded that e-cigarettes are 95 percent less harmful than smoking.

In the second issue raised by Juul, it contends that, “ENDS should be taxed lower than combustible cigarettes,” drawing support from a report released by the UK House of Commons Science and Technology Committee in August 2018 that, “The level of taxation on smoking-related products should directly correspond to the health risks that they present, to encourage less harmful consumption. Applying that logic, e-cigarettes should remain the least taxed, and conventional cigarettes the most, with heat-not-burn products falling between the two.”

Best practices

Juul contends that maintaining a zero-percent excise tax “indefinitely or for an initial period of time” would be in step with worldwide best practices, as what Canada now does to encourage smokers to switch from combustible cigarettes to ENDS, and supposedly, to lower healthcare cost.

The third issue raised by Juul argues that, “Imposing an exorbitant and abrupt tax increase could trigger unintended consequences.” Citing a 2018 National Bureau of Economic Research (NBER) working paper in the US, an e-cigarette tax increase reduces e-cigarette use and may increase traditional cigarette use.

Finally, Juul categorically opposes the move to impose an additional 20 percent tax based on the wholesale price or value of importation, net of excise tax and VAT for the electronic or mechanical device used by ENDS products.

It argues that an increase, on top of the 200 percent proposed hike on excise tax, is exorbitant and counter-productive, and the net effect would be “to increase the taxes on the ENDS above and beyond that of combustible cigarettes.”

At stake

The last-minute insertion calling for a much higher tax on ENDS/vapor products is understandable given the pressure on the Philippine government to find funds to cover the full implementation of the Universal Health Care Act. RA 11364 is expected to raise P140 billion until 2023 – and this is still not enough.

What the Juul position paper tells us is for our legislators, as well as the Department of Finance, to carefully study the impact of taxation on a product that could help wean smokers from using combustible cigarettes, the latter with proven ill-health consequences.

On the other hand, it is incumbent on the Department of Health (DOH) to give a definitive ruling on the real health cost of vaping among users, especially those who want to give up cigarette smoking, in light of other studies conducted in different countries.

DOH is tasked to undertake steps to protect the health of people. It is now faced with the query, “Does less harmful mean safe and risk free?”

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Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.