In its budget statement, the federal government announced that it would introduce a special excise levy on vaping products in 2022. At the present time no such levy is imposed, even though several provincial governments have introduced levies on each millilitre sold (e.g. Nova Scotia) or special sales taxes (e.g. British Columbia).
Tobacco and nicotine are viewed by society as sin goods. We lump them loosely with alcohol, cannabis, gambling and so forth. We call them sin goods because they can cause damage to our health if consumed to excess and sometimes if consumed just in small amounts.
Vaping products form the largest component of what we now call alternative nicotine delivery systems (AND systems). Other AND systems come in the form of tobacco- and nicotine-based wet snuff (small pouches that deliver nicotine when the pouch is placed in the mouth) and heated tobacco products (HTP). An HTP is a small tobacco “stick” that is heated rather than burned when placed in a special battery-driven device. Both delivery systems are already subject to a federal excise levy. So, it is natural that we get around to taxing vaping liquid.
In a recent paper published by the C.D. Howe Institute, I argue the federal government should address the issue of AND taxation in a comprehensive manner and be guided in particular by the health risks associated with each product in the AND category.
Most Canadians are unaware of exactly what it is in tobacco that is responsible for the lion’s share of our health problems. Cigarettes contain nicotine, which induces dependence for most of its users. But it is combustion that is the real demon. Nicotine keeps the smoker coming back for more, but the smoke is the hazard because of the carcinogens and countless toxins it contains.
Technological developments in nicotine delivery mean nicotine can be almost separated from the toxins – but not completely. The new products are not risk-free and most of them have not been around long enough for us to observe how, for example, the health of life-long vapers will evolve. In the absence of that information, the best we can do is to analyze what the vaper inhales and exhales. Public Health England and the Royal College of Physicians estimate electronic cigarettes contain, at most, 5 per cent of the toxins contained in a combustible cigarette.
Broadly similar toxicological findings characterize heat not burn products (HNB) and modern snuff pouches.
So how should public policy, and tax policy in particular, reflect this? To answer, we must ask what we are trying to achieve with a specific excise levy or sales tax on e-liquid. At the very least, the levy should be informed by the relative health risks associated with vaping relative to smoking. This implies a lower relative rate of taxation, one that might induce nicotine-dependent smokers to move away from highly taxed cigarettes.
The same principle should apply to HNB and snuff products. These products are currently subject to excise levies that are in the same ballpark as cigarettes. These punitive rates not only disincentivize smokers from moving away from their traditional habit, they also disincentivize suppliers from investing heavily in switching their product line away from combustibles. Taxation policy must recognize tobacco corporations get revenue from highly toxic products (combustible cigarettes) and lower-risk products. If lower-risk products are taxed at the same rate as combustibles, the incentives for suppliers diminish.
Recent Statistics Canada surveys indicate just a small fraction of the population realizes the health risks of e-cigarettes are small relative to combustible cigarettes. There are huge gains to be reaped, in terms of lower morbidity and mortality, from switching not-yet-informed smokers to lower-risk products. Various estimates put annual smoking-related lives lost at about 40,000 individuals. A lower cost of satisfying a nicotine desire, combined with information on reduced toxicity could incentivize smokers to switch to a lower-risk product.
The vaping proposal in the budget is itself subject to significant inequities in that it proposes to tax products that deliver the same amount of nicotine differently. It will need to be revised if these inequities are to be avoided.
But lower AND taxes are just part of the answer to reducing smoking rates. Vaping has grown among youth, and our preoccupation with this during the past couple of years has diverted our attention from the vast health gains to be had from encouraging smokers to switch.
The biggest obstacle to using AND systems productively is youth are experimenting with them at high rates. Almost-daily vaping rates for high-school students are in the range of 6 per cent or 7 per cent. Estimates vary by survey and a higher fraction vape on an occasional basis.
If there is good news in these statistics it is that daily smoking rates among the same students are now down around 2 per cent. In contrast, the parents of today’s teens had daily smoking rates close to 25 per cent in the nineties. Toxins consumed by daily smoking parents consumed through combustible cigarettes in the nineties are certainly 50 times greater than what is being consumed by daily vapers today.
Finally, it is important that the federal and provincial governments approach policy in a similar manner. Tobacco taxation is a shared jurisdiction. A risk-based approach to taxation at one level of government will bring health benefits only if the government, or governments, at the other level co-operate.
To conclude, the taxation of AND systems should reflect risk and we need to maintain a major gap in the retail price of e-cigarettes, HNB products, snuff products on the one hand and combustibles on the other. Heavily dependent smokers should also become the object of a concerted “quit or switch” campaign. At the same time, we should rigorously implement access controls to nicotine on an age basis at all points of sale.
Ian Irvine is a professor at Concordia University and research fellow at C.D. Howe Institute.