Israel Struggles to Enforce Tax on E-Cigarettes Amid Legislative Deadlock

Israel introduced a tax on e-cigarettes five years ago, modeled on traditional tobacco product taxes, but enforcement has been largely ineffective. Despite the tax being set between 9 and 22 shekels per milliliter of vaping liquid, usage among adults and youth has increased, with about 20% of adults vaping and e-cigarettes being the most common first smoking experience among teenagers. The Ministry of Health warned that e-cigarettes pose a significant risk of creating a new generation of smokers.

Tax authorities found widespread tax evasion and a near-complete black market for e-cigarettes. A committee formed by the Tax Authority recommended lowering the tax on vaping liquid to one shekel per milliliter and introducing a 30-shekel tax on devices, aligning with OECD countries. They argued the high tax incentivized evasion and smuggling, noting no legal imports of vaping liquid since 2021 despite increased consumption. Annual tax revenue from e-cigarettes averaged only 1.4 million shekels, compared to about 7 billion shekels from traditional cigarette taxes.

The committee also suggested legislative measures to strengthen enforcement, including customs law changes, mandatory reporting along the supply chain, sanctions, removal of VAT exemptions in Eilat, and advertising restrictions. However, a related bill stalled in the Knesset Finance Committee, which was dissolved before passing it. Public health groups opposed reducing the tax on vaping liquids, urging the Finance Minister and Health Ministry director not to proceed without stronger enforcement laws.

The Finance Ministry proposed lowering the tax to increase compliance, but the Tax Authority refuses to submit an order to the Finance Minister to reduce the current tax or introduce new device taxes without comprehensive legislation. They emphasize the need to pass all measures together and plan to revisit the issue with the next Knesset. Meanwhile, lawmakers have called for part of the tax revenue to fund youth education campaigns.

The ongoing dispute leaves Israel’s e-cigarette market largely unregulated and untaxed, with billions in potential revenue lost and public health concerns unresolved.