In the Gulbahar Rus case, the Supreme Court of the Russian Federation will decide whether two excise duties are imposed on ESDNs imported into the Russian Federation before March 1, 2023. The customs authority believes that the liquid in the ECDN is also subject to excise duty, but the importers insist on paying only excise duty on the device.

Sergey Ivanov, senior tax consultant at Tax Compliance, suggested in a Kommersant article the likely outcome of the case and its importance for the industry.

The expert notes that the Supreme Court is likely to support the position of the customs authority. This may lead to serious consequences in the form of checking the tobacco industry for the payment of excise duty on liquids for ESDN within the last few years.

The fact is that the Supreme Court of the Russian Federation in the Determination on the referral of the case refers to the legal nature of excise duty, which is disclosed in the Decree of the Constitutional Court of the Russian Federation of 18.03.2018 № 592-0. It deserves attention, because, indeed, the non-taxation of excise duty on the liquid contained in ESDN leads to the fact that this liquid, in fact, enters the legal market, “ignoring” the law on taxing it with excise duty. It turns out that the main purpose of the excise tax is not achieved - to limit the entry and consumption of liquid into the market by reducing the profitability of its producer. Given the known policy on vapes, it will be logical if the Supreme Court of the Russian Federation will support the customs.

Recall that in 2024, the excise tax on nicotine liquids doubled from Br20 per 1 ml to Br42. From 2025 it is planned to increase to Br44, in 2026 - to Br46. 

The current situation is a two-edged stick: on the one hand, the state protects the health of the population, especially in view of the deepening research into the harm of nicotine liquids. On the other hand, the increase in excise duty leads to a significant decrease in the competitiveness of legal products, which means that the “gray” market is expanding.

The Tax Compliance team will continue to follow this dispute and its outcome.