BACKGROUND-AIM:
Since 2021, Israel’s Ministry of Finance has imposed several tax ordinances on disposable e-cigarettes, pods and e-liquids, aiming to align their tax burden with that of other tobacco and nicotine products, such as packaged cigarettes, RYO, and HTPs. Despite these measures, tax revenues from electronic cigarettes in 2023–2024 remained low, raising a question about whether this is due to low import volumes or strategic tax planning by importers—such as importing components and assembling finished products locally to avoid taxes. To help answer this question, the current study estimated the size of the market for electronic cigarettes. It assesses the potential tax revenue if all market sales were taxed, assuming legal loopholes enabling tax avoidance were closed.

METHODS:
Data were sourced from the Israel Central Bureau of Statistics (CBS) and Smoke-Free Israel (SFI) continuous research of the years 2022-2024, as follows: population size (CBS); tax rates on HTPs (monopolised by Philip Morris), disposable e-cigarettes, and e-liquid (CBS); usage rates of HTPs, disposable, and refillable e-cigarettes (SFI); value of assembled e-cigarette devices imported to Israel (CBS); and estimated price per disposable e-cigarette and e-liquids (SFI). It was assumed that 100% of HTPs sold in Israel are fully taxed at the excise tax rate.

RESULTS:
The calculation proceeded in two phases. First, the proportions of the HTP (1.07%, 95% CI: [0.68%, 1.46%]) and e-cigarette (7.59%, 95% CI: [6.59%, 8.59%]) markets were calculated based on the prevalence of use in 2024. According to these figures, there are 711% more e-cigarette users than HTP users. Given a similar tax burden (approximately 64% excluding VAT), expected tax revenue from e-cigarettes should mirror usage ratios. HTP’s tax revenue was estimated at 84 million ILS in 2024. Based on the gap in prevalence between these two types, the anticipated revenue from e-cigarettes is 683 million ILS per year (84.17 million ILS × (7.11 + 1) = 682.65 million ILS). In the second phase, the total e-cigarette market, including VAT, was estimated at 1.07 billion ILS per year (682.65/64 × 100 = 1,066.64 million ILS). In practice, tax collected from e-cigarettes in 2024 was negligible, indicating that the entire market—valued at 1.07 billion ILS—operates as a shadow market.

CONCLUSIONS:
By comparing usage prevalence and actual tax paid between two tobacco and nicotine product types—one with near-complete tax compliance and one with significant avoidance—it is possible to estimate the size of the market that avoids tax payment. This calculation informed the Ministry of Finance about potential tax income from the e-cigarette market and highlights the scale of tax avoidance by the tobacco and nicotine industry.