By Timothy S. Donahue
Top Takeaways:
Tax overhaul: Israel proposes new levies on vape devices and nicotine pouches while cutting e-liquid taxes
Policy shift: Government moves away from liquid-based taxation toward a full product framework
Market aim: Officials say changes are designed to curb black market activity and improve compliance
Smokers and alternative nicotine users in Israel could soon face a reshaped tax landscape that shifts the burden from e-liquids to devices and emerging product categories.
A draft proposal published by the Israel Tax Authority would, for the first time, impose a purchase tax on vaping hardware and introduce a levy of roughly 350 shekels per kilogram on tobacco and nicotine pouches.
At the same time, the plan would sharply reduce the tax on vaping e-liquid to one shekel per milliliter—a significant drop from previous levels, officials say, that fueled illicit trade. The proposal is part of a broader restructuring effort, following recommendations from a government-appointed committee and a cabinet decision issued in December 2025.
Under the plan, vaping devices would be subject to a flat tax of about 10 shekels (US$3.35) per unit, while pouches—both tobacco and nicotine—would be taxed similarly to other smokeless formats.
Rather than treating e-cigarettes as liquid-driven products, the committee concluded that they should be regulated and taxed as a combined system—device and consumable together. “The liquid cannot be used without the device,” the committee noted in its findings, adding that the cost structure also supports that view, with device manufacturing representing a larger share of total product value.
That logic underpins the broader tax reset. Officials say the previous approach—taxing e-liquid heavily—created distortions in the market, encouraging cross-border purchases and a growing black market for untaxed products.
“A central goal of the reform is to eliminate the black market,” according to the proposal, which frames the lower liquid tax as a way to bring legal operators back into compliance while maintaining overall tax collection through device-based levies.
The plan also expands beyond vaping. As new nicotine formats continue to gain traction globally, Israeli regulators are working to bring them under a unified tax framework. The proposed 350-shekel-per-kilogram levy would apply to both tobacco and nicotine pouches, reflecting their growing market presence.
Alongside the tax overhaul, the government is advancing additional legislation that sets licensing, reporting, and enforcement requirements for smoking and nicotine products across the supply chain. That measure has already passed its first reading as part of Israel’s 2026 economic program.
The tax proposal itself is now open for public comment. Once Finance Minister Bezalel Smotrich signs the order, it can take effect quickly after approval by the Knesset Finance Committee, without requiring the full legislative process typically needed for new laws.
That streamlined pathway gives the measure a relatively short window for implementation.
While previous tax adjustments—such as changes to VAT thresholds—have faced pushback from business groups and lawmakers, widespread opposition to the vaping proposal is not expected at this time, according to media reports.
