Citi analysts have identified the UK government's recent budget announcement of a new excise tax on vaping products as an encouraging development for British American Tobacco PLC (LSE:BATS) and Imperial Brands PLC (LSE:IMB).
The Chancellor, Jeremy Hunt, confirmed in his Spring Budget speech that from October 2026, vaping products would be subject to a new tax. This move is designed to maintain a financial incentive for choosing vaping over smoking, complemented by a concurrent increase in tobacco duty.
The taxation framework will be based on nicotine content, with a three-tiered system imposing charges ranging from £1-3 per 10ml, in addition to the current 20% VAT.
This structured approach aims to regulate the vaping market further and aligns with the government's health strategy by providing a less harmful alternative to traditional smoking.
Citi's short research note said: "Although [Wednesday's] confirmation of the planned levy on vaping comes as little surprise, we believe that alongside the proposed ban on disposable vapes from April 25, the regulatory risk/reward is skewing to the upside for both BATS and Imperial."