As the tobacco industry wrestles with the challenges placed on their weary backs, as a result of the nationwide lockdown coupled with their newly found problem, the illegal tobacco trade— the sector yet again comes under the national spotlight, with anti-tobacco lobbyists calling for a 100% increase in tobacco tax—an increase which will surely see a considerable negative backlash on the already fragile sector.
Forming the #protectournext movement, health organisations are demanding a significant increase in the price of tobacco products, ensuring these products are not only less affordable, but through the increase, will reduce consumption, improve public health whilst lowering the already heavy burden on the health system thereby adding to state revenue—claimed the National Council Against Smoking (NCAS), CANSA, the South African Medical Research Council (SAMRC) and the Heart and Stroke Foundation SA.
In February of this year, the 2020 tobacco excise tax increased by 74c per pack of 20 cigarettes, lower than 2019, which saw an increase of R1.14 and 2018 noted a R1.22 increase.
Clarifying as to why there is a need for a mass-increase, Executive Director of NCAS, Savera Kalideen states, “These small tax increases below inflation actually end up making cigarettes more affordable over time. They are simply not enough to make people think twice about smoking and do not address the high-cost burden of tobacco.”
Additionally, Kalideen elaborates that during the last tax year, SA only collected R12.5 billion in tobacco tax. This, she says, is despite tobacco harm costing the state over R42-billion in healthcare costs and lost productivity. This figure is according to an estimate by a 2020 REEP study.
Adding to this, Dr Catherine Egbe, Specialist Scientist: Alcohol, Tobacco and Other Drug Research Unit of the SAMRC points out that over 55% of what people pay for tobacco works out to 41.4 % excise tax and 15% VAT which all go to tax.
This apparently still falls short of the World Health Organisation (WHO) Framework Convention on Tobacco Control recommendation of a minimum of 70% tax of the final consumer price.
Dr Edbe states, “It’s time for South Africa to step up to our FCTC commitments and truly implement what we signed up for – both in terms of passing the Tobacco Bill and increasing tax.”
The #protectournext organisations further take issue with the taxation of novel tobacco products and e-cigarettes.
As announced in the February budget speech, heated tobacco products are now taxed at a rate of 75% of the cigarette excise rate. E-cigarettes will be taxed from 2021, although details have not yet been confirmed.
Mthembu says the organisation believes heated tobacco products and e-cigarettes should be subject to the same excise taxes as cigarettes. This is because while e-cigarettes do not contain tobacco, they do contain addictive nicotine or other chemicals.
Trade union federation, Cosatu is currently supporting the movement’s proposal of a 100% tax increase on tobacco products. In fact, the union federations want the government to use the tax revenue to combat the illicit drug trade and improve healthcare.
Cosatu parliamentary organiser Matthew Parks emphasised that Cosatu supports measures which seek to reduce the excessive consumption of tobacco—Especially among young people and pregnant mothers who smoke.
The South Africa Tobacco Transformation Alliance (SATTA) has further condemned the call by COSATU for a 100% increase in the tax on tobacco products.
SATTA spokesperson Zachariah Motsumi says, “The tobacco products industry is already on its knees as a result of the COVID-19 lockdown, which resulted in the loss of billions of Rands in revenue for farmers, processors and the manufacturers of legal products.
Motsumi adds that a 100% increase in excises will kill the industry, once and for all along with the thousands of people who rely on it.
Furthermore, he says COSATU was “completely misinformed” in thinking that higher tobacco product prices will help to fight the illicit trade. He explains, “The opposite is true – putting up the price of legal cigarettes will encourage people to smoke illicit products. It is a ridiculous suggestion.”
Additionally, Motsumi said it was no secret that illicit tobacco products are cheaper to buy than legal products. This is primarily because the people who make them, do not pay tax. Increasing tax on legally sold tobacco products will do one thing, and one thing only: make it even more attractive to buy illicit products.
According to Motsumi, the proposal to increase the tobacco tax by 100%, would be the death toll for hundreds of farmers, many of which are emerging black farmers, not to mention those employed in the tobacco processing sector and in the manufacturing and sale of legal cigarettes and other tobacco products.
“Does COSATU really want to put thousands of people out of work, and force them to be social grant recipients? Over 290 000 people are dependent on the tobacco industry for their livelihood. Will COSATU look after them when they are out on the streets? We think not.”
Motsumi concludes, “There are two ways for the government to increase excise revenue from the sale of tobacco products: Option one is to act in such a way that encourages increased legal sales volumes, which will increase the amount of revenue. This means keeping the price of tobacco products at an affordable level.”
Option two is to increases the excise on tobacco products. This, in SATTA’s view, will decrease the number of legal tobacco products being sold and consequently reduce the amount of revenue generated. It will also open up more and more space for illicit traders.
Motsumi says, “We believe that option one – not to increase excise on cigarettes, to keep the prices at current levels – is by far the best option.
Furthermore, he says SATTA have also proposed that National Treasury adopts a new approach, which has had significant success in other parts of the world. It hinges on the establishment of a ‘minimum price level’ (MPL) for cigarettes.
He explains, “This approach would enable law enforcement agencies (and consumers) to recognise illegal cigarettes purely by how cheap they are – which is the most apparent sign that excise duties are not being paid. “
For example, if Treasury adopts an MPL price point of R28 for all retail sales of cigarettes, any cigarettes sold below this price would clearly not be ‘tax-compliant’ given the amount that needs to be paid in excise.
“As a result, law enforcement agencies can enforce immediately based on a strong legal foundation, and consumers would get certainty about the legality of their purchase.”
Motsumi said an MPL strategy would need to be supported by a deterrent criminal penalty regime, which includes hefty fines and jail time for traders who contravene the law.
This will allow law enforcement agencies to seize illicit cigarettes most efficiently and effectively, based on law, and is a much more effective approach than the one floated by COSATU.
Motsumi adds COSATU is gravely mistaken in thinking higher taxes will hit the illicit sector. It is the legal farmers, processors, manufacturers and retailers who will be hit, and they and their employees will be walloped.
Motsumi concludes, “Is this what COSATU wants? Do they really want to put thousands of people out of work, in addition to the two million who have already lost their jobs during the lockdown? What on earth are they smoking?”
The open reality here is quite simple. Yes, the organisations have strong points, but increasing tax will not stop people smoking. And to think this or suggest this is strange especially when considering we have the perfect case study to reference, the lockdown this year—whereby the sale of tobacco was made illegal yet due to people not willing to quit smoking, gave birth to an entirely new sector, the illicit tobacco trade.
This saw people paying anything from R750 per carton (R75 per pack of 20s) to R2 500 per carton (R250 per box of 20s)—confirming that pricing has virtually no effect on tobacco consumption. However, increasing the sale of illicit unregulated, untaxed tobacco products will have dire recourse on not only the economy but people who smoke.
What are your thoughts on the proposal the proposed tax increase? Share your views with us in the comment section below.
Authors: Quinton Boucher & Calvin Swemmer
Edited: Calvin Swemmer