Why SA’s plan to tax e-cigarettes would be counterproductive

November 18, 2018

If you are familiar with the law of unintended consequences, you will understand that government decisions are not always perfect.

Based on this premise, we must think critically about everything the government does, especially when it presents policy proposals with supposed good intentions – such as the case of South Africa’s plan to tax e-cigarettes.

Last December, South Africa’s National Treasury published a discussion paper titled Taxation of Electronic Nicotine and Non-Nicotine Delivery Systems (ENDS). It didn’t come as a surprise, though, because long before then, the minister of finance had said in his February 2020 budget speech that the Treasury would turn its attention to the vaping market by introducing an excise duty on electronic vapour products.

In the publication, the Treasury admitted that the e-cigarettes market is in its infancy in South Africa and acknowledged it would grow. They estimated that the market generated about R2.54 billion in revenue in 2018 and experienced an average annual growth of 21.2 per cent between 2013 and 2018. Since their introduction to the South African market over a decade ago, e-cigarette sales have increased while cigarette sales have declined. For the record, that is absolutely a good thing.

Is this about revenue or helping smokers?

Growth in consumption

According to reports, the government is concerned about the growth in consumption of these products among the youth. Also, citing countries like Kenya and Latvia which have tightened restrictions on these products, the South African government thinks it should follow suit despite evidence that this idea will be counterproductive. Let’s begin with these simple questions. Why does the government want to tax devices that are scientifically proven to be less harmful alternatives to tobacco? How will this help smokers in South Africa who are trying to quit smoking? What will be the impact of this decision on public health? To answer these questions, we first have to understand excise taxes.

Excise taxes are one way that the government earns steady revenue. They are duties levied on goods at the point of manufacture. The rationale here is that product manufacturers are the ones who pay these excise taxes, but in reality, consumers are the ones who bear the resultant price hike and often get discouraged from buying the goods they consume. It is even worse for low-income earners, who end up finding cheaper and usually unsafe alternatives to indulge themselves.

Booming market

While the government’s intention is first to make money from this booming market, its claim that these taxes will discourage the consumption of e-cigarettes and reduce the number of smokers is flawed. A World Health Organization’s report from 2020 on electronic nicotine and non-nicotine delivery systems notes that “There is conclusive evidence that: Completely substituting electronic nicotine and non-nicotine delivery systems for combustible tobacco cigarettes reduces users’ exposure to numerous toxicants and carcinogens present in combustible tobacco cigarettes”. The Foundation for a Smoke-Free World reports that smokers in South Africa smoke approximately 27 billion cigarettes per year or an average of 3 771 cigarettes per smoker annually. Illegal tobacco products account for an estimated 25 per cent of the South African market. ENDS are an effective means to help transition South African smokers away from their harmful habits.

Impact

By introducing these taxes, the government is undermining the global tobacco harm-reduction effort, which is a public health strategy that focuses on lowering the health risks associated with using tobacco products. Tobacco harm-reduction is a proven strategy that assumes the journey to smoking cessation can be difficult for many smokers, and therefore encourages less harmful alternatives as a means to gradual and total cessation. An approach that encourages the use of safer alternatives like electronic nicotine and non-nicotine delivery systems has been proven successful in countries such as Sweden, Norway, Iceland, Japan, and Korea. When a government chooses not to consider human behaviour in policy decisions, it does not achieve its objectives and often causes even more problems. Unfortunately, the government’s decision to tax vaping products will have unintended consequences that will distort consumer and producer behaviour in unexpected ways.

In 2021, the Vapour Products Association of SA (VPASA) commissioned a study that looked into the economic impact of the taxes on the vaping industry and the economy at large. It found that the decision will directly affect over 350 000 South Africans who use vapour products. The report also revealed that the industry generated 3 800 jobs and paid R710 million in taxes in 2019 alone. It added that the sector indirectly supported 4 200 jobs, and contributed R1.09 billion to South Africa’s GDP. This decision will impact businesses directly or indirectly, and thousands of South Africans could lose their jobs.

Healthier alternatives

The economic impact of this tax policy will discourage smokers from choosing healthier alternatives because, if imposed, the tax would cause these products to be more expensive, thereby leaving smokers with no option but to continue smoking. In the long run, this will defeat their every effort to combat smoking, threaten the capacity of the health sector, and increase smoking-related deaths.

A better way to achieve a tobacco-free South Africa would be to allow South Africans access to healthier alternatives instead of making them more expensive by overtaxing them.

The views of the writer are not necessarily the views of the Daily Friend or the IR

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