Smoking: much higher taxes are needed

TOBACCO use imposes a significant health and economic burden on countries.

Research estimates that the cost of smoking in South Africa amounted to 0.97% of the country’s GDP in 2016. The costs are likely to have increased as a result of the observed rise in smoking prevalence over the past five years.

In 2021, South Africa conducted its first Global Adult Tobacco Survey.

According to the results, 25.8% of the South African population (11.1 million adults) smoke tobacco. This is significantly higher than the 19.9% estimated in the most recent wave of the National Income Dynamics Study that was conducted in 2017. Tobacco use is associated with myriad illnesses, including cancers.

Research has shown that one way to reduce tobacco use is consistent, year-on-year increases in tobacco excise taxes. The excise tax increases have to be sustained over time and adjusted annually, at the least. The tax increases should be well above the inflation rate to have a meaningful impact.

A major challenge to the strategy is the proliferation of the illicit tobacco trade in the country. Independent research suggests that illicit cigarette sales constituted a staggering 54% of the total market in 2021. Illicit cigarettes are relatively cheap because they bypass taxes. This makes cigarettes more affordable, which increases smoking rates.

The tobacco industry has worked tirelessly to convince policy makers that increases in the tobacco taxes cause increases in illicit trade. The argument is self-serving and has no credible research backing.

In fact, SA’s own tobacco taxation record shows that excise taxes can be increased aggressively, without exacerbating the illicit market.

Between 1994 and 2009, inflation-adjusted cigarette excise taxes in South Africa increased five-fold. This resulted in a near-tripling of real cigarette retail prices.

Peer-reviewed research examining trends in illicit trade in South Africa between 2002 and 2017 finds no evidence that the illicit market grew when cigarette excise taxes were growing rapidly in the 1990s and early 2000s. Instead, the research shows that the illicit cigarette trade only became a significant problem in South Africa from 2009 onwards.

Because it leads to lower tobacco prices, illicit trade directly increases tobacco consumption. It also undermines non-tax policies to reduce tobacco use. The Cabinet has recently approved the Tobacco Products and Electronic Delivery Systems Control Bill of 2018. Among other things, the bill seeks to introduce plain packaging and graphic health warnings for all tobacco and nicotine products. These policies have been proven effective in decreasing smoking initiation and encouraging quitting.

But their effectiveness will be significantly undermined if cheap, illicit cigarettes are widely available. Illicit trade concerns criminals and money. It can only be addressed through effective enforcement mechanisms which include, among other things, measures to secure the tobacco supply chain. The South African government has not ratified the Protocol to Eliminate Illicit Trade in Tobacco Products, despite multiple requests by civil society organisations to do so.

It is of the utmost importance that the government ratifies the Protocol to Eliminate Illicit Trade in Tobacco Products and implements its provisions.

The Treasury should implement a strategy in which it increases the tobacco excise tax by a pre-announced percentage (for example 10% above the inflation rate) on a multiyear basis.

In Australia and the Philippines, a multiyear tobacco taxation strategy reduces the affordability of tobacco products over time. This has improved public health outcomes, and raised government revenues.

It would also align South Africa’s tobacco taxation strategy with the recommendations of the World Health Organization Framework Convention on Tobacco Control, an international treaty that requires ratifying countries to implement policies to reduce the demand and supply of tobacco products. South Africa ratified the treaty in 2005. But is yet to implement the treaty’s recommendations on best-practice tobacco taxation policy.

Until it does, the government will continue to miss out on the opportunity to raise much-needed additional revenue, and save lives.