Finance Minister Tito Mboweni should announce a tax on e-cigarettes in Budget Speech
During his SONA speech the president painted a bleak picture of an economy in distress. Public finances are under severe pressure, youth unemployment is unacceptably high and continues to rise - and SOEs like SAA and Eskom continue to be a drain on the public purse.
In October 2019 the Minister of Finance spoke of tax deficits, with Treasury collecting R53 billion less than it had projected. In his much anticipated Budget Speech, Tito Mboweni is expected to outline measures to begin to turn this around.
In 2019, R717 billion was allocated to health care services, a figure that has increased each year since 1994. Whilst the prioritization of public health with the provision of treatment is to be applauded, the allocation for health will have to continue to increase if tobacco consumption continues along the current trajectory. Tobacco-related harm costs R59 billion per annum, and will increase as the numbers of smokers increases.
One of the most effective ways to reduce tobacco consumption is to increase the price of tobacco products through tax increases. They are a win for public health and for the public purse. Tax increases reduce use of harmful products, they reduce diseases related to these products and in this way, reduce the pressure on the health budget, whilst at the same time providing additional revenue to the fiscus. Treasury currently collects about R12 billion per annum from tobacco taxation which does not even cover one quarter of the cost of tobacco-related harm.
For over a decade now, electronic cigarettes, although widely available in South Africa, have been untaxed. In 2016 2,5% of the adult population in SA used e-cigarettes and this figure is expected have increased in the last few years. At today’s population this equates to about 1 million people using e-cigarettes.
E-cigarette taxation is necessary because e-cigarette use is harmful to health and increases the strain on the health care system and public purse. Their use is linked to severe health conditions including cardiovascular and respiratory diseases, chest pains, ulcers in the mouth, asthma, and a high risk of strokes.
In the USA, more than 2700 people, mainly under the age of 30, have been hospitalised, while 64 have died following e-cigarette use between 2018 and 2019. Responding to the dangers e-cigarettes pose to health and the burden placed on the health system, as well as the economic burden, countries like Ethiopia, Uganda and some states in the US, have banned them completely.
The World Health Organisation recommends that countries tax e-cigarettes to make them more expensive, particularly for youth, as this will reduce use. The World Bank recommends that countries impose a tax on the e-cigarette devices as well as on the e-liquids. They suggest that a specific tax per millilitre be applied to both the nicotine and non-nicotine e-cigarette liquids, because evidence shows that non-nicotine e-liquids also carry health harms. They also recommend an ad valorem tax which is a tax based on the value or price of the e-cigarette device.
Kenya is the only African country which taxes e-cigarettes, applying a specific tax on the entire e-cigarette device and on cartridges which hold the liquid and are sold separately. It charges 3156 kes per e-cigarette device, which is equivalent to over R400 per device and 2104 kes, equivalent to R295,86 on the cartridges which hold the e-cigarette liquid.
Taxing e-cigarettes will make them less affordable, thus reducing their use and providing additional revenue to cover the health and economic harms they cause.
Cigarette taxation is currently set at a low 40% which is far below the WHO recommendation of 75% of the retail price. There is still room for a significant increase which will reduce consumption and the health burden while also increasing revenue for government. We recommend that the tobacco tax be increased by 9% per annum until the tax is in line with the WHO recommendation. This will encourage the population into making healthier choices.
In 2019 tobacco tax was increased by R1.14 per pack of cigarettes, an amount which was too low to have any meaningful impact on smoking behaviour. The Treasury in its 2019 Budget review acknowledges that cigarette makers appear to have absorbed most of the tax increases rather than increasing prices of cigarettes. This again indicates that the tax increase was too low.
Four South Africans die hourly from tobacco-related diseases depriving families of an income. Tobacco is a major risk factor for non-communicable diseases like cancer and diabetes which are very costly to treat. Tobacco also exacerbates s HIV/AIDS and TB in smokers, epidemics which the country is struggling with. TB is the top recorded cause of death in South Africa, yet tobacco makes TB treatment less effective.
A high tax increase on all tobacco products, and the introduction of taxation on e-cigarettes will ensure that the users of the product and the tobacco industry pay more tax to cover the harm that the product they use or manufacture causes.
The illicit trade in tobacco is also a reality and the only way to reduce this trade is to ratify the Protocol on the Illicit Trade in Tobacco Products, and implement its recommendations. Tracking and tracing of tobacco products, as recommended in the Protocol, is easily integrated into tobacco manufacturing and has not been found to reduce tax revenue. Weak regulation and poor enforcement are the main drivers of the illicit tobacco trade and the lack of government action in this regard must be questioned.
Health taxes such as taxes on tobacco products, including on e-cigarettes, improve the health of the nation by making harmful products less affordable. They also provide much-needed revenue for the fiscus in both good times and in bad. In our current economic climate, the dual benefits of increased tobacco taxation should be even more welcome: more revenue and less health care costs.
* Savera Kalideen is Executive Director - National Council Against Smoking, Pamela Naidoo is Executive Director - Heart and Stroke Foundation, Catherine Egbe is Specialist Scientist - SA Medical Research Council and Lorraine Govender is Advocacy Manager - Cancer Association of South Africa.
** This article originally appeared in Independent Online - https://www.iol.co.za/news/opinion/finance-minister-tito-mboweni-should-announce-a-tax-on-e-cigarettes-in-budget-speech-43450385