Hike of ‘sin taxes’ could boost illicit trade in South Africa, tobacco executive warns

Written by
Hike of 'sin taxes'

Fears have been raised that a planned hike in so-called “sin taxes” on products such as tobacco and alcohol in South Africa could play into the hands of smugglers.

During his budget speech in South Africa’s Parliament last Wednesday, Finance Minister Malusi Gigaba announced that excise duty on alcohol and tobacco will increase by as much as 10% from April, in a move he hopes will raise an additional R1.3-billion ($111.5 million) for the country’s government.

Once the changes come into force, consumers can expect to pay an extra 8.5% in tax on a packet of cigarettes, and anything up to 10% on their alcoholic drink of choice.

Gigaba also added additional excise to “luxury goods” such as cars and mobile phones.

While some analysts suggested the price rise might be the nudge people need to give up unhealthy habits, others cautioned that such proportionality tax high increases in duty on alcohol and tobacco would only serve to fuel the black market.

Commenting on the proposed tax hikes, which are well above the current 4.4% inflation rate in South Africa, British American Tobacco South Africa (BATSA) executive Joe Heshu told Independent Online that a previous rise in sin taxes actually resulted in a decline in the amount of revenue collected by the Treasury.

“Drastically raising taxes on legally-produced cigarettes simply makes illicit products that evade tax even cheaper by comparison, and contributes to the growth of the illegal market”, he said.

“We expect the increase in tobacco excise tax announced by the minister to further stimulate the illicit trade in tobacco, which already results in a loss to the revenue of about R7 billion over the last four years.”

Earlier this month, BATSA revealed that nearly half (47%) of South Africa’s tobacco trade is controlled by illicit players, making it one of the largest markets for smuggled and counterfeit cigarettes in the world.

But while many critics observe that tobacco companies have a vested interest in keeping cigarette prices low and should not be trusted when they push evidence that suggests higher taxes boosts smuggling, evidence in some countries indicates that slapping higher duty on products such as alcohol and tobacco does drive consumers to the black market.

In November last year, the Nikkei Asian Review noted how a 40% rise in the tax paid on a pack of cigarettes had led to a massive increase in the availability of illegal imports.

Similarly, Border force officers in Australia, where the government wants to hike the price of a pack of cigarettes to A$40 (£31) a pack by 2020, seized record amounts of smuggled and counterfeit tobacco products last year.

Article Tags:
· · ·