Almost all smokers in South Africa are still lighting up despite ban, research shows
Almost all (93%) of South Africa’s estimated 11 million smokers are still able to do so, data from the Research Unit on the Economics of Excisable Products (REEP) at the University of Cape Town shows.
This is despite a nationwide ban on the sale of tobacco products since 27 March 2020 – pointing to millions of illegal transactions taking place across the country every day.
According to court submissions made by government in its battle against fair trade group, FITA – in the latter’s bid to get the ban reversed – the prohibition on tobacco sales was put in place to stop South Africans from smoking, for health reasons tied to the Covid-19 pandemic.
Additional commentary from Cooperative Governance and Traditional Affairs minister Nkosazana Dlamini-Zuma on the matter, said that the ban would also encourage smokers to kick the habit.
The latest research from the REEP shows this has not been the case.
However, where the ban has been successful, according to British American Tobacco SA (BATSA), is in handing over the tobacco trade and markets to illicit traders and criminal enterprises, while losing government billions in tax revenue.
“The market has been completely taken over by illicit cigarette suppliers at the expense of law-abiding and tax compliant manufacturers, like BATSA – and the fiscus continues to lose R35 million in taxes every single day,” it said.
“After 118 days of lockdown, the ban on tobacco products sales has now cost over R4 billion in excise taxes alone and substantial job losses.”
The REEP findings also pointed to additional problems caused by the ban, namely a 430% increase in the number of people sharing cigarettes, and potentially exposing themselves to Covid-19, because prices of the illicit products have spiked by an average 250%.
The REEP researchers said that after the ban is lifted, legitimate sellers – and multinationals in particular – could enter into a price war in a bid to claw back lost market share, which will have the net result of making smoking more appealing and more affordable than before.
“We predict that, once the sales ban is lifted, there will be a price war, in which the multinationals will aim to get some of their market share back and the non-multinational companies will aim to hold on to their markets.”
“The resulting price decrease will be detrimental to public health,” the researchers said.
Post-ban could be just as bad for producers
The REEP study suggested that the prohibition could be replaced with excise duty increases as a way to keep the business open and producing, while also accomplishing the goals of trying to cut back on smoking.
However, BATSA warned that this isn’t much better than the ban.
“Replacing the prohibition with excise increases would compound the devastating damage of the last four months. A post-ban hike in excise tax will ‘permanently’ hand the majority of the cigarette market to criminals who do not contribute to this country’s fiscus,” it said.
At the moment, the tobacco market in South Africa is being run and dominated by illicit suppliers who are breaking the law and making billions of rand in illicit profits, the group said.
“These illicit suppliers are not suddenly going to become compliant and start obeying the law and paying taxes when the ban is eventually lifted. They evaded taxes prior to the lockdown, they’ve made billions tax-free during the ban and they will evade taxes after the ban,” it said.
“A dramatic increase in excise taxes, as suggested by the UCT report’s authors as a substitute for the prohibition on sales, would be second only to the ban itself as an absolute gift to the criminal suppliers.
“It would prevent the legal and tax-compliant industry from taking some of the market back from the illegal suppliers and make South Africa the largest illicit tobacco market in the world.”
Read: South Africa’s cigarette ban could backfire spectacularly: research