The National Treasury has published a discussion paper outlining a proposal on the taxation of electronic nicotine and non-nicotine delivery systems (ENDS).
This follows signals from the government in its previous two budget speeches that it plans to start taxing these two products.
“ENDS are part of new generation products that have been introduced in the market either as harm reduction or reduced-risk products compared to traditional tobacco products,” the National Treasury said.
“These products are battery-powered devices that vaporise liquid solutions that may contain nicotine, as well as varying compositions of flavourings, propylene glycol, vegetable glycerin, and other ingredients, to create an aerosol which the user inhales.”
Treasury said that while the market for ENDS is still at its infancy in many developing countries like South Africa, it is expected to grow. In other markets, the growth in the consumption of these products has been observed among the youth and has raised concerns on its impact on youth initiation of smoking and tobacco use, it said.
It added that there are concerns regarding their potential to undermine global tobacco control efforts, and public health in general.
“Unlike conventional tobacco products, these products are mostly unregulated in South Africa, hence the Department of Health has also started a process of amending the current tobacco control legislation to include these products in the regulatory framework.
“Similarly, other governments around the world have started a process of regulating the consumption and use of ENDS through tax and non-tax measures.”
While the proposal document is open for comment until 25 January 2022, Treasury has indicated that a tax could be introduced on both the device and the oil used within it. This would allow for products with a higher nicotine concentration to carry a higher tax – in line with other high nicotine products such as cigarettes.
A study commissioned by the Vapour Products Association of SA (VPASA) in 2021 looked into the economic impact the industry has locally, including its contribution to GDP and employment.
NKC African Economics’ Cobus de Hart who led the study, said his team used data on procurement, tax, human resources and finances from a survey of vapour industry participants in South Africa.
“The vapour products industry supports GDP and jobs throughout its supply chain. Its total gross value-added contribution to GDP is R2.49 billion, with R710 million in tax payments made in 2019.”
Key findings of the Economic Impact of the Vaping Industry in South Africa report include:
Direct economic impact:
- More than 350,000 South Africans use vapour products;
- Vapour product sales in 2019 amounted to R1.25 billion;
- The industry generated 3,800 jobs;
- R280 million was paid in taxes;
- Gross value-added contribution from the vapour industry amounted to R930 million.
Indirect economic impact:
- R290 million in local procurement;
- 40% and 31% spent with financial and business services and manufacturing, respectively;
- Supported 4,200 jobs;
- Indirectly contributed R1.09 billion to SA’s GDP.
Vaping products are currently not regulated in South Africa. Specifically, e-cigarettes are not covered by the Tobacco Products Control Act or the Medicines Act. The government has proposed the Control of Tobacco Products and Electronic Nicotine Delivery Systems Bill in which it hopes to regulate vapour products in a similar way as cigarettes.
The bill was introduced for public comment in 2018, but is currently still in a draft form. It stills need to undergo a full parliamentary process before being introduced.
The bill is expected to further regulate the use, marketing and sales of e-cigarettes or vapes in South Africa, with these products currently operating in a legislative vacuum.
Plans are also in place to introduce further restrictions on the smoking of cigarettes in public places.
You can read the full proposal document below and details on commenting below.