Government’s spectacular cigarette ban fail: billions of rands lost – and hardly anyone quit smoking
Data from the latest National Income Dynamics Coronavirus Rapid Mobile Survey (NIDS-CRAM) estimates that 85% of smokers continued smoking during the South African government’s controversial lockdown ban on the sale of cigarettes.
The survey, published on Wednesday (17 February), shows that only 8% of South Africans quit smoking during the ban – and half of those who quit, indicated they started smoking again when the ban was lifted.
The weighted NIDS-CRAM data shows that there were approximately 6.7 million adult cigarette smokers (aged 18+) in South Africa before the start of the lockdown.
Of the survey respondents, 8% indicated that they quit during the sales ban period (~536,000 people), 85% indicated that they continued smoking and 7.5% refused to answer whether they continued smoking or quit.
About half the people who quit during lockdown (4% of the weighted sample or ~268,000) indicated that they started smoking again after the sales ban was lifted.
The survey also shows that people who continued smoking, or started smoking again after the ban, ended up smoking even more than before.
The average number of cigarettes smoked decreased from 7.9 in 2017 to 6.5 during the sales ban, but went up to 8.8 after the ban.
Higher prices
Tobacco companies and trade groups have long argued that the purported goals of the ban – to encourage people to quit smoking – would not have that outcome, and would instead push smokers to the illicit market, and lead to price gouging.
The NIDS-CRAM survey shows that this ended up being the case.
External price data, adjusted for inflation and expressed in constant November 2020 prices, showed that the average price of cigarettes increased by nearly 200% between 2017 and its highest point during the sales ban, with substantial geographical variation in those prices.
However, all players in the tobacco industry were not affected equally by the ban, with local companies able to increase their market share at the expense of multinationals.
The NIDS-CRAM survey asked respondents what brand of cigarettes they bought during and after the sales ban.
These results show that the market share of the multinationals decreased to 33% during the sales ban and increased to just more than 50% after the sales ban.
“The tobacco market was greatly disrupted by the tobacco sales ban during the lockdown. Continuing smokers were forced to buy cigarettes at greatly inflated prices, and many people were forced to switch brands,” the researchers said.
“The market structure changed dramatically during the sales ban period and, even though there has been a partial reversal of the market after the ban was lifted, the market shares are substantially different than before the sales ban.”
Billions lost
Tobacco sales were prohibited between 25 March and 17 August 2020 as part of the government’s response to the Covid-19 pandemic.
Cooperative Governance and Traditional Affairs (Cogta) minister Nkosazana Dlamini-Zuma argued that the ban eased the burden on hospitals and reduced the prospect of contagion from cigarette sharing.
In response, critics highlighted an explosion in black-market sales and a slump in tax revenue for the National Treasury.
During the time of the ban, conservative estimates are that between R4.5 billion and R6 billion was lost in excise taxes on tobacco products, while 300,000 jobs were put on the line. Research – which now included the NIDS-CRAM survey – shows that the impact on smoking habits was minimal.
Bernard Sacks, Tax Partner at Mazars, said that the long-term impact of the cigarette (and alcohol) bans on tax revenue in South Africa is almost incalculable.
“It is estimated the excise taxes that SARS could not collect as a result of the product bans were around R13 billion – but that is only part of the picture. This figure excludes any VAT losses, which – though difficult to calculate – are likely to amount to several billion rand.
“While excise taxes are only imposed when that product is manufactured and sold, stopping the sale of alcohol and cigarettes also halts all economic activity throughout the entire value chain,” he said.
For example, raw materials aren’t being sold, nothing is being spent on transport, and packaging isn’t being produced.
“In the end, the ripple effect of taking just a few products off the market results in an incredible amount of lost tax revenue, which adds up to many hundreds of millions of rand lost each month,” he said.
At the time of the tobacco ban, analysts pointed to R35 million in taxes being lost every day.
Government keeps pushing
While tobacco products have been available since August 2020, there are worries that another ban could be imposed at government’s whim.
In court filings related to the ban, Dlamini-Zuma specifically indicated that it still remains an option for government under the Disaster Management Act, and as part of the its response to the Covid-19 pandemic.
However, in August, Dlamini-Zuma agreed to hold a public participation process should she decide to reinstate a ban on tobacco sales, as part of a settlement of a separate lawsuit brought by fair trade body, FITA.
Government has continued to show support for the ban, challenging legal bids from tobacco companies and industry bodies to try and prevent such action in the future.
In the latest legal action, the Western Cape High Court is now set to rule on government’s leave to appeal a December 2020 judgement which found the lockdown ban on tobacco sales unconstitutional and invalid.
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