The 18% excise duty increase on cigarettes displeases both anti-smoking lobbyists and the tobacco industry, reports Karen Harverson
Anti-smoking lobbyists are disappointed at the 18% increase in the excise tax on cigarettes announced in the Budget on Wednesday.
Total tax on cigarettes (including value-added tax) now comprises about 42% of the selling price compared to 37% last year and, in effect, pushes the retail price of cigarettes up by only 4%.
“This puny increase in tobacco tax cannot be justified in either fiscal or health terms,” says executive director Yussuf Saloojee of the National Council Against Smoking.
He says this will contribute a mere R220- million a year to the state’s coffers, whereas, “if the Minister of Finance had heeded our call to increase the excise tax by 100%, R1-billion would have gone to the state”.
Saloojee reports that the price of tobacco is the single largest factor determining short- term patterns of use “so when the price goes up, consumption falls and when price goes down, consumption rises”.
Over the past 25 years, excise duties on tobacco, after adjusting for inflation, have dwindled from more than R1-billion in the early 1970s to less than R750-million in the 1990s. Saloojee finds it strange that at a time when health care costs associated with smoking are rising, real government revenue from the tobacco industry is declining.
“In 1972, 70% of the price of a packet of cigarettes was excise tax — by 1990, that had declined to a mere 23% of the price,” says Saloojee.
But in the last three years, government has got tougher on the tobacco industry, raising excise taxes way above the inflation rate.
Despite these increases, however, South Africa still has one of the lowest tax rates in the world. South Africa’s total tax on cigarettes is 42% of the retail price (37% in 1995), against 60% in Japan, 74% in Brazil, and 76% in the United Kingdom.
Saloojee adds that the sharp decrease in excise taxes since 1970 has enabled manufacturers to reduce the real price of cigarettes. Cigarettes are 21% cheaper today than they were in 1970. “As a result, tobacco consumption has increased at an annual rate of 1,8%.”
So how much do South Africans smoke? Saloojee estimates about 35-billion cigarettes were consumed in 1994/95, a figure which has been in a slight decline for the past few years, owing to the downturn in the economy.
“There’s a close correlation between increase in income and increase in consumption.”
But it seems Finance Minister Chris Liebenberg has equally displeased the tobacco industry. Says United Tobacco Corporation corporate affairs manager Hilary Thomson: “We’re disappointed at the high increase in excise duty … it has gone up way in excess of inflation over the past three years.”
She adds that international experience indicates that as excise rates increase, so does smuggling. “In South Africa, this is exacerbated by a manpower shortage in the department of customs and excise, which prevents them from effectively policing borders and ports of entry.”
Executive chairman of R&R Tobacco Daan Prins concurs, adding that smuggling is already prevalent. “I’m also concerned that there appears to be no correlation between the increase and the inflation rate.”
Saloojee is dismissive of the tobacco industry’s fears about smuggling, adding “it should not be a barrier to healthy public policy”.
He states that controlling smuggling in South Africa should be even easier now, because of the distinctive health warnings which appear on local packaging.
R&R Tobacco (formerly Rembrandt) dominates the South African market, supplying more than 80%, while United Tobacco Corporation is the second biggest player. Imported cigarettes account for a mere 3%.
With the arrival of British company Imperial Tobacco Limited into South Africa, Saloojee reckons other companies may be looking to South Africa as a springboard into the rest of Africa.
Africa has the lowest rate of cigarette consumption worldwide and represents a huge growth market, but with high risk. Instead, international tobacco giants are targeting markets in China, Eastern Europe and South East Asia.