Gustav Thiel
THE tobacco industry has been unanimous in its condemnation of the 52% increase in excise duty on cigarettes, saying it “is yet another punitive increase which discriminates against a third of the country’s adults”.
In his address to Parliament on Wednesday, Finance Minister Trevor Manuel said “substantial increases in the excise duties on tobacco are again proposed.
“The rate of duty on tobacco will increase by 52%, bringing the tax, including VAT, to 50% of the average retail price. Smokers will have to pay an extra 27 cents per 10 cigarettes. Pipe tobacco will cost an extra R2,49 per kilogram,” Manuel announced.
The industry watchdog, the Tobacco Institute of Southern Africa has labelled the increase as “unfair and incredible”.
“For the fourth year running the tax increase on smokers is outrageous. In 1994 the increase was 25%, again 25% in 1995, and 18% in 1996, every time double or three times the inflation rate. Now, it is an incredible five times inflation,” said the institute.
Industry insiders have been warning since 1994 that the annual tax hikes could lead to a marked increase in smuggling and related crime. “Smuggling of illegal cigarettes, which was triggered by the 1994 and subsequent tax hikes, is now widespread, with contraband cigarettes available in all parts of the country.
“The effects of yet another tax increase on tobacco farming, on employment on farms and on employment of workers in the processing industry have been pointed out to the government. Perhaps the government should come and face the workers, who know that such excessive taxes will deprive them of their livelihood in favour of tax-free smuggled cigarettes from elsewhere,” the institute said.
A researcher at the institute, Joh Groenewald, told the Mail & Guardian that the government had the “clear example of Canada where it was realised in 1994 that unrealistic increases in cigarette taxes had more negative than positive effects.
“When the Canadian government slashed their taxes, people reverted to smoking legal cigarettes, which put a stop to large-scale smuggling.”
He added that it was important to bear in mind that smokers will not be convinced to relinquish their habit when cigarette prices increase.
“Our research shows that the amount of smokers and cigarettes smoked stayed constant in spite of the increased taxes … In Mpumalanga cigarettes are going for 99 cents per packet which people will buy.
“If this trend is sustained, it could spell disaster for the industry,” said Groenewald.