Sin tax on vaping products will trigger black market

A new sin tax on vaping products could have the perverse effect of driving vapers to illicit products, in much the same way the government’s ill-conceived ban on cigarettes in 2020 allowed the black market for tobacco products to explode.

This tax is going to wipe out a lot of small vaping businesses, and there is already evidence that it is promoting a black market for vaping products,” says Kurt Yeo, founder of consumer advocacy group Vaping Saved My Life (VSML).

“This is the first instance I am aware of where we have a tax being imposed on a product that isn’t even legally recognised.”

That’s because the sin tax on vaping products comes into effect from 1 June 2023, even before the Tobacco Products and Electronic Delivery Systems Control Bill – which regulates vaping products – has been passed into law.

Yeo says government has made the fatal error of lumping vaping products into the same basket as cigarettes and other forms of tobacco.

“Many people like myself took up vaping as a way of kick the smoking habit,” he says.

ALSO READ: Illicit trade: SA economy loses R100 billion annually

Motivation to quit smoking

Ironically, sin taxes on tobacco are touted as an effort to discourage smoking, yet the stats show exactly the opposite is happening. The Global Adult Tobacco Survey undertaken by the SA Medical Research Council in 2021 shows 25.8% of South Africans were smokers, up from 16.2% in 2012.

“By my estimations, it costs about R17 per day for a vaping device and e-liquid, whereas a box of cigarettes typically fetches around R50,” Yeo says.

Few people seem to realise this, possibly due to the misconception that vaping products are expensive.

“While government’s aim with the so-called sin tax is to get smokers to either quit or cut down, it has been proven to drive those who are unable to afford legal cigarettes to purchase illegal cigarettes that are much, much lower in price.”

Black market trade thrives

Tax Justice SA estimates the black market in cigarettes robs the state of more than R20 billion a year in lost revenue. The illicit market in cigarettes blossomed as a result of the five-month ban on tobacco sales in 2020, ostensibly to fight Covid.

In 2022, British American Tobacco estimated the illicit cigarette trade at 70% of the market, though other estimates put it at 54% in 2021 – still multiples higher than the 5% estimate of 2009, according to Nicole Vellios, researcher at the University of Cape Town.

ALSO READ: Sars seizes cigarettes worth R9M at Beitbridge border

Sars is showing its teeth

Yeo argues that a similar fate awaits vaping products, as the South African Revenue Service (Sars) stands to potentially lose out on billions of rands in revenue by over-taxing a product that is less harmful than tobacco smoking.

“Vaping is not entirely harmless, but it does eliminate thousands of toxic chemicals found in tobacco smoke, which is the cause of almost all the deaths and disease that occur due to smoking,” Yeo says.

“This is because vaping does not produce smoke. Rather, vaping devices heat a liquid into an aerosol and, while there are some potentially harmful toxins present, this is at much lower levels than in cigarette smoke.”

ALSO READ: Three suspects nabbed after police seize over R7.8m worth of illicit cigarettes

Illicit cigarettes are affordable

Various studies show the average pack of 20 cigarettes selling for about R24.70, which is roughly equivalent to the excise tax payable to Sars.

Most packs sold are illicit cigarettes on which no excise is being paid, and that has kept the cost of smoking affordable for millions of South Africans.

The new sin tax on vaping products comes into force on 1 June, more than doubling the retail price on many vape e-liquids, regardless of the nicotine content.

The tax is being levied at R348 per 120ml bottle, equivalent to R2.90/ml.

ALSO READ: Treasury to meet with a view on mapping out vape tax

International model

South Africa is being urged to emulate the Swedish model of tobacco harm reduction.

“Sweden’s success story should be celebrated as a public health revolution,” said Delon Human, secretary-general of the Africa Harm Reduction Alliance.

Sweden is expected to drop below a 5% tobacco smokers prevalence rate in the next few months – a level considered officially smoke-free. Fifteen years ago, Sweden’s smoking rate was 150% higher than today. It now has the lowest percentage of tobacco-related diseases in the EU and a 41% lower incidence of cancer than other European countries.

Sweden’s success was due largely to the adoption of harm minimisation strategies such as the use of vapes and nicotine pouches.

This same strategy could help save the lives of 3.5 million Europeans in the next decade, Human recently told a health summit in Johannesburg.

No other member of the EU is close to matching Sweden’s achievement and none is even on track to do so by the EU’s target of 2040.

ALSO READ: Vaping industry calls on Treasury to stop e-cigarettes tax

Smokers rising

South Africa has a smoking rate about five times higher than Sweden’s, and the illicit trade appears to be a large part of the reason for the increase in the number of smokers over the last decade.

“There are 900 000 vapers in SA, and many of them will find alternative sources of vaping products so that they are not priced out of the market by this new tax,” says Yeo.

“This new sin tax will, I believe, turn out to be counterproductive and there is a risk that many vapers will be forced back to smoking tobacco.”

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.