The law prohibits the sale of tobacco products via the Internet and in health and educational institutions. In addition, the law restricts the sale of tobacco vending machines to designated smoking areas. However, there are no restrictions on the sale of individual cigarettes or in small packets. The sale of tobacco products to persons under the age of 18 is prohibited. On 15 March 2020, South African President Cyril Ramaphosa declared a state of national disaster in response to the COVID-19 pandemic. Eight days later, he announced a nationwide lockdown effective March 27, 2020. On March 25, 2020, he announced a national lockdown. In March, 2 days before the lockdown began, the government declared that all tobacco and vaping products were considered non-essential and therefore banned the sale of these products during the lockdown.1 The government`s rationale for the ban stemmed from concerns about the risk of COVID-19 transmission from people sharing cigarettes/tobacco pipes and the assumption that smokers are more likely. develop serious illnesses when infected with COVID-19. This overwhelms the health sector.1 Sibeko says they have seen cuts to their factories and fear that more employers will lose their jobs if nothing is done to combat illegal manufacturers. Share of illicit cigarettes in the total market in South Africa according to data from the All Media and Products Survey (AMPS): 2002-2017. Dotted error bars indicate 99% CIs. Illegal cigarettes are easily identifiable by their price: any pack of 20 cigarettes sold for less than R20.01 in 2020 is suspicious.
Indeed, under the 2020 budget, cigarette manufacturers will have to pay an excise duty of R17.40 on a pack of 20 cigarettes, as well as the necessary VAT. Therefore, the minimum tax (MCR) is R20.01 per pack of 20 cigarettes. Table 4 shows the shares of the most used cigarette manufacturers before and during the sales ban. For this analysis, we weight each response with the reported number of cigarettes he/she smoked daily during each period. “A Sars project called Honey Badger was supposed to investigate the production of illicit tobacco sales, but it was not effective,” he said. Ipsos tobacco market research, commissioned by the now-defunct Tobacco Institute of Southern Africa (TISA), showed that RG cigarettes are now the best-selling brand in the country. In November 2018, the study found that the RG brand sold an average of R10 per pack, well below the MCR at R17.85. RG is manufactured by a tobacco manufacturer registered against SARS with a factory in Johannesburg. RG is manufactured by the Golden Leaf Tobacco Company, which manufactures illegal cigarettes and sells an average of R10 for a pack of 20 cigarettes, which is less than the minimum tax of R17.85 payable to Sars on each pack.
Illegal cigarette manufacturers produce and profit huge quantities of cigarettes, while paying SARS only a small portion of the tax owing. This under-reporting of volumes amounts to tax evasion and costs the South African tax authorities a conservative estimate of R8 billion each year. Ngulube says Ipsos found that illegal prices are “73% cheaper than the legal market reference price used by the Treasury to determine excise duties, and 44% cheaper than the minimum taxes due on each package”. UCT Research Unit on the Economics of Excisable Products (REEP) consumer studies conducted during the lockdown period found that consumption continued unabated during prohibition and that more than 90% of consumers were still smoking. The continued use of tobacco products was the result of illicit cigarettes, albeit at very inflated prices. The widespread availability of previously ultra-cheap local brands, often under MCTs, and an increased influx of non-compliant brands from neighboring markets have completely nullified the health goals of the ban, with illegal suppliers exploiting desperate consumers. The net effect has been that illicit trade has flourished and those with established supply chains have made windfall profits for five months without legal product competition. Background Increasing excise duties on cigarettes is widely regarded as the most effective measure to reduce demand for cigarettes.
The existence of illicit trade undermines the effectiveness of tax increases both as a public health measure and as a fiscal measure, as they introduce cheaper alternatives to legal cigarettes at full price. We limit ourselves to evaluating the effectiveness of the sales ban in limiting the sale of cigarettes and, where sales have continued, changes in the locked cigarette market. We are not assessing how the ban has affected the spread of COVID-19 or whether it has reduced the burden of tobacco on the public health system, as it is best left to health and public health professionals. Our estimates are subject to several limitations. First, the gap analysis methodology does not distinguish between tax avoidance and tax evasion and does not determine whether illegal cigarettes are counterfeit, contraband or illegally domestically produced. The GBA study13, previous investigative journalism51 and canton-based surveys52 indicate that illicit domestic production is the main cause of the gap between consumption and sales. Secondly, the CAP analysis does not take into account cigarette packages that then leave the country after paying excise duty, for example when people buy cigarettes in South Africa and consume them in neighbouring countries. However, we think this is a small problem in South Africa, as legal cigarettes are as expensive in most neighbouring countries as they are in South Africa. If taxed cigarettes left the country, the volume (and thus the share) of illicit trade would decrease, as taxed sales would increase, while survey-based consumption would remain unchanged. Third, self-reported survey estimates suffer from under-reported consumption.25–27 To address underreporting, we have included estimates of illicit trade, in which we increase consumption. Fourth, the comparison between cigarette consumption and legal sale is complicated by the presence of roll-your-own cigarettes, which may not be included in official statistics but are reported as cigarette consumption during the survey. Therefore, comparing survey-based consumption (including roll-your-own cigarettes) with tax-based sales would overestimate the extent of tax evasion or avoidance.18 As relatively few people in South Africa smoke cigarettes without rolls, this is unlikely to have a significant impact on our estimates.
The smoke intensity (i.e. the average number of cigarettes smoked per smoker per day) is shown in column 6. AMPS indicates a slight decrease in smoke intensity between 2003 and 2008, followed by a slight upward trend. According to AMPS data, smoking intensity averaged 8.9 cigarettes per day over the period 2002-2011, while in NIDS surveys (2008-2017) it averaged 8.3 cigarettes per day. Although AMPS reports higher consumption than NIDS, both surveys report similar trends (column 7). For example, between 2008 and 2010, AMPS reports a 7.8% decrease in consumption, while NIDS reports an 8.9% decrease. Taking the example of South Africa, we show the effects of a temporary sales ban on smoking behaviour and the cigarette market for a sample of smokers. In February 2020, the Minister of Finance announced: “In agreement with the Ministry of Health, we will start taxing heated tobacco products (HTP), for example bubbles.