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After the Bell: The new tobacco legislation is a burning issue

After the Bell: The new tobacco legislation is a burning issue

I’m a little obsessed by taxes on cigarettes and tobacco, for a variety of different reasons, which I’ve written about several times before. Okay, big disclosure here: I do, in fact, smoke.

But honestly, that’s not the reason I’m so obsessed. I do, as I have mentioned before, broadly support Oscar Wilde’s philosophy on smoking, which was explained by Lady Bracknell in his play The Importance of Being Earnest. Interviewing her prospective son-in-law Jack Worthing, Lady Bracknell asked bluntly do you smoke?

“Jack: Well, yes, I must admit I smoke.

Lady Bracknell: I am glad to hear it. A man should always have an occupation of some kind. There are far too many idle men in London as it is.”

Times have moved on, of course, and smoking is now determined to be a health hazard; governments around the world are determined to stamp it out. At first blush, it seems unarguable that this is a positive legislative objective. And yet, there are limits to everything.

Without being overly libertarian about it, what are the parameters of legitimate government intervention in the private lives of citizens when no harm is caused to others? Generally speaking, the government does have responsibilities, including providing infrastructure, defending its citizens in war, sanitation, protecting and educating young people, and ensuring that innocent people are not negatively affected by the actions of others.

So in this sense, the government has a duty to restrict some individual liberties. But when does it go too far? When the government moves into our private space.

The thorny issue of new restrictions on smoking raises this issue. It seems trivial, but behind it lies an important principle. You could argue that the government does have a right to prevent you from harming yourself if the result is a higher health bill for society as a whole. But what about cheeseburgers? A third of South Africans are technically obese, yet there are no health warnings on cheese. But there are guidelines on sugar usage and calls for more.

The issue is pertinent in SA at the moment because the Tobacco Products and Electronic Delivery Systems Bill of 2022 has been presented for public comment, and I would like to endorse, for what it’s worth, Tax Justice SA (TJSA)’s comments on the issue. The bill imposes plain packaging requirements, display bans, and no-smoking zones outdoors, with jail terms starting at six months for smoking in the wrong place outdoors. It will make it illegal to simply hold a cigarette in your own car if there is someone else present.

Does this not present issues of effectiveness and policing (I mean, really? SAPS needs to enforce this over rape, robbery, and murder?) And all this while there is a global trend toward freer usage of drugs, the banning of which helped create a bloody and vicious underground of drug smugglers, just as banning the sale of alcohol did during the prohibition era in the US.  

TJSA founder, and general expert on crime in SA, Yusuf Abramjee calls the bill a “cheats charter”. He writes, “If the kingpins of the illicit cigarette trade were told to draft a plan to expand their deeply destructive empires, the tobacco control bill is what it would look like.”

The new tobacco bill will hand complete control of South Africa’s cigarette market to the criminal tobacco barons, he claims.

The reason he comes to this conclusion is that, as we smokers all remember, the sale of cigarettes was banned for a period during Covid, a ban that was later declared illegal. During that prohibition, almost every smoker was able to buy cigarettes and the only winners were the illicit networks that were able to charge sky-high prices.

As a result, says Abramjee, today nearly three out of every four cigarettes sold in South Africa are illicit. “If the bill becomes law, almost every cigarette sold will be illicit and many billions of rands more of desperately needed tax revenue will be lost”. (Because illicit cigarettes evade tax, they cost around 60% less, which tends to increase their market share). 

Government income declarations do suggest he is right. According to the Government’s Budget Review, in 2020, the government collected just under R14-billion in levies on tobacco products. This collapsed in 2021 to R7.5-billion following the Covid-era ban. Government then estimated it would bounce back to R13-billion in 2022. But guess what happened: it never did. Government collected just under R9-billion in 2022.

In 2024, the government is budgeting an income from tobacco products of R11.6-billion. In other words, four years later, the government is still expecting to collect much less than it did in 2020. By comparison, the government collected R15-billion in tax on beer in 2020, and collected just under R20-billion in tax on beer in 2022, and expects to collect R21.5-billion in 2024, i.e., a straight line up on the imaginary graph.

So either smoking has decreased by 15% or so between 2021 and 2024 (trust me, that is not what has happened) or the illicit industry is making an absolute bomb. This raises the uncomfortable question: is the government actually trying to boost the illicit industry? Would we be stretching the bounds of credibility to suggest money is being passed under the table here? Or is it just yet another example of grotesque legislative overreach?

Of course, both are possible, and my bet is that eventually, the truth will come tumbling out.

It is a burning issue.

Good investing,

Tim Cohen



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