The new vaping tax in South Africa won't discourage young smokers.

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Governments impose excise taxes on goods like alcohol and tobacco around the globe to lower consumer demand. For the same reason, the South African government has imposed a tax on vaping supplies. There is a need to reduce demand because there is mounting proof that vaping goods are not harmless.

Vaping producers and lobby organizations are furious over the proposed tax on e-cigarettes. E-cigarettes, according to the vaping industry, are less dangerous than regular cigarettes. It also asserts that the tax won't stop young people from taking up vaping, that it would give rise to an illicit industry, and that individuals will resume smoking conventional cigarettes.

The business asserts in one piece that the excise tax will result in a retail price rise for e-cigarettes of more than 100%. According to another story, the retail price will rise by 217%.

This article examines price rise claims and the efficiency of the excise tax regime on vaping products using research from the Research Unit on the Economics of Excisable Products where we are headquartered. We do not examine the other assertions made by the sector because the government has previously addressed some of them.

We come to the conclusion that the vaping tax is faulty because it is not effectively targeted at lowering young vaping product consumption. When they first start vaping, young people are more likely to purchase disposable vapes since they pay less tax. The excise tax, as it is currently set up, does not sufficiently aim to curtail or stop juvenile usage of vaping products.

Young People and Addiction for Life

Disposable vapes, which are closed systems thrown away when the juice is used up, are getting more and more well-liked among young people. These young people are starting a potentially lifetime addiction to nicotine through vaping, not transitioning from cigarettes to e-cigarettes. The vaping industry asserts that it exclusively sells to those who are at least 18 years old, yet this isnt true.

Nine public and private schools in three provinces of South Africa were examined in 2022. 15% of the 5,583 high school students in grades 8 through 12 who responded to the poll reported using vaping products. The frequency is higher among students in grades 11 (17%) and 12 (27%).

Given that vaping products are marketed at young people, these high prevalence rates are not surprising. Vaping equipment comes in a variety of forms, tastes, and hues. One vaporizer available from the internet store Takealot is designed like an ice cream cone. South Africa is a major market for the disposable vapes known as Airspops, which are produced by the UK business Airscream. A 3ml AirsPops costs R95 (US$5) at the retail chain Pick n Pay; this price hasn't changed since at least August 2022 to June 2023.

The fact that the retail price for these goods has remained constant indicates that the industry has either absorbed the additional excise duty or that there is still old stock on the market. Additionally, AirsPops are offered for sale online (such as on Takealot, along with many other disposable vape brand names), by unauthorized vendors, and through the retail chain Spar. 

Both the market for closed disposable vapes and the market for open systems are experiencing increased competition. The user of a vaping device may add more liquid thanks to open systems. E-liquids are offered in a range of nicotine concentrations and sizes (usually between 20 and 100 ml). Even though nicotine is not supposed to be present in trace amounts in nicotine-free e-liquids, it occasionally is. The vaping market is experiencing growing competition has caused e-liquid prices to decline.

The National Treasury has set a 40% excise tax burden on cigarettes as its goal since 2004. This indicates that the excise duty should be set so that it represents 40% of the suggested retail price of cigarettes sold at a popular price. greater-priced cigarettes are subject to a lower tax incidence and lower-priced cigarettes to a greater tax incidence since the excise tax on cigarettes is established as a particular tax (in 2023/24, the rate is R20.80 per pack of 20 cigarettes).

The average excise tax incidence has climbed and is currently around 45% for popular-priced cigarettes as a result of the excise tax rises typically outpacing retail price increases in recent years. The overall tax incidence on cigarettes sold at retail is about 58% when VAT is taken into account.

Although the issue of equivalence with cigarette taxes is contentious, the existing tax on e-cigarettes consistently results in tax burdens that are lower than those associated with tobacco (with the exception of the 100ml e-liquid). (See table 1 in the original text). Disposables will be most negatively impacted by the new tax than e-liquids sold in large containers.

Users of 100 ml e-liquid bottles are more likely to be experienced vapers who use vaping as an alternative to smoking cigarettes. Large containers of e-liquid are not likely to be purchased by young people who are experimenting with or beginning to vape; instead, they are more likely to start with disposable vapes.

This is a concern since the excise tax is not effectively directed at lowering youth vaping product consumption. We advocated that the government should enact a minimum excise tax level to remedy this anomaly in our recommendations to the National Treasury and the Select Committee on Finance of Parliament. We recommended an R50 minimum tax per unit or container.

For e-liquid containers that hold more than 17.5 ml, such a minimal amount would not result in an increase in taxes, but it would have an effect on small-volume containers, particularly disposables [(See table 2 in the original article)]. On a 2ml Vuse disposable, the tax incidence would rise from 6% to 37%. If e-liquid is sold in amounts of 20 ml or greater, the tax incidence would be same.

We suggest that the National Treasury increase the excise tax on e-cigarettes by the inflation rate plus a pre-announced additional percentage each year, in addition to establishing a minimum excise charge on all vaping items. As a result, e-cigarettes will eventually become more expensive. Pre-announced tax changes are common in nations like Australia, where from 2013 to 2020, the excise tax on cigarettes was raised by 12.5% over the nominal growth in average salaries. Tax increases are easier to forecast when they are spread out across several years.

Fixing the Issues

The vaping industry has reacted predictably fiercely to the excise levy on vaping e-liquid. The business has given the impression that the tax rises will have a significant effect on the costs of all vaping goods by concentrating exclusively on large containers. But the market share of these huge containers is actually quite little. The majority of vaping goods will only see modest price hikes as a result of the new levy. The fact that the vaping products most frequently used by minors are subject to the least amount of taxation worries the public health sector.

An additional addiction crisis is not anything South Africa needs. The excise tax on vaping items will help to some extent by lowering consumer demand. Regrettably, there are the present tax system's shortcomings. We anticipate that National Treasury will take these issues up in upcoming budgets.