Its Annual Budget time – Tobacco, Tax and the Black Market

February 24, 2015 — Leave a comment

Cigarettes+XXX+smokingThe nation awaits the 2015 Budget Speech with trepidation to know if income taxes will rise. But there is unanimous certainty there will, as per usual, be an increase in ‘Specific Excise Duties’. The only question is by how much? Taxation of cigarettes and tobacco products appears to be the path of least resistance for tax-collectors. It receives little backlash from the wider public (unlike e-tolls) and even support in some quarters.

The imposition of the so-called “sin taxes” on cigarettes and liquor products, in addition to generating significant fiscal revenues, does serve an economic purpose. Unlike normal goods and “necessity” products, cigarettes are not an essential good which people need to survive. As far back as the 1700s, Adam Smith averred “Sugar, rum, and tobacco, are commodities which are nowhere necessaries of life … are therefore extremely proper subjects of taxation.” Again, the notion of the importance of tobacco to the fiscal basket is exemplified in utmost simplicity and honesty – if a politician, or an emperor in this case can be believed –

This vice brings in one hundred million francs in taxes every year. I will certainly forbid it at once – as soon as you can name a virtue that brings in as much revenue [Napoleon III (1800s) – reply when asked to ban smoking]

Despite all the furore over public health and governments efforts to decrease the demand for cigarettes, South Africa is no different to other nations – annual tobacco revenues to the state coffers amounts to around R10 Billion! Another round of sin tax increases in the upcoming budget appears inevitable, and these increases are spawning a range of unintended (but not unexpected) consequences – the illicit trade. Source: Polity.org / DNA Economics.

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