Tobacco tax increase: The three major arguments against a price hike

The mid-term Budget Speech could hit South Africa like a ton of bricks when it lands at the end of the month. Tito Mboweni is in charge of, somehow, balancing the decimated books of Mzansi following the coronavirus pandemic. As we reported last week, a tobacco tax increase is being championed by some interest groups, in order to increase revenue for the state.

Chair of FITA: ‘It will end in tears…’

As one can safely assume, these proposals have not been met with widespread cheer. Sinenhlanlha Mnguni, Chairman of the Fair-Trade Independent Tobacco Association (FITA), has previously told us that jacking up the tobacco tax would give cigarette smugglers the mandate to step-up operations in South Africa. He remained equally unimpressed on Thursday:

It will end in tears… https://t.co/V99QmYhZNV

— Sinenhlanhla Mnguni (@SinenMnguni) October 22, 2020

The arguments against a tobacco tax increase

The National Council Against Smoking (NCAS) is adamant that smokers are well-placed to absorb much-needed hikes. But that’s not how Tax Justice South Africa (TJSA) see things. They’ve made their arguments against a tobacco tax increase public, imploring Minister Mboweni to steer clear of ‘playing into the hands of criminals’:

• TJSA claims that raising the tobacco tax ‘will only boost criminal enterprises’, as they benefit from selling their items tax-free.
• They believe any increase has the potential to make cheaper cigarettes on the illicit market ‘more attractive for consumers’.
• It’s stated that lockdown served as a ‘dry run’ for illegal tobacco vendors, who are now ‘well-positioned’ to benefit from tax increases.

“If the lockdown tobacco ban proved anything, it is that criminals are very happy and able to sell cigarettes in the illegal market without paying any taxes at all. An excise increase will only make their illicit products more attractive.”

Criminals who made billions illegally selling cigarettes during the lockdown ban will be delighted by talk of another government intervention that would gift them even more customers. The Treasury should focus on ensuring that due taxes are paid legitimately.”

Tax Justice SA statement on a potential tobacco tax increase