Government’s imposition of temporary bans on tobacco and alcohol sales was intended to curtail the consumption of tobacco and alcohol during the pandemic.

‘However, it is not clear that the sales ban has been in any way successful. It has starved the Treasury of much-needed tax revenues. In 2020, government revenues fell by more than 10% and the fiscal deficit more than doubled. With substantial revenues usually coming from the so-called sin taxes, the sales ban has proved a costly decision.’

Stellenbosch University’s Associate Professor Willem Boshoff, co-director of the Centre for Competition Law & Economics, adds that while the sale of legal, tax-paid tobacco came to a halt, many smokers purchased illicit, tax-evading alternatives on a large scale.

A UCT study found that more than nine out of 10 smokers continued to purchase cigarettes despite the sales ban.

Writing in Business Day, Boshoff says the consequence has been an increased ‘normalisation’ of tax-evading brands, even to higher-income consumers. Proponents of tobacco control have often downplayed illicit sales, and some are now using the apparent ‘success’ of the ban to argue for even higher taxes.

But, says Boshoff, the evidence emerging since the ban is a ‘painful’ reminder of the limits to policies aimed at forcing social change.

‘There is a trade-off between reducing consumption and not incentivising the large-scale switching to illegal purchases. In a country with an established illicit sector, pushing prices for legal goods too far from those of illicit goods merely provides an even greater incentive to consumers to find cheaper alternatives.’

Boshoff argues that policymakers must first attend to the illicit trade in tobacco and alcohol and consider the various alternatives to managing consumption of these goods.

‘Measures will be needed to recapture legal sales from the illicit trade, including better monitoring and auditing of manufacturers and importers. Only once illicit supply chains have been combated should the policy on excise duties be revisited.’

Boshoff says if this is not done, ‘tax hikes will merely harm legal industries further, damaging tax revenues and undermining the government’s ability to influence tobacco and alcohol consumption in future’.

Full analysis in Business Day