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Budget 2022: A small nod to harm reduction as Treasury widens tax net

The introduction in South Africa of a tax on heated tobacco products such as e-cigarettes – at 25% less than combustible cigarettes – gives a small nod to tobacco harm reduction but is really aimed at reducing overall nicotine consumption, writes Chris Bateman for MedicalBrief.

Interviewed a week after this year’s budget, SA Treasury Chief Director for Economic Tax Analysis Chris Axelson told MedicalBrief : “We do recognise that if there’s a lesser harm, then the tax should be lower, but this has been called into question by some organisations and international institutions. The World Health Organisation has given some very good guidance, as have some other countries.

“Policy is a very difficult thing – we’re trying to work out the best approach and have consulted widely. The legislation should help sort things out. A flat tax rate on electronic nicotine delivery systems (ENDS), based on the amount of liquid they contain, has been agreed in principle,” Axelson said.

Dr Kgosi Letlape, president of the African Harm Reduction Alliance, welcomed the lesser taxation of harm reduction nicotine products but said the taxation difference should be far greater to enable lower income users – by far the majority of smokers – to switch from cigarettes to less harmful products.

Axelson said that the specific tax on heated tobacco products such as e-cigarettes would be regardless of whether the ENDS contained nicotine or a non-nicotine liquid. While having a nicotine content base line was an attractive policy idea, “it just gets incredibly complicated to enforce”.

Axelson explained that his team reviewed the global research on harm reduction via ENDS such as e-cigarettes – devices that heat an alcohol-based liquid to make it turn into a vapour – and heated tobacco products or HTPs, devices that claim to heat-not-burn tobacco to release nicotine vapour that is much less harmful than the smoke from combustible cigarettes.

The team produced a taxation discussion paper in December last year. “There’s a lot of noise out there. It drew heated discussion and input from the tobacco industry, health groups and international tobacco harm reduction groups.

“If we wanted to tax optimally, one option was to base that on the amount of nicotine in the product and then tax those with no nicotine at a lower rate. It’s a nice policy design idea, but almost all countries tax on a flat rate based on the amount of liquid,” said Axelson.

“So, our proposal is a flat tax rate based on the amount of liquid,” regardless of nicotine concentration or the absence of nicotine.

Work already far advanced

Axelson said that while “not a done deal”, the policy was at least a start, “so we can get the administration running with the revenue service”. His department will submit draft legislation to Parliament, which will come under Standing Committee on Finance scrutiny before the president promulgates a bill, hopefully effective by January 2023.

The overall intent is to include products similar to combustible tobacco in the tax net.

“It’s quite clear that some [ENDS] have large amounts of nicotine in those liquids and are very similar to other activities that cause harm. We also have concerns that they could be a gateway to smoking, while causing potential harm.

“The tobacco industry talks about how they’re trying to wean people off combustibles. There’s a lot of mixed research out there and we’re worried about the impacts. We do need to broaden the scope of products within the tax net,” he explained.

“It’s also a signal from government that you need to be careful with these products, especially when it comes to children. You have all these flavours like blueberry and candy, while the design logos are targeted at teenagers.”

Axelson said there was currently no tax regime for these products and the intention was to try and reduce their consumption and induce caution at their use.

MedicalBrief asked about snus, a steam-pasteurised oral smokeless product that has almost totally displaced cigarettes in Sweden and Norway, resulting in populations far healthier than those elsewhere in Europe. He was unaware of any taxation intent for snus in South Africa at present: “But we’ll have to check the scope before we do the legislation.”

Tax must be more risk related – Letlape

Letlape – who also founded the African Medical Association in 2006, and is former chair of the South African Medical Association and past president of the World Medical Association – said the tax needed to be proportionate to the risk.

“The tax needs to make these products accessible and affordable. At present they’re on average priced the same as cigarettes, which does very few people any good,” he said.

“It’s better than nothing, but it’s still too high. I agree with the principle of a simple taxation formula. You don’t want to tax at 1% per milligram. That’s too complex. The simpler the better,” he agreed.

There was a complex array of ENDS and vaping devices, some with cartridges, some disposable, some rechargeable, making a pragmatic nicotine content taxation policy almost impossible.

Letlape hit out at the National Department of Health, saying it blindly followed the World Health Organisation (WHO) by equating harm reduction products with combustible tobacco, which harm reduction advocates globally considered inappropriate and outdated.

The Department of Health needed to punt snus and fund what would be a hugely cost-effective and harm-reducing national campaign to switch ubiquitous traditional snuff users to this chewable tobacco.

“Our biggest problem is with the health department. Treasury just want to ensure that they don’t lose revenue. If they’re getting excise tax from combustible tobacco and we’re converting people to non-combustibles, they’ll potentially lose out.

“In the United States they’re taxing non-combustibles at a much higher rate that combustibles – but then they’re outright anti-harm reduction, which makes it enormously difficult,” he told MedicalBrief.

Letlape believes that WHO is the major global stumbling block to tobacco harm reduction efforts, which have the potential to alleviate the public health crisis resulting from smoking, because of WHO’s anti-vaping advocacy.

COVID’s deadly blow to health budgets

A MedicalBrief source in the Treasury said that worldwide, COVID had severely jeopardised health budgets. A World Bank study of 50 countries showed many nations, including South Africa, to be in a debilitated state.

“In this context, it’s a good time to push excise taxes. We’ve never recommended bans such as happened with alcohol and tobacco during our initial lockdown and curfews, in spite of the Medical Research Council’s findings of reduced pressure on hospital trauma units.

“Prohibition in a modern democracy is not the right tool. The right tool to prevent harmful externalities is to get the tax to the right level,” he stressed.

Pressed on the fiercely debated National Health Insurance (NHI), the source said very little work had been done over the past five years because Dr Nicholas Crisp, the deputy director-general responsible, was also currently acting director general of the National Department of Health (NDoH) and was caught up running the fast-shifting anti-COVID campaign.

“There’s been significant underspending on NHI grants, and it needs to pick up steam. We can’t allocate budgets if that steam is not there yet. They themselves [the NDOH] have been underspending on NHI and asked us to spend the money elsewhere, like the shift to interns,” he confided.

 

Treasury discussion paper – Taxation of Electronic Nicotine and Non-Nicotine Delivery Systems: Discussion paper, December 2021. (Open access)

 

See also from the MedicalBrief archives

 

Why taxing vaping in SA will not help ensure a just tobacco transition

 

New vaping rules and taxes planned for South Africa

 

Vaping – Time for doctors to get on board

 

Vaping products make significant economic contributions – VPASA study

 

 

 

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