The National Treasury in South Africa has published a discussion paper outlining a proposal on the taxation of electronic nicotine and non-nicotine delivery systems (ENDS), reports BusinessTech, with implications for tobacco harm reduction efforts among smokers, and for youth vaping.
This follows signals from the government in its previous two budget speeches that it plans to start taxing these two products.
“ENDS are part of new generation products that have been introduced in the market either as harm reduction or reduced-risk products compared to traditional tobacco products,” the National Treasury said. (See summary and link to the discussion paper below – MedicalBrief)
“These products are battery-powered devices that vaporise liquid solutions that may contain nicotine, as well as varying compositions of flavourings, propylene glycol, vegetable glycerin and other ingredients, to create an aerosol which the user inhales.”
According to BusinessTech, Treasury said that while the market for ENDS is still in its infancy in many developing countries like South Africa, it is expected to grow. In other markets, the growth in the consumption of these products has been observed among youth and has raised concerns on its impact on youth initiation of smoking and tobacco use, it said.
It added that there are concerns regarding their potential to undermine global tobacco control efforts, and public health in general.
“Unlike conventional tobacco products, these products are mostly unregulated in South Africa, hence the Department of Health has also started a process of amending the current tobacco control legislation to include these products in the regulatory framework.
“Similarly, other governments around the world have started a process of regulating the consumption and use of ENDS through tax and non-tax measures.”
While the proposal document is open for comment until 25 January 2022, Treasury has indicated that a tax could be introduced on both the device and the oil used within it. This would allow for products with a higher nicotine concentration to carry a higher tax – in line with other high nicotine products such as cigarettes.
A study commissioned by the Vapour Products Association of South Africa (VPASA) in 2021 looked into the economic impact the industry has locally, including its contribution to GDP and employment, continues BusinessTech.
NKC African Economics’ Cobus de Hart, who led the study, said: “The vapour products industry supports GDP and jobs throughout its supply chain. Its total gross value-added contribution to GDP is R2.49 billion, with R710 million in tax payments made in 2019.”
Vaping products are not regulated in South Africa. Specifically, e-cigarettes are not covered by the Tobacco Products Control Act or the Medicines Act. The government has proposed the Control of Tobacco Products and Electronic Nicotine Delivery Systems Bill in which it hopes to regulate vapour products in a similar way as cigarettes. The bill was introduced for public comment in 2018, but is currently still in a draft form.
See link to the full BusinessTech story below.
South Africa eyes new regulations, taxes for vaping products
South Africans who enjoy vaping may be in for some bad news, wrote Samantha Riddle for The South African on 4 January 2022. The National Treasury has published its outline of a proposal seeking to implement taxation on ENDS. This comes after the government mentioned possible taxes for these products in two budget speeches.
See link to the full story in The South African below.
SA National Treasury
Taxation of Electronic Nicotine and Non-Nicotine Delivery Systems – Discussion paper
The health consequences of tobacco consumption are well known and tobacco products have been regulated through tax and non-tax measures over the years. To date, government’s regulatory interventions have reduced smoking prevalence in South Africa.
However, to counter the reduction in tobacco consumption, new generation products (NGPs) have been introduced in the market either as substitutes or to complement current tobacco products consumption. These NGPs include electronic nicotine delivery systems (ENDS) and electronic non-nicotine delivery systems (ENNDS).
These products are battery-powered devices that do not burn or use tobacco leaves, but instead vaporise e-liquid solutions to create an aerosol which the user then inhales. Innovations surrounding these products and their use is ongoing.
The market for ENDS/ENNDS is still in its infancy in South Africa, but it is projected to grow. It is estimated that the market generated about R2.54 billion in revenue from vaping products in 2018 and experienced an average annual growth of 21.2% over the 2013-2018 period.
Even though these products are marketed as less harmful compared to cigarettes or traditional tobacco products, they are not without risk. Some NGPs are modified risk products, though the modification does not necessarily mean no health harm.
The long-term health effects of e-cigarette use are unknown at this stage, primarily because e-cigarettes have not been in the market for long. However, preliminary studies indicate that the use of ENDS/ENNDS may be associated with a number of detrimental health effects, and the World Health Organisation (WHO) has advised governments to take a precautionary approach in regulating these products.
South Africa is a signatory to the WHO Framework Convention on Tobacco Control (FCTC) and one of the objectives of the FCTC is to curb the demand and supply of these harmful products through taxation.
Governments around the world have started a process of regulating the consumption and use of ENDS/ENNDS through tax and non-tax measures. The most commonly used regulatory approaches include complete sale bans, age-of-purchase requirements, and advertising or promotion bans.
The National Department of Health has already started a process of amending the current tobacco control legislation for the regulation of these products. From a tax perspective, a number of countries have already started implementing taxes on ENDS/ENNDS in the form of a specific excise duty and/or an ad valorem duty.
The specific excise tax regimes implemented include the taxation of non-nicotine solution and an additional rate for nicotine content of the solution. For example, Latvia implemented an excise tax in July 2016 which is calculated on two bases – the volume of liquid measured in millilitres and the weight of nicotine measured in milligrams. It is levied at a rate of EUR0.01 per ml (i.e. R0.19 per ml) for the volume of the liquid and at EUR0.005 per mg (R0.095 per mg) for the nicotine weight.
Other countries tax both the solution and the device. Kenya introduced an excise duty on ENDS/ENNDS levied on two bases, the device and the cartridge used. The excise was initially charged at a rate of 3,000 Kenyan Shilling per unit (R507.58 per unit) for the device and at a rate of 2,000 Kenyan Shilling per unit (R338.39 per unit) for the cartridge. In 2019, the rates were increased to 3,156.00 Kenyan Shilling per unit (R534.16 per unit) for the device and 2,104.00 Kenyan Shilling per unit (R356.11 per unit) for the cartridge.
Indonesia introduced an excise tax on the e-liquid used in electronic cigarettes in July 2018 which is applied at 57% of the retail selling price of the product. Many states in the United States have also implemented ad valorem excise tax regimes for e-cigarettes.
For South Africa, a specific excise tax on both the non-nicotine and nicotine solution would be more appropriate. It is proposed that a 40% incidence guideline be used which translates to a total excise duty ranging from as low as R33,30 to R346,00 with an average of R165,29.
With this approach, the excise rate may be set at an average of R2,91 per millilitre apportioned on nicotine and non-nicotine elements of the solution based on a ratio of 70:30, respectively. This will imply a rate of R2,03 per milligram of nicotine and 87 cents per millilitre for the liquid.
The reason for the higher ratio for nicotine is to ensure that products with high nicotine concentration levy a relative higher rate compared to lower nicotine products, whilst non-nicotine products also levy an excise duty.
The Customs and Excise Act 91 of 1964 provides for the levying of customs and excise duties, and will be used for e-cigarette excise regime to be administered by the South African Revenue Service.
See also from the MedicalBrief archives