The approach the government in South Africa has taken regarding levying an excise tax on e-cigarettes will threaten the very things its budget ought to achieve, writes economist Sifiso Skenjana for News24. He has been joined by Kurt Yeo for the Mail & Guardian and Joan van Dyk for Bhekisisa in analysing the health and other impacts of the recent National Treasury vaping discussion document.
‘Just transitions’ – which have been a hot topic, predominantly in the climate change space – are applicable in all industries that need to transform into more sustainable versions of themselves, wrote Sifiso Skenjana, chief economist at IQbusiness, in News24 on 20 January 2022.
At an industry level, this often denotes an intra-industry structural transformation from one unsustainable form towards a more sustainable one, in a way that promotes inclusive participation, and secures the lives of workers, communities and indigenous resources, including indigenous knowledge systems.
The transition to low-sugar drinks in the sugary beverages sub-sector is a good example. It both secures a future for the industry and less regressive positive public health outcomes for consumers through the reduction of the volume sugar in their products. In the process, communities and consumers are not adversely and unfairly impacted by the transition.
The same quagmire is now facing the tobacco industry in South Africa, according to Skenjana in News24. Just as the festive season started on 15 December 2021, the Treasury issued three tax policy discussion documents for public comment, one of which was the “Taxation of Electronic Nicotine and Non-nicotine Delivery Systems” discussion document.
This follows two budget speeches in which government indicated its intention to levy taxation on electronic cigarette and vaping products.
According to Treasury's position, the market for Electronic Nicotine and Non-nicotine Delivery Systems – ENDS/ENNDS – “is still in its infancy in many developing countries like South Africa, but is expected to grow.
“In other markets, the growth in the consumption of these products has been observed among the youth and has raised concerns about its impact on youth initiation of smoking and tobacco use. Furthermore, there are concerns regarding their potential to undermine global tobacco control efforts, and public health in general, considering that these products are not harmless.”
National Treasury admits the Control of Tobacco Products and Electronic (Nicotine) Delivery Systems' Bill, which has been in draft form since 2018, still needs to be processed by Parliament for a regulatory framework that governs ENDS/ENNDS to be put in place.
Treasury also recognises that the sector is nascent, given the recent advent of ENDS/ENNDS.
In this context, Skenjana argued for News24, it is particularly important that South Africa: 1) follows an evidence-based approach in unpacking the impact the sector is expected to have on public health outcomes and socio-economic growth outcomes; 2) recognises the importance of a just transition as an anchor in the design of the structural transformation roadmap for the tobacco sector; and 3) ensures the relevant monitoring and evaluation tools are put in place to ensure adherence to standards and codes at a sectoral level, protection of consumer rights as well as ensuring accountability bodies are visible and accessible.
Towards evidence-based policymaking
The challenge that a nascent sector poses for policy-making and taxation considerations is, firstly, the lack of availability of reliable time series and cross-sectional data in order to have a detailed understanding of the sector, its growth levers, as well as areas of critical vulnerability.
Secondly, there is a risk posed by premature policy decisions that have no clear sight of second- and third-round effects of any one policy decision on the viability and sustainability of the sector in the medium to long run.
The importance of evidence-based policy-making cannot be underemphasised.
To illustrate, National Treasury has alluded to the attractiveness of vaping for young people and the potential impact it has for health outcomes, thus the need to introduce this Pigouvian tax – taxes on goods that create negative market and social externalities.
Treasury acknowledges that there are data gaps for this nascent industry, thus inadvertently acknowledging that there is no empirical basis for its proposals. Experiments and empirical research are therefore of tantamount importance before a policy direction is formed.
Towards a just tobacco transition
The vaping industry in South Africa is estimated to have a tri-factor contribution to the economy – directly, indirectly through supply chain value generation and induced (wages paid) – each contributing R930 million, R291 million and R470 million in gross value added respectively in 2019. According to NKC African Economics 2021 report The Economic Impact of the Vaping Industry in South Africa, the industry supported roughly 9,500 jobs.
Pigouvian taxes have unfortunately not worked as well as they would have been intended, argued Skenjana. Worse so, they tend to disproportionately impact poorer households than higher income households.
A low-income earner who consumes e-cigarettes and vaping products is likely to substitute to more traditional, more harmful tobacco products should the price of these products increase, while higher income earners may more likely absorb the price increase.
This results in a perverse form of health inequality as poorer families are confined to more harmful products due to their inability to afford alternatives, while their richer counterparts will have the ability to reduce their health exposure to harm. This has been proven true for Pigouvian taxes even in the context of alcohol.
This means that as authorities consider Pigouvian taxes, they must ask if such a policy position will worsen inequality, poverty exposure and negative outcomes for those already left in the fringes.
Government ought to carefully consider the notion of a just transition in tobacco control. This could ensure that policy proposals do not leave anyone behind. A just transition ensures that poor people do not remain health poor because they cannot absorb higher costs associated with high excise levies for vaping products and e-cigarettes. A just transition ensures that we act in a way that is sustainable for all key stakeholders.
From a purely public health perspective, what is glaringly missing in the regulatory conversation about vaping in South Africa is a product safety and industry standards to ensure a benchmarked management of the industry and the products it sells to its consumers.
Way forward?
In a previous op-ed, I detailed how the upcoming national budget must “answer critical questions on: 1) enabling employment and reducing inequality; 2) enabling critical functions of the state to work; and 3) addressing the critical revenue risk posed by a dwindling tax base”.
The approach currently taken regarding levying excise on electronic cigarettes and vaping products will threaten the very things the budget ought to achieve.
It will worsen tobacco induced health outcomes for those who come from more financially disadvantaged households, it will strangle a sector that is still reeling from COVID-19 tobacco bans and struggling to find its feet in a globally competitive marketplace, it will put stress on future corporate income tax revenues that the sector offers, and will likely see no improved civic health outcomes as nobly intended.
As the adage goes “the road to hell is often paved with good intentions”. But pragmatism will be required to ensure that this sector doesn't embark on a policy induced perilous path.
If we tax vaping, we’ll just keep smokers smoking
The intended vaping tax would represent a major blow to South African vaping consumers and smokers seeking less harmful alternatives to smoking, wrote Kurt Yeo, co-founder of Vaping Saved My Life, in the Mail & Guardian on 3 February. Such a tax would make smokers less likely to make the essential switch to less harmful alternatives due to price.
The Treasury notes in its vaping discussion document that though the market for ENDS is still in its infancy in many developing countries such as South Africa, in other markets, the growth in the consumption of these products has been observed among the youth, which raises concerns about its effect on youths starting smoking.
There are concerns about the potential of ENDS to undermine global tobacco control efforts and public health in general, considering that ENDS are not entirely harmless.
To curb the growth of ENDS, the treasury notes that other governments across the globe have started a process of regulating the consumption and use of ENDS through tax and non-tax measures. It also notes that several countries have already started implementing tax measures on ENDS in the form of a specific excise duty and/or an ad valorem (according to value) duty, wrote Yeo in the Mail & Guardian.
It is important to note that the treasury’s proposed tax represents a missed opportunity to deal, once and for all, with smoking in South Africa. The tax will have an undesirable impact on smokers’ ability to access less harmful alternatives for nicotine to combustible tobacco. This works against the goal of ensuring a reduction in tobacco consumption.
The reduced-harm profile of ENDS has been established through multiple studies. Both the UK’s Royal College of Physicians and Public Health England in the United Kingdom have found that, although not completely safe, vaping is 95% less harmful than smoking. The UK government has gone to the extent of evaluating the provision of ENDS as a National Health Insurance benefit for smokers wishing to reduce their exposure to tobacco harm.
This is because of the recognition that smoking is one of the most difficult habits to jettison. It is also born of the realisation that traditional quit methods, such as going cold turkey or using nicotine replacement therapy such as gum or patches, do not have even half the success rate of vaping products in assisting smokers to quit smoking.
The intended vaping tax would represent a major blow to South African vaping consumers and smokers seeking less harmful alternatives to smoking. Such a tax will make smokers less likely to make the essential switch to less harmful alternatives due to price. Such a tax would make ENDS unaffordable for poor smokers, who are the majority of smokers in the country.
The treasury seems to have fallen for the disinformation campaign of the National Department of Health, perpetuated in concert with the Council Against Smoking, which relies on one-sided studies about the health effects of vaping. In the main, these studies fail to acknowledge the fundamental differences between smoking and vaping, particularly in their harm profile.
In the telling of these two, any non-pharmaceutical nicotine consumption is, by definition, undesirable, even if it has the potential to reduce the harmful exposure of smokers. This shows criminal disdain for the health of smokers, who always seem to come last in considerations about tobacco control policies.
See the link below to the full Mail & Guardian article.
Smoke and mirrors: What you need to know about the hazy world of the proposed vaping tax
The vapour products industry in South Africa could soon be regulated the same as tobacco, if the stalled Control of Tobacco Products and Electronic Delivery Systems Bill goes through, wrote Joan van Dyk, senior health journalist at Bhekisisa, on 7 February.
She described her article as an introduction to the complex world of tobacco control – a world of deep distrust and betrayals – and explains why the vaping industry doesn’t want to be tarred with the same brush.
A vaping storm’s a-brewing. In December, the Treasury released a 32-page document in which it outlines considerations regarding taxing e-cigarettes and vapour products.
But the vaping industry isn’t happy with how things are unfolding. They claim that the tax might discourage smokers from switching from tobacco to products that they argue are less harmful than traditional cigarettes.
Governments around the world use excise tax as a way to earn a steady income stream and to deter people from buying products that could harm their health or the environment, writes Van Dyk. In South Africa, the government levies exise tax on fuel, tobacco, liquor, sugary drinks, electronics, cars and cosmetics – goods people buy often or that come with a luxury price tag. And now the state has e-cigarettes and vapour products in their sights, too.
The thinking is that although excise taxes are paid by the product manufacturers, consumers often absorb part of the price hike, and so taxing these products could make people think twice before buying. So, in the long run, taxing something like sugary drinks or tobacco products can help people to lead healthier lives. Which is what happened when the government started taxing conventional tobacco smokes in 1994: in the decade that followed, the number of smokers in South Africa dropped by a third.
Smoke alarm
Although it’s still early days for the vaping tax policy, it’s off to a rocky start. The initial deadline for comment on the discussion paper was 25 January, but was extended to 7 February, according to Van Dyk in Bhekisisa.
Yet it got the vaping lobby’s hackles up because, Asanda Gcoyi says, they were not officially informed and had to hear about it in the news. She’s the chief executive officer of the Vapour Products Association of South Africa (VPASA), an industry body that represents manufacturers, sellers and importers.
The proposed taxing of vapour products and the way it has been introduced are just more fuel on a fire that has long raged between the public health lobby – the health department, non-profit organisations, advocates and researchers – and the pro-vaping group – vapour product companies and some harm reduction advocates – some of whom have ties to the tobacco industry.
At the heart of this historic tug-of-war is the draft Control of Tobacco Products and Electronic Delivery Systems Bill, has been stuck, untabled, for four years. This legislation proposes that heated-tobacco products (HTPs), electronic delivery devices such as vapes and old-fashioned cigarettes should all be treated the same.
HTPs claim to ‘heat not burn’ tobacco, just enough to release nicotine vapour. E-cigarettes are hand-held devices that heat an alcohol-based liquid to make it turn into a vapour, which is why smoking e-cigarettes is often called ‘vaping’. The liquid usually contains nicotine and other chemicals that allow it to vaporise easily, explained Van Dyk in the Bhekisisaarticle.
Because the bad effects of tobacco are linked mostly to smoke, vaping supporters argue that smokeless products are less harmful. But the jury is still out and a recent study published in the journal Chemical Research in Toxicology showed that there are a number of known toxins in e-cigarette vapours, and a bunch of other chemicals about which we don’t know the health effects.
If the stalled tobacco control bill is passed, any kind of smoking in public will be banned and rule breakers could face a three-month jail sentence. Advertising bans and plain-packaging rules could also be on the cards.
Plain-packaging means all cigarette and vape boxes will show the brand in plain text only (so no branding will be allowed) and carry a health warning.
All advertisements and sports sponsorships for tobacco have been banned in South Africa since 2001, but the new rules could cigarettes and ‘next-generation products’ (such as vapes) cannot be sold in vending machines and will not be displayed in shops.
Tobacco control is a very particular game. It’s a world of betrayals and deep distrust where there are ‘good guys’, ‘bad guys’ and industry spies.
Traditionally, the line between the pro-health and pro-smoke sides has been very clear. But recently, as more e-cigarette and vapour products have entered the market, the distinction has become blurred. Suddenly it’s not so apparent who’s who anymore, especially as next-generation products are completely unregulated in South Africa…In the coming months, Bhekisisa will publish series of analyses that plunge into the arguments around vaping.
See the link below to the full Bhekisisa article.
Mail & Guardian article – If we tax vaping, we’ll just keep smokers smoking (Open access)
See also from the MedicalBrief archives
New vaping rules and taxes planned for South Africa
Vaping products make significant economic contributions – VPASA study
Push back against SA's smoking and vaping Bill
Vaping – Time for doctors to get on board