INTRODUCTION
Since 1990, the South African government has, despite opposition from the tobacco industry,
embarked on a vigorous programme of tobacco control – increasing excise taxes on cigarettes
in a bid to cease consumption. By increasing excise taxes on tobacco products, retail prices
will increase, in turn causing decreases in the consumption of tobacco products.
Government, despite having tobacco control policies in place, has not maintained its
objective of smoking cessation and revenue maximisation through excise taxation. In recent
years, tobacco consumption began to steadily increase once again.
This essay will analyse the impact of a proposed increase in excise tax rates on the buyers of
cigarettes, the consumption thereof and the effect on government revenue, using the Total
Revenue Test as a method of analysis. Additionally, answering the question of whether
government should increase the tax. Finally investigating the factors that may work again
such a strategy to promote public health.
BODY
Consumers are often the most affected by increases in excise tax rates as they have to pay
these taxes at every point of sale for cigarettes.
Page | 1
, Figure 1: Impact of excise tax on the price of cigarettes and cigarette consumption
Graphical representation of tabular consumption and excise taxation data obtained from
(van Walbeek, n.d.:5)
The figure above illustrates the rapid decrease in excise tax per pack of cigarettes between
1970 and 1990, resulting the retail price per pack decreasing over this period, subsequently
causing consumption to rise. Government has noticed this trend and rectified it in recent
years. [In 2021] “…the minister of finance announced an 8% increase in the excise tax on
cigarettes.” (van Walbeek & Filby, 2021) Consumers can adapt and respond to tax changes
in various ways that may undermine the ‘intent’ of the tax e.g. stockpiling cigarettes before
tax hikes. This is not the case with all consumers, the majority of smokers will absorb
additional taxes, others will substitute premium cigarettes with less expensive cigarettes to
offset the increase in tax. (Chiou & Muehlegger, 2010:5-7) Excise taxes
Adam Smith commented that: “Sugar, rum, and tobacco, are commodities which are nowhere
necessaries of life, which are become objects of almost universal consumption, and which are
therefore extremely proper subjects of taxation.” (Smith, 2012:474-76)
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Since 1990, the South African government has, despite opposition from the tobacco industry,
embarked on a vigorous programme of tobacco control – increasing excise taxes on cigarettes
in a bid to cease consumption. By increasing excise taxes on tobacco products, retail prices
will increase, in turn causing decreases in the consumption of tobacco products.
Government, despite having tobacco control policies in place, has not maintained its
objective of smoking cessation and revenue maximisation through excise taxation. In recent
years, tobacco consumption began to steadily increase once again.
This essay will analyse the impact of a proposed increase in excise tax rates on the buyers of
cigarettes, the consumption thereof and the effect on government revenue, using the Total
Revenue Test as a method of analysis. Additionally, answering the question of whether
government should increase the tax. Finally investigating the factors that may work again
such a strategy to promote public health.
BODY
Consumers are often the most affected by increases in excise tax rates as they have to pay
these taxes at every point of sale for cigarettes.
Page | 1
, Figure 1: Impact of excise tax on the price of cigarettes and cigarette consumption
Graphical representation of tabular consumption and excise taxation data obtained from
(van Walbeek, n.d.:5)
The figure above illustrates the rapid decrease in excise tax per pack of cigarettes between
1970 and 1990, resulting the retail price per pack decreasing over this period, subsequently
causing consumption to rise. Government has noticed this trend and rectified it in recent
years. [In 2021] “…the minister of finance announced an 8% increase in the excise tax on
cigarettes.” (van Walbeek & Filby, 2021) Consumers can adapt and respond to tax changes
in various ways that may undermine the ‘intent’ of the tax e.g. stockpiling cigarettes before
tax hikes. This is not the case with all consumers, the majority of smokers will absorb
additional taxes, others will substitute premium cigarettes with less expensive cigarettes to
offset the increase in tax. (Chiou & Muehlegger, 2010:5-7) Excise taxes
Adam Smith commented that: “Sugar, rum, and tobacco, are commodities which are nowhere
necessaries of life, which are become objects of almost universal consumption, and which are
therefore extremely proper subjects of taxation.” (Smith, 2012:474-76)
Page | 2
