The new R2.90/ml tax on nicotine vaping fluids came into effect on Thursday, sending the industry into a tailspin over potential lost revenue and jobs — but medical experts are calling for even steeper taxes.
The vaping liquid industry includes importers and local producers such as New Lab Industries. According to the Vapour Products Association of South Africa (Vpasa), the industry had created more than 4,000 jobs by 2017, a figure that it projects could rise to 14,000 by 2027.
But the new tax would mean the loss of 2,250 vaping-related jobs in manufacturing, wholesale and retail, it said. The broader sector was valued at R1.5bn in 2022.
But critics of the tobacco industry and its efforts to promote products aimed at “harm reduction” say vaping products are targeted at and taken up by people who have never smoked conventional cigarettes, including young people.
The industry forecasts that the tax will result in a 26% cut in revenue from the estimated sales figures of R1.7bn in 2021. Local manufacturers, who have previously produced their liquids locally to avoid import duties, say the new tax will undermine those efforts and drive their prices up.
This year, the price of a 20-pack of cigarettes went up 98c while the tax on a 20-pack of heated cigarette sticks went up 73c.
Prof Corne van Walbeek of the University of Cape Town school of economics said the school's Research Unit on the Economics of Excisable Products, in submissions to parliament’s select committee on finance, had recommended a higher tax.
“We suggested R5/ml because we believe that will get us closer to the average tax incidence of 40%, as is the target for regular cigarettes. However, more importantly, we strongly recommend that the government should impose a minimum tax of R50 per unit.”
Van Walbeek said young people were less attracted by the nicotine content in the products and more by the flavours but they might “graduate” to nicotine vapes and possibly to regular cigarettes.
He said while the vaping industry included health warnings on its products, they came in tempting flavours such as “mint ice” and “watermelon” and were sold in alluring packaging.
Vpasa CEO Asanda Gcoyi said the association commissioned a report by Oxford Economics Africa that found the R2.90/ml duty would increase prices about 170% to R4.59/ml.
She said the government stood to collect up to R920m, before administration and enforcement costs, but the industry would lose so much in revenue that it would contribute up to R130m less in income tax and R70m less in VAT.
We cannot avoid tax unfortunately, but we believe that the rate is high as an introductory rate
— Vpasa CEO Asanda Gcoyi
Gcoyi said that following industry presentations to parliament, the National Council of Provinces standing committee on finance had recommended to the National Treasury that a socioeconomic impact assessment be carried out before implementing a tax, “but unfortunately, National Treasury did not take that into account”.
Gcoyi said the South African Revenue Service had notified association members only in April that they needed to get manufacturing licences by June 1 and submit excise duty accounts by late July.
A workshop was held in early May to advise the industry on the requirements. But Gcoyi said considering the timeline, Vpasa members had had little time in which to fully comply. “We are requesting an extension from Sars.”
She said: “We cannot avoid tax unfortunately, but we believe that the rate is high as an introductory rate. We also believe that zero-nicotine [products] should not be included in the tax net, as National Treasury has said they want to discourage nicotine, which is an addictive substance.”
Gcoyi said vaping brands were not aimed at young people. “We’ve always maintained that vaping is for adult smokers who are seeking a less harmful alternative to their cigarettes. Youth are not our focus.”
The industry recently adopted an advertising code to protect young people and ensure no false claims were made about vaping and health, she said.
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