SARS goes after vapers

Kurt Yeo, the cofounder of Vaping Saved My Life (VSML), said the sin tax that will soon be applied to vapourised tobacco products will adversely affect vapers, smokers, and small businesses.

The Finance Minister announced in the 2022 Budget Speech that an excise duty on vapourised tobacco products would be introduced on 1 June 2023.

Nicotine and nicotine-substitute solutions in vaping products are included in the tax net with a flat excise duty rate of R2.90 per millilitre.

“The impact of this will be that e-liquid prices will inflate from 5.8% to 217%, depending on the volume and current retail price,” said Yeo. He added that the tax would do more harm than good.

“At face value, the tax will move the consumer to the intended purpose of vaping less. But with many of those who vape having switched from smoking to this safer alternative and now having to pay far more for the privilege, they might be forced to revert to smoking as a cheaper option,” he claimed. 

The Vapour Products Association South Africa (VPASA) CEO Asanda Gcoyi told News24 that the organisation believes people will “go back” to smoking relatively cheaper tobacco products.

The VPASA expects a 26% decrease in the demand for vape juice after the excise is introduced, which will affect businesses and employment, said Gcoyi.

The VPASA estimates that 2,250 jobs could be lost by the end of the year as a result of this tax.

Yeo shares the VPASA’s concerns, saying this tax increase will also mean that many vape shops and local manufacturers will be forced to shut down due to current and new customers being unable to afford locally produced products. 

“With the vaping industry contributing more than R2.49 billion to the country’s GDP, while also supporting 9,500 plus jobs, this will have knock-on effects not only on the livelihoods of employees and their families but the South African economy too,” said Yeo.

“More concerning is the likelihood of yet another illicit trade forming, circumnavigating all forms of control and standards.”

This is in reference to South Africa’s illicit cigarette trade, which boomed after cigarette sales were banned during the lockdown.

This trade has, however, continued past the pandemic, as the products are sold tax-free and, therefore, at a lower price point.

SARS has been clamping down on the illicit cigarette trade recently, as the syndicates affect tax revenue and businesses.

British American Tobacco said an aggressive excise tax could rush consumers away to a similar illicit market for vaping products that would subsequently grow.

Not strict enough

Other roleplayers have argued that the excise duty is not stringent enough. 

The Research Unit on the Economics of Excisable Products (REEP) suggested in a written submission to Parliament that a more appropriate rate would be at least R5.00 per millilitre.

In addition, the REEP said, “To deter young people from purchasing disposable e-cigarettes, which contain a limited volume of e-liquid, and which would thus be subject to a very small amount of tax, we propose that National Treasury implements a minimum floor tax of R50 per unit.”

However, Oxford Economics Africa published a Review of the Appropriateness of the Excise Rate Proposed in the Draft Taxation Laws Amendment Bill, in which it considered the proposed R2.90/ml tax in relation to similar taxes in other countries.

The review found, “When utilising nominal exchange rates as conversion factors, the findings already suggest that South Africa’s proposed e-liquid excise rate is too high from an international perspective.” 

“Utilising the median as an assumed balanced and representative rate from an international perspective, a corresponding e-liquid excise rate of R1.45/ml should be seen as an upper limit in South Africa’s case.”