Vaping Tax: National Treasury Should Maintain Its Fiscal Integrity

On 15 December 2021, National Treasury published its discussion paper titled “Taxation of Electronic Nicotine and Non-Nicotine Delivery Systems”, outlining its proposal for the taxation of Electronic Nicotine and Non-Nicotine Delivery Systems (ENDS/ENNDS) in South Africa. This year’s Budget Speech, delivered by current Minister Enoch Godongwana, placed government’s tax proposal at R2.90 per millilitre, with plans to introduce the tax from 1 January 2023. The Department, during its recently-held workshop on the taxation of ENDS/ENNDS, has made it clear that it intends to abide by this deadline despite there being issues that require urgent addressing.

There are multiple areas of concern with government’s current proposals. One is that its basis for introducing a tax on ENDS/ENNDS is largely factually incorrect and is based on outdated scientific evidence. Treasury has also failed to paint an accurate picture for the industry’s economic contribution and the contribution such a tax would generate. In doing so, Treasury has endorsed the fearmongering of the anti-tobacco lobby which is hellbent on undermining tobacco harm reduction as a viable alternative to quit or die approaches of tobacco control.

The discussion paper, in its current form, is a poorly drafted document relying on outdated information on the science behind vaping, and the state of local and international vaping markets. This is, of course, gravely concerning as it forms the rationale for Treasury’s need to urgently introduce a tax on vaping products. Relying on outdated evidence is simply irresponsible, given that the body of scientific knowledge on ENDS/ENNDS is rapidly expanding and evolving. A look at the latest available data, such as the Cochrane Library’s evidence update published in September 2021, highlights the effectiveness of ENDS/ENNDS for smoking cessation, compared to other forms of Nicotine Replacement Therapy (NRT). This specific evidence review also notes improved lung function, lowered carbon monoxide levels, and did not detect any clear evidence of serious harms from nicotine electronic cigarettes.

Much like the arguments presented by the national Department of Health (DoH) in its introduction of the draft Control of Tobacco Products and Electronic Nicotine Delivery Systems (COTPENDS) Bill, Treasury highlights a pressing need to protect non-smokers and non-users of ENDS/ENNDS, while showing very little concern for the health and needs of smokers who may greatly benefit from using less harmful alternatives. This blatant disregard for smoker’s rights, taken together with the Minister’s own eagerness to “introduce it today”, referring to the vaping tax in his budget speech, makes a mockery of government’s often cited concern for the health of smokers.

In addition to the contextual matters identified, procedurally, the discussion paper seems rather ill-timed particularly given that government has yet to develop a legal framework for vaping in South Africa. To date, Cabinet has not tabled the Control of Tobacco Products and Electronic Nicotine Delivery Systems Bill (COTPENDS) in Parliament to afford South Africans and the scientific community an opportunity to make representations about the nature of regulations that should govern these products. There is also a need for an updated Socio-Economic Impact Assessment (SEIAS) report on the Bill. In the absence of these crucial elements, discussions on a vaping tax are simply out of place.

A diligent look at the vaping market in South Africa should indicate to Treasury that vaping taxes in South Africa are, in economic and social terms, nonsensical. Taxing vaping products in South Africa will not generate any meaningful revenue for government since the South African market remains in its infancy. Instead, it will drive smaller vaping companies, who contribute to the country’s job creation mandate, out of business. Treasury should ask itself if this is palatable in the context of a product that has been proven to be 95% less harmful than smoking. Additionally, a vaping tax will have dangerous social consequences and may likely undermine governments’ objective to reduce the number smokers in the country. In essence, a vaping tax will make vaping products more expensive and deter smokers from making the necessary switch to a safer alternative.

Government has failed to demonstrate a genuine appreciation of the available evidence on ENDS/ENNDS. In addition to this, Treasury’s taxation workshop, attended by VPASA, confirmed that it has not applied its mind to some critical considerations where the introduction of the tax is concerned. In the main, Treasury has failed to clearly outline the expected outcome of the tax, including impact on vaping behaviour and expected revenue. The industry has also been left in the dark on the Department’s thinking around revenue collection and how this will be conducted. This is most regrettable, and points to a gap that Treasury needs to address urgently.

It is indeed true that vaping products can no longer afford to operate within a legislative vacuum. It is equally true that any attempts to regulate the industry need to be evidence-based. There are several reflections, linked to the vaping debate, that Treasury ought to make. In doing so, Treasury should approach the issue of vaping taxes with supreme dexterity and resolve to maintain its integrity.