Abstract
Using wave 5 of the National Income Dynamics Study (conducted in 2017), this paper investigates the market for very low-priced cigarettes in South Africa, which, in all probability, are illicit. Since the sum of the excise tax and VAT in 2017 amounted to R16.30 (1.22 USD) per pack, any cigarettes selling for R20 (1.50 USD) per pack or less are likely to be illicit, assuming reasonable production costs. By this definition, approximately 30% of cigarettes consumed in South Africa in 2017 were illicit. Illicit cigarettes are found across all nine provinces. At the margin, the purchase of illicit cigarettes is associated with lower socio-economic characteristics, such as having lower levels of income and education. As illicit cigarettes undermine both the fiscal and health agendas of tobacco taxation policy, these results highlight the need for the South African government to implement urgently effective measures in order to curb illicit trade.
Highlights
The illicit trade in tobacco products poses a serious threat to public health because it increases access to tobacco by making cigarettes more affordable
We present the data for all four thresholds, the discussion focuses on packs that are sold for R20 or less, because we believe that this is the most accurate estimate of illicit trade
The tax-collecting authority plays a crucial role in ensuring that tobacco companies pay the excise taxes that are due to the government
Summary
The illicit trade in tobacco products poses a serious threat to public health because it increases access to tobacco by making cigarettes more affordable. It is important to implement strong tobacco control policies, and to minimize the illicit trading of tobacco products. In 1994, the country announced a strategy to increase excise taxes rapidly, with the explicit aim of reducing tobacco use, making it one of the first middleincome countries to do so (van Walbeek 2005). Between 1993 and 2003, aggregate cigarette consumption reduced by a third and adult smoking prevalence fell from roughly 33% to 24% (van Walbeek 2005). Since 2004, the decrease in cigarette consumption and smoking prevalence has levelled off (Linegar and van Walbeek 2018)
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