Batsa comes up with plan to make legal cigarettes affordable

Against a background of a negative impact on the country’s tobacco industry due to months of Covid-19 lockdowns, British American Tobacco South Africa (Batsa) has come up with a set of recommendations to government, which include an excise freeze on factory-manufactured cigarettes aimed at making it possible for consumers to afford legal cigarettes.

According to an independent study by the University of Cape Town’s (UCT) research unit on the economics of excisable products, the duty not paid (DNP) cigarette market grew by 104% during lockdown.

Batsa said its proposals would significantly reconfigure the market – forecasting a R5.8 billion sticks growth in legal volumes by next year, with excise revenues increasing to R2.5 billion.

The UCT study also concluded:

• Peter Stuyvesant, the most popular brand in the duty-paid segment, plummeted by over 54%.
• Excise revenues for the current fiscal year would fall by 32%, while R13.7 billion in excise revenue would be lost to the DNP market. Cautioning that the tobacco market was “almost completely taken over by criminal syndicates”, the research found numerous illegal products were selling at pre-ban prices “that clearly could not have paid excise duties. “What is more concerning is that the ban allowed the development of strong and sophisticated trans-border criminal networks of illicit players,” it said.

Other recommendations were:

• An excise increase in line with inflation;
• A proposal for government to adhere to its own policy on tobacco products, aiming for a 40% excise incidence, based on the most popular price category; and
• Tobacco heat sticks products be taxed in the same way as factory-manufactured cigarettes.

In the 2020-21 budget, government announced the taxation of tobacco sticks at a rate equal to 75% of excise on cigarettes. Batsa argued that the heat stick was “manufactured in the same way as cigarettes and ready for consumption without an effort to create a consumable stick, as is necessary for loose tobacco.

“However, in the implementation of this proposal, there was a shift in calculation to loose tobacco weight measure, which we want to propose that National Treasury should correct as part of the consultation process.

“In the 2020 Draft Rates Bill, National Treasury converted the excise into weight measurements [where] heat sticks are levied excise … equal to 28% of cigarettes”. The outcome was “not aligned to the legislative intent”, leading to government losing millions.

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