Government should not raise taxes on cigarettes, says economist
State revenues from excise duties have been declining, despite higher consumption rates and higher duties
The government should not raise excise taxes on tobacco products until it manages to rein in the thriving illicit cigarette market, says Azar Jammine, director at economic consultancy Econometrix. Despite successive tax hikes, state revenues from excise duties on cigarettes declined by R1.9bn in the past two financial years as more consumers turned to illegal brands that evade these taxes, according to an Econometrix study commissioned by British American Tobacco SA. And even though the consumption of cigarettes has been rising, state income from the industry has fallen well short of National Treasury’s own forecasts in recent years, the study shows. “Any further increases in excise duties will damage rather than enhance revenue collection for the government,” Jammine said. “The most effective thing to do right now is freeze the excise duty — it won’t increase revenue for government but at least it will not cause a decrease, which other alternatives risk doing.”
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