Study finds excise tax a better option than cigarette ban in 2020

Had the government raised excise tax substantially instead of banning the sale of tobacco products in 2020, it would have achieved a similar public health outcome, received more revenue and possibly avoided further entrenching the illicit market.  

This is according to a study conducted by Kirsten van der Zee, Samantha Filby and Prof Corné van Walbeek of the research unit on the Economics of Excisable Products (Reep) at the University of Cape Town. 

Their research found the 20-week national ban on the sale of cigarettes in 2020 during the Covid-19 lockdown disrupted the market in SA greatly.

“The ban inadvertently benefited manufacturers who were previously disproportionately involved in illicit activities. These manufacturers increased their market share even after the ban was lifted. The ban may have further entrenched SA’s already large illicit market. Our results show there are unintended consequences associated with a temporary ban on the sale of cigarettes,” they said.

Their paper published in Nicotine & Tobacco Research on Monday confirmed that despite the sale of cigarettes being illegal, most smokers could still get them, but at a hugely inflated price.

“The sales ban distorted the brand composition of the market primarily in favour of local companies that had been previously accused of feeding the illicit market,” they said.

The government imposed a ban on the sale of tobacco products as part of its Covid-19 lockdown response in March 2020. The ban was lifted nearly five months later.

The study found that most cigarette smokers kept on smoking and the sale of cigarettes was widespread despite the sales ban.

“Cigarette prices skyrocketed, with reported prices increasing by an average of 240%. Before March 2020, cigarettes sold for R33.40 per pack of 20, on average, but by June 2020, the average price of a pack had increased to R113.80.”

The ban also upended SA’s previously established brand profile.

“Prior to the ban, brands produced by multinational companies such as British American Tobacco, Philip Morris and Japan Tobacco International made up more than three-quarters of the survey market. However, by June of 2020 many consumers had shifted to brands made by local or regional producers, for example RG and Caesar. By this time, the local brands made up 75% of the market in the sample.”

The researchers found that while most of these market effects were reversed after the ban was lifted, it did have lasting effects.

From a survey a month after the sales ban was lifted, the researchers found prices were 3.6% higher than before the start of the lockdown.

“The multinational companies reclaimed their position as market leaders, but with a substantially lower market share than before the start of the sales ban. Based on the surveys, the market share of the multinationals decreased from 77% before the sales ban to 64% after the ban was lifted.”

Before the lockdown, illicit cigarettes were estimated to make up 25%-30% of SA’s total cigarette market.

“The widespread sale of cigarettes during the ban, the development of new supply chains and the lasting brand shake-up are likely to have further entrenched the already large illicit market.”

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