Cigarettes taxes and smuggling in South Africa: Causes and Consequences
Stellenbosch Working Paper Series No. WP09/2012Publication date: 2012
Author(s):
[protected email address] (Department of Economics, University of Stellenbosch)
The main instrument within the broader framework of tobacco control in South Africa has been the more aggressive use of tobacco taxes which since 1999/2000 have increased from 0.12 cents per cigarette to 0.38c in 2009/10. The primary goal of these policies is to reduce cigarette consumption and the attendant negative externality. National Treasury (NT) data seem to suggest that these initiatives and higher taxes in particular have been effective in reducing cigarette consumption. However, the official (NT) data pay little attention to the illegal cigarette market which in South Africa has long been assumed to be only a fraction of total cigarette consumption. Comparing an independent consumption survey with the NT data we find that the level of cigarette smuggling in South Africa is in fact significant, constituting between 40% and 50% of the total market, and that cigarette tax hikes have to a large extent contributed to its continued existence and growth by creating a financial incentive to smuggle. Furthermore, the well-established informal sector in South Africa - which developed under Apartheid rule and is characterised by strong networks with other African countries - implies that there is a greater ability and likelihood of consumers switching from consuming legal cigarettes to consuming illegal cigarettes following a tax-induced price increase. There is also much evidence indicating that illegal cigarettes are of inferior quality which, combined with the tax induced shift to smuggled cigarettes, suggests that cigarette tax hikes could have the perverse effect of raising rather than lowering the overall negative externality.
JEL Classification:H23; I18
Keywords:externalities, cigarette smuggling, illegal market, tobacco control
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Monday 28 July 202512:00-13:00
Dr Neil Rankin: Ceo Of Predictive Insights & Stellenbosch University
Topic: "TBC"
12:00-13:00
Prof Willem Boshoff: Stellenbosch University
Topic: "Two competing approaches in South African competition policy: merger control and anti-cartel enforcement over the past 30 years"
12:00-13:00
Professor Johan Fourie: Stellenbosch University
Topic: "Economic History: TBC"
BER Weekly
18 Jul 2025 Encouraging data, but messy politics while US tariff deadline loomsThe big global data prints of the week came on Tuesday, with better-than-expected Chinese GDP growth for Q2 and US core CPI coming in lower than expected, but still (finally) reflecting some signs of tariffs being passed on to consumers. Locally, the uptick in mining production and retail sales was positive for Q2 GDP dynamics. In addition to the data,...
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