The price of essential goods like food increase faster than that of deadly products like cigarettes, said the National Council Against Smoking (NCAS) in a statement released after the Minister of Finances’€™ speech on Wednesday.

‘€œConsidering that the price of a loaf of bread rose by R1 in 2011, an increase in cigarette excise duties of 58c per pack is puny,’€ reads the NCAS statement. ‘€œThis indicates fatal flaws in policy making.’€

Concern about illicit trade

‘€œWe have a crazy situation where the finance ministry is apparently more concerned about the illicit trade in tobacco than about raising revenue or reducing tobacco consumption’€, says Dr Yussuf Saloojee of the NCAS. ‘€œThe government must increase the tax on cigarettes and if the cigarette companies seriously think that this will increase the illegal trade in cigarettes then they can always reduce their profit margins to keep prices lower.’€

The Finance Ministry mechanically calculates the level of excise duty on cigarettes using a dated formula that no longer serves the public good. In 1997, it set the total taxes on cigarettes at 50% of the retail price. This increased marginally to 52% in 2004. At each budget, treasury officials simply look at the recommended retail price of cigarettes and then calculate by how much the tax has to change to keep the rate at 52%.

‘€œA hackneyed method, which fails to optimally tax tobacco so as to increase government revenues, reduce cigarette smoking and cut future health care costs,’€ said the NCAS.

Below WHO recommendation

The tax incidence in South Africa, at 52%, is also well below the World Health Organisation’€™s recommendation that excise taxes should be at least 70% of the retail price.

The World Bank has concluded that making cigarettes less affordable is the single best way of deterring young people from starting to smoke and to get smokers to quit or cut down. Higher taxes also mean higher government revenues.