Impact of Existing and Future Tobacco Control Policies

Raising excise taxes is the most cost-effective measure to reduce tobacco consumption.

Other measures include advertising bans, plain packaging, and smoke-free public places.

A 10% increase in the price of tobacco is expected to decrease consumption by 6% to 8% in South Africa.

In 2019, 65% of the world’s population was covered by at least one tobacco control measure, compared to only 15% in 2007.

This page considers the various types of tobacco control measures used by governments around the world and presents estimates of their effectiveness in reducing tobacco use. It examines how increasing excise taxes influences tobacco consumption, shows that tobacco costs the South African economy more than it contributes, and presents examples of how illicit trade and tobacco industry interference counter the gains made by tobacco control measures in reducing tobacco consumption.

A one page fact sheet with the key information from this page is available here.

To learn more about the data and methods used in this page, click here.

Breaking News

On 1 June 2023, the South African Treasury will introduce an excise tax on e-cigarettes. This tax will be implemented at a rate of R2.90 per millilitre, irrespective of nicotine content of e-cigarettes.

Despite substantial opposition from the vaping and tobacco industry, the government will implement this excise tax, at a rate which is one of the highest in the world. With the positive developments on the taxation of e-cigarettes, there is renewed hope that there will be progress on the Control of Tobacco Products and Electronic Delivery Systems Bill during 2023. Read more about policy related to e-cigarettes here.

Excise taxes are the most cost-effective measure to reduce tobacco use.

Excise Taxes

and Tobacco Consumption


In all countries, as tobacco prices increase, tobacco consumption falls.

This is true both for intensity of use (quantity of tobacco consumed per day) and for overall prevalence (number of people that use tobacco). 

This effect is driven by fewer people initiating smoking and higher numbers of people quitting. The rate that consumption falls as  price increases varies by country. On average, poorer countries see a larger drop in consumption for a given price increase (i.e. greater price sensitivity).In developing countries, a 10% increase in price is expected to decrease consumption by 4% to 8%.

In a sample of 24 African countries, a 10% increase in tobacco excise tax was shown to decrease the prevalence of smoking by between 2.6% and 3.6%.

In South Africa, a 10% price increase is expected to decrease consumption by 6% to 8%.

Consumer behaviour varies by brand. IA 10% increase in price reduces cigarette consumption by 4.3% for the economy brands and 6.9% for the mid-price brands. Beyond the effect on cigarette consumption and prevalence, tobacco excise taxes have been shown to boost economic growth both in the short and long terms, especially through its effect on population health.

South Africa should increase excise taxes further to increase cigarette prices and thereby reduce consumption and increase government revenue. South Africa has lower average cigarette prices than many neighbouring countries. For example, cigarette prices are 65% higher in Botswana, 37% higher in Lesotho, and 4% higher in Namibia.

19611964196719701973197619791982198519881991199419972000200320062009201220152018Year0.005.0010.0015.0020.0025.0030.0035.00Rand per pack (20), constant 2016 prices

Legend:

Total cost per cigarette pack (20) in 2016 Rands.

Excise tax per cigarette pack (20) in 2016 Rands.

Source: REEP & AMPS data. TCDI analysis

The above charts plot changes in cigarette excise taxes, prices, and consumption between 1961 and 2018. The data shows the following trends:

Chart 1 shows that as the excise tax rate increased from the early 1990s to 2004, prices rose. Over the same time, consumption decreased (Chart 2).

Despite a continued increase in both tax rate and price between 2004 and 2009 (Chart 1), total consumption and official consumption remained roughly constant (Chart 2), primarily because South Africa experienced rapid economic growth during that time and the resulting increase in average incomes balanced out the effect of rising prices.

From 2010 onward, both the tax rate and the price of cigarettes essentially remained constant (Chart 1). However, it is at this point that we see a growing divergence between total consumption and official consumption (Chart 2). On average, from 2010 to 2018, official consumption fell while total consumption remained essentially constant.

The divergence between official and total consumption is explained by the expansion of the illicit trade in cigarettes in the 2010s, especially from 2015 onwards, largely due to weakening enforcement capacities at the South African Revenue Service (SARS).

Read more here on how the charts were calculated.

The Tobacco Excise Tax Simulation Model (TETSiM) is a simulation tool that quantifies the likely impact of a change in the excise tax on cigarette consumption, government excise revenue, and cigarette prices.

The South African TETSiM presented below was developed by the Research Unit on the Economics of Excisable Products at the University of Cape Town. It takes into account the characteristics of the South African tobacco market, for instance that South Africa has a uniform specific excise tax structure (i.e. the excise tax is the same for all cigarettes, irrespective of price, brand, or other product features). The model has 100 separate simulations from a 1% increase to a 100% increase in a tax amount. Read more about how the model works here.

The charts below display three estimated outcomes for each percentage increase in excise tax:

1.

Consumption of cigarettes by consumers,

2.

Excise tax revenue for the government, and

3.

Cigarette retail price.

Exact cigarette prices after excise tax changes are difficult to predict.  The charts therefore display a range of estimates, which range from a conservative to an extreme scenario.

In the conservative scenario, it is assumed that the tobacco industry will increase the cigarette retail price by less than the tax increase 

In the extreme scenario, it is assumed that the tobacco industry will increase the cigarette retail price by more than the tax increase

The TETSiM visualisation below shows the simulated decrease in cigarette consumption for various excise tax increases. The higher the excise tax, the fewer cigarettes will be consumed.


Simulated cigarette consumption after tax change


View consumption by:
Number of cigarette packages
Consumption change (%)
0255075100% change in excise tax-35.00%-30.00%-25.00%-20.00%-15.00%-10.00%-5.00%0.00%Change in cigarette consumption (%)


Source: Research Unit on the Economics of Excisable Products (REEP), University of Cape Town

How does the model work? 

The model uses what is known in economics as the “price elasticity of demand” to estimate how a change in the excise tax rate or structure (and ultimately, a change in the retail price of cigarettes) will affect the consumption of cigarettes. These changes will in turn cause a change in government revenue, tobacco industry revenue, etc. The model also uses the concept of “cross-price elasticity of demand” to estimate how an increase in the price of one brand of cigarettes will impact the consumption of a cheaper brand of cigarettes. Read more about the TETSiM methodology and assumptions.

Click on the images below to read more about the impact each measure has had on smoking prevalence in various countries around the world.

R42 Billion

In South Africa, the economic cost of smoking was estimated at R42 billion in 2016.

This includes total healthcare costs (R14 billion), the cost of productivity loss (R369 million), and the cost of premature death (R28.5 billion).

Conversely, over the 2016/2017 period, the tobacco industry generated just R12 billion in excise taxes, which is about 1% of total government revenue. This means that the economy loses R3.43 for every R1 raised from tobacco tax revenue.

economics of tobacco

The economic cost of tobacco (R42 billion in 2016) could:

Build approximately 250,000 Reconstruction and Development Programme (RDP) houses.

Pay approximately 215,000 high school teachers for a year.

Provide approximately 8.8 million children with the Child Support Grant for a year.

To see how the infographics were calculated, go to the Policies section of Data and Methods here.

Impact of Mechanisation

on Job Losses


Tobacco job losses are affected more by mechanisation than tobacco control measures

Flawed tobacco industry-funded research claims that tobacco policies that cause a decline in tobacco consumption lead to job losses and reduce economic growth. It overestimates the number of jobs in tobacco by conflating part-time and seasonal work with full-time employment. It also ignores that most tobacco farms grow multiple crops.

More importantly, these studies ignore that a decline in tobacco expenditure is usually associated with increased spending on other goods and services in the economy, leading to growth in those sectors. Thus job losses in the tobacco industry do not necessarily lead to a decrease in employment overall, as jobs are created in other sectors. Rather, most studies have found that there is a net increase in employment after tobacco expenditure decreases.

In the South African context, one study found that eliminating the domestic tobacco industry would result in a net gain in jobs (0.4% increase) if consumer spending switched from tobacco to other goods and services (eg.clothing, transport, communication, education, and recreational goods).

The net effect on employment may be negative in the small number of countries that are heavily dependent on tobacco (South Africa is not one of these countries). Even in those cases, the effect would be gradual, allowing government time to allocate resources to assist in livelihood transition.

For example, when taxes on tobacco increased in the Philippines in 2012, 15% of the newly generated revenue was directed to assisting tobacco farmers and workers to find alternative forms of work.

Where there have been large job losses in the tobacco sector, the losses are largely due to advances in farming techniques and manufacturing processes. Increased mechanisation has resulted in a decrease in the use of human labour. Increased mechanisation decreased the use of human labour. The privatisation of the tobacco industry (in many countries, but not in South Africa) has also led to a decline in jobs as companies cut costs in order to remain competitive.

tobacco farming

In 2020, as part of South Africa’s COVID-19 lockdown, the South African government imposed a ban on the sale of all tobacco products. While the ban was initially intended to last for three weeks, it was ultimately in place for 20 weeks (from March to August). South Africa was one of only three countries to ban the sale of tobacco during the pandemic, and its ban was the longest: Botswana banned tobacco sales for 12 weeks and India for six weeks.

While not necessarily nationally representative, various studies assessed the impact of the sales ban:

Smoking cessation can be encouraged with many different measures. Effective methods include nicotine replacement therapy, Champix, Zyban, training, counselling, quit-and-win schemes, and cognitive behavioural therapy.

Combining measures improves their efficacy, with, for example, quit rates quadrupling when behavioural therapy is coupled with nicotine replacement therapy.

In 2010, signatories of the WHO FCTC

(which South Africa signed in 2003) adopted guidelines which encourage parties to implement tobacco cessation promotion activities, such as healthcare professionals screening for tobacco use, providing advice, and offering cessation treatments at clinics (all of which are shown to significantly increase the likelihood of smoking cessation).

Although South Africa has made efforts to incorporate tobacco dependence treatment into the healthcare system,

only 29.3% of smokers received cessation advice from a healthcare professional in 2012. Further, there was no evidence of an increase in the proportion of smokers receiving cessation advice between 2007 and 2017.65 There was, however, an association between receiving cessation advice and making a quit attempt in all survey years, which highlights the importance of scaling up cessation advice in South Africa.

Evidence-based nicotine-dependence treatment is not included in South Africa’s Essential Drug list and must be paid out-of-pocket, a challenge for many South Africans.

Including these treatments on the South African Essential Drugs list and adding coverage for smoking cessation treatment within the incoming National Health Insurance may increase access and utilisation of evidence-based cessation aids among smokers in South Africa.

The tobacco industry is known for using a range of tactics to prevent or reduce government regulation of tobacco products and usage. Public relations campaigns, funding politicians, paying for research, and using front groups are some of the ways in which the industry tries to further their own interests.

Illicit Trade


The tobacco industry has used the presence of illicit trade to argue for lower taxation and to draw attention and efforts away from implementing new tobacco control policies.

Tobacco Industry Influence


The tobacco industry is known to use political contributions, front groups, lobbying and biased research findings to influence governments that are pursuing increased regulation of the industry.

Increasing numbers of countries are implementing tobacco control policies, ranging from graphic warnings and advertising bans to increases in excise taxes and the introduction of smoke-free laws.

Policies and programs designed to reduce the demand for tobacco are cost-effective. These include significant tobacco tax and price increases, comprehensive bans on tobacco marketing, graphic health warnings, smoke-free public places, and the provision of wide-scale tobacco cessation programs. Of these interventions, significant tobacco taxes and price increases are the most cost-effective.

Control of the illicit trade in tobacco is a key supply-side policy to reduce the prevalence of smoking and its health and economic consequences. Other supply-side interventions, like restrictions on production, are generally not perceived as particularly successful or impactful. However, where there is a decrease in tobacco production, farmers should be helped to find other livelihoods.

The tobacco industry uses a wide range of tactics to oppose any policies that might reduce sales. These include strategies such as political lobbying, financing research, attempting to influence regulation and policy, and using corporate social responsibility initiatives as part of their public relations campaigns.

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