This page considers the various types of tobacco taxes used by the South African government and presents estimates of their effectiveness in reducing tobacco use. It goes on to present historical trends in tobacco excise taxes, excise revenue, and legal vs illegal cigarette consumption. The page also examines how increasing excise taxes influences tobacco consumption, revenue, and retail price using the Tobacco Excise Tax Simulation Model (TETSiM). Finally, myths regarding tobacco taxes are discussed.
To learn more about the data and methods used in this page, click here.
Tobacco Tax
Policies
Types
of Tobacco Taxes
Import duties tax:
Levied on selected imported goods destined for local consumption (i.e. not in transit).
Value-added tax (VAT):
Levied as a percentage of the value of many different products (in SA the VAT rate is 15%), aimed at raising revenue.
Excise tax:
Typically levied on specific products, like tobacco, alcohol, and (since 2018) sugar-sweetened beverages in South Africa, with the primary aim to discourage their consumption.
Excise taxes are typically levied as:Specific excise tax: Monetary value per quantity (e.g. pack/piece/weight).
Ad valorem excise tax: Levied as a percentage of the product’s value.
See more about excise taxes below.
Excise Taxes
in South Africa
Excise taxes are the most cost-effective measure to reduce tobacco use.
Excise Taxes Defined
Excise Taxes in South Africa
Excise Taxes in South Africa
South Africa’s excise tax is levied as a specific tax. For the 2024/2025 financial year, the excise tax is R21.77 per box of 20 cigarettes.
The excise tax burden (i.e. excise tax as a percentage of the retail price) is targeted at 40%. The total tax burden is expressed as a percentage of the retail price of the most popular brand. While 40% is higher than some other developing countries, it is below the 70% level recommended by the WHO.To avoid the excise tax decreasing in real terms, the National Treasury applies a principle of increasing the excise tax by at least the expected inflation rate, even if the excise tax burden is above 40%. This is particularly relevant in an environment where the nominal retail price of cigarettes is increasing by less than the inflation rate. In fact, since about 2010, the nominal retail price of cigarettes has increased by less than the inflation rate, which means that the real retail price has been decreasing. With the excise tax increasing by at least the inflation rate, the excise tax burden has been creeping up during the 2010–2024 period. The current excise tax burden is between 50% and 55% of the average retail price of the most-sold (legal) brand.
In June 2023, the South African Treasury introduced an excise tax on e-cigarettes at a rate of R2.90 per millilitre, irrespective of nicotine content.
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 by the average smoker) and for overall prevalence (number of people that use tobacco). On average, poorer countries see a larger drop in consumption for a given price increase than richer countries. In high-income countries, a 10% increase in the price of cigarettes is expected to decrease cigarette consumption by an average of 4%. In developing countries, a 10% increase in price is expected to decrease consumption by 4% to 8%.In South Africa, a 10% price increase is expected to decrease consumption by about 6% to 9%.2 3 4 Consumer behaviour varies by brand. A 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.I14early three quarters (73%) of South African adults (79.7% of women and 65.8% of men) supported increasing tobacco taxes.
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.
Legend:
Total cost per cigarette pack (20) in 2023 Rands.
Excise tax per cigarette pack (20) in 2023 Rands.
Source: Vellios and van Walbeek, 2024
The above charts plot changes in cigarette excise taxes, prices, and tobacco excise revenue between 1980 and 2023. The data shows the following trends:
Chart 1 shows that as the excise tax rate increased from the early 1990s to 2004, prices rose, while consumption decreased (Chart 2).
Despite a continued increase in both tax rate and price between 2004 and 2009 (Chart 1), total cigarette consumption and legal cigarette 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, at this point, we see a growing divergence between total consumption and official consumption (Chart 2). From 2010 to 2023, legal cigarette consumption fell drastically, particularly after 2019, while total cigarette consumption remained essentially constant.
The divergence between legal 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).
After the removal of Tom Moyane as the Commissioner of SARS in 2018, the situation stabilised and even improved somewhat in 2019. However, these improvements were undone in 2020 when the government implemented a 20-week ban on the sale of tobacco products as part of its response to the Covid-19 pandemic. The illicit market soared. Even after the sales ban was lifted in August 2020, many people kept purchasing illicit cigarettes.
Illicit cigarette trade has adversely impacted the fiscus. Between 2019 and 2023, excise taxes on domestically produced cigarettes decreased by 47% from R16 billion to R8.5 billion (Chart 3).
Read more here on how the charts were calculated.
Ranking of South Africa’s
Tobacco Tax Policies
South Africa’s tobacco tax policies scored 2.13 out of 5 in 2023 (see map below). By comparison, neighbouring Botswana scored 2.75. The global average was 1.99 in 2023, and for the African region, it was 1.53.
Tobacco Taxation Country Score
The lower the score, the weaker the tax structure
- Tobacco Taxation Score|
- 0 - 0.4
- 0.5 - 0.99
- 1 - 1.49
- 1.5 - 1.99
- 2 - 2.49
- 2.5 - 2.99
- 3 - 3.49
- 3.5 - 3.99
- 4 - 4.49
- 4.5 - 5
- No Data
Source: Tobacconomics, 2024
The five-point scale (0 is a poor tax regime and 5 is best practice) is calculated using four aspects: i) cigarette price, ii) share of retail cigarette prices accounted for by taxes, iii) change in cigarette affordability, and iv) tax structure. In 2021, South Africa scored 2.38 out of 5, higher than the global average of 2.28.16 South Africa’s score is higher than the average score for middle-income (1.78), lower-middle-income (1.42) and African (1.36) countries.
By comparison, however, neighbouring Botswana scored 4.13.Tobacco Taxes
and Loose Cigarettes
Markets for loose cigarettes are large, particularly in Africa, and their consumer base tends to differ from the wider population who smoke. Loose cigarette prices are, on average, higher than those of cigarettes bought in packs, and they respond differently to tax increases.
The features of loose cigarette markets present a challenge for tobacco control policy, especially tobacco tax policy, due to the traceability of sales.
Research suggests that countries with large loose cigarette markets should opt for large rather than incremental tax increases to ensure their full effect and achieve better public health.
Over 80% of shops sell loose cigarettes in South Africa (see chart below).
Percentage of Shops Selling Loose Cigarettes Among Selected African Countries
- Tobacco Taxation Score|
- 0 - 19.99
- 20 - 39.99
- 40 - 59.99
- 60 - 79.99
- 80 - 100
- No Data
Source: Gallien et al., 2023
Impact of Tax Changes
on Prevalence, Revenue, and Price
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 the 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 a possible but unlikely 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 possible but unlikely scenario, it is assumed that the tobacco industry will increase the cigarette retail price by more than the tax increase.
In most countries, the focus of the TETSiM model is on excise tax rather than illicit trade. In South Africa, however, one has to consider the illicit market in the model because the illicit market is larger than the legal market. For South Africa, most of the TETSiM models thus include the illicit market and even allow the illicit market to grow when there is an increase in the excise tax. The quantitative impact of this is very much speculative though.
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
Source: Research Unit on the Economics of Excisable Products (REEP), University of Cape Town
How does the model work?
The model uses an estimate of 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 estimates (or numerical assumptions) of the 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.
Myths and Facts
This section addresses and counters the arguments the tobacco industry around the world uses to oppose tobacco tax increases. The industry’s arguments against tax increases are typically not supported by evidence or are greatly exaggerated.
These arguments are also intended to secure support from non-tobacco industry actors, such as trade unions, other business associations, tobacco growers, organisations concerned about minority rights and poverty, and policymakers concerned about social justice and the economic impact of tobacco taxes.
Myth: High tobacco taxes are regressive and will hurt the poor by making the products expensive.
Fact: Tobacco use especially harms the poor.
Myth: By increasing tobacco taxes, the government unduly interferes with personal choice by denying smokers their right to smoke (‘nanny state’ argument).
Fact: The tobacco industry uses the ‘nanny state’ argument to rationalise its harmful commercial practices and deflect attention from its responsibility for the harm caused by tobacco products.
