Comment to National Treasury of The Republic of South Africa Regarding Taxation of Electronic Nicotine and Non-nicotine Delivery Systems

National Treasury of South Africa
240 Madiba St, Pretoria Central
Pretoria, 0002
South Africa

Thank you for allowing the opportunity to discuss the issue of taxation of electronic nicotine and non-nicotine delivery systems (ENDS). We represent the Consumer Center at the Taxpayers Protection Alliance (TPA). TPA is a non-profit, non-partisan organization dedicated to educating the public through the research, analysis and dissemination of information on the government’s effects on the economy.

As governments attempt to address the critical issue of youth use of age-restricted products (including electronic cigarettes and vapor products), many have put forward policies to enact draconian excise taxes on vapor products. Although addressing youth use is laudable, policymakers should refrain from policies that would affect adult access to tobacco harm reduction products. Rather than limit adult access of such products, The Republic of South Africa should engage in a more enlightened tobacco control policy which recognizes the benefits that reduced risk nicotine products can offer.

Health Effects of Electronic Cigarettes and Vapor Products

Despite recent media reports, e-cigarettes are significantly less harmful than combustible cigarettes. Public health statements on the harms of e-cigarettes include:

Public Health England (PHE): In 2015, a landmark report relying on 185 studies and produced by PHE (a leading health agency in the United Kingdom), found “that using [e-cigarettes are] around 95% safer than smoking,” and that their use “could help in reducing smoking related disease, death and health inequalities.”[1] In 2018, the agency reiterated their findings, finding vaping to be “at least 95% less harmful than smoking.”[2]

As recent as February 2021, PHE provided the latest update to their ongoing report on the effects of vapor products in adults in the UK. The authors found that in the UK, e-cigarettes were the “most popular aid used by people to quit smoking [and] … vaping is positively associated with quitting smoking successfully.”[3] 

The Royal College of Physicians (RCP): In 2016, RCP found the use of e-cigarettes and vaping devices “unlikely to exceed 5% of the risk of harm from smoking tobacco.”[4] RCP is another United Kingdom-based public health organization, and the same group which was the first to highlight the link between smoking and lung cancer, and other tobacco related diseases, in 1962. 

The National Academies of Sciences, Engineering, and Medicine: In January 2018, the academy noted “using current generation e-cigarettes is less harmful than smoking.”[5]

Cochrane Review: Researchers at the Tobacco Addiction Group analyzed studies that examined the effects of e-cigarettes in helping smokers quit. The researchers found 61 studies that had over 16,700 adults that had smoked. The studies compared the instances of quitting smoking using e-cigarettes to other nicotine replacements including nicotine replacement therapy, nicotine-free e-cigarettes, behavioral support and others. Of the available evidence, the authors found that more people “probably stop smoking for at least six months using nicotine e-cigarettes than using nicotine replacement therapy … or nicotine-free e-cigarettes.” The authors also found that e-cigarette “may help more people to stop smoking than no support or [behavioral] support only.”[6]

Society for Research on Nicotine and Tobacco (SRNT): An article in August 2021 co-authored by 15 past presidents of the SRNT reported that “Many scientists have concluded that vaping is likely substantially less dangerous than smoking”. Furthermore, they found that “A growing body of evidence indicates that vaping can foster smoking cessation” and warned “Studies have found that policies intended to restrict e-cigarette use may have unintentionally increased cigarette smoking”.[7]

Excises Taxes Disproportionately Harm Lower Income Persons

Excise taxes are inherently regressive and tend to burden lower income persons. An article from the U.S.-based Cato Institute found that from 2010 to 2011, “smokers earning less than $30,000 per year spent 14.2 percent of their household income on cigarettes, compared to 4.3 percent for smokers earning between $30,000 and $59,999 and 2 percent for smokers earning more than $60,000.”[8] For example, in the U.S., in 2020, among current adult smokers, 54.3 percent reported annual incomes of $24,999 or less. Conversely, only 10.4 percent of adult smokers reported earning$50,000 or more annually.[9]

Although there is limited data from recent dates on income status among smokers in South Africa, previous studies indicate that lower income persons are more likely to smoke. A 2020 analysis used studies conducted in 2017 and 2018 to investigate determinants of smoking intensity in South Africa.[10] The authors found that 40.4 percent of daily smokers were in the lowest two wealth quintiles, compared to only 18.7 percent being in the richest quintile. Moreover, the authors found that “an improvement in household wealth is significantly reduces smoking intensity in the overall sample and among young adults.”[11]

Moreover, many e-cigarette users in South Africa are current and/or former combustible cigarette users, and many have used and/or are using e-cigarettes to quit smoking. A 2020 study in Family Medicine and Community Health found that among South African smokers that had attempted to quit in the past “ever e-cigarette users were more likely than never e-cigarette users to have ever used any cessation aid.”[12]

Excise Taxes Would Deter Persons from Using Less Harmful Products

Policymakers often use tobacco excise taxes to deter persons from using tobacco products. While policymakers should urge South African adults to refrain from deadly, harmful products, as a tobacco harm reduction tool, e-cigarettes are significantly less harmful than combustible cigarettes and should not be taxed at the same rate.

Moreover, numerous studies have found that increased taxes on e-cigarettes reduces e-cigarette use and leads to increase in smoking. A 2021 working paper in the National Bureau of Economic Research (NBER) found that “e-cigarettes are elastic goods and their use substantially reduces cigarette sales.”[13] In late 2021, after lawmakers introduced a national vapor product tax which would have been equal to the federal tax rate on cigarettes, one of the NBER’s paper’s authors analyzed “several studies to stimulate the effect of the … new e-cigarette-only tax.”[14] Michael F. Pesko found that, in the United States, a national e-cigarette tax “would cause 2.7 million more adult daily smokers, 530,000 more teen smokers, and 29,000 more prenatal smokers.”[15]

Nicotine Is Not a Dangerous Substance in Tobacco Products

Research overwhelmingly shows the smoke created by the burning of tobacco, rather than the nicotine, produces the harmful chemicals found in combustible cigarettes.[16] There are an estimated 600 ingredients in each tobacco cigarette, and “when burned, [they] create more than 7,000 chemicals.”[17] As a result of these chemicals, cigarette smoking is directly linked to cardiovascular and respiratory diseases, numerous types of cancer, and increases in other health risks among the smoking population.[18]

Tobacco harm reduction products—including smokeless tobacco, snus, e-cigarettes, and vaping devices—that are already on the market in the United States effectively deliver nicotine without the risks associated with burning tobacco.

Although nicotine in tobacco is the main reason individuals get hooked on smoking tobacco cigarettes, the nicotine itself is not considered a highly hazardous drug. Nicotine does not cause cancer, nor does it contribute to the development of pulmonary disease or cardiovascular disease.

Nicotine is considered a mild stimulant and/or relaxant. It has many of the same properties as caffeine, a highly addicting substance that’s safely consumed by tens of millions of Americans every single day in a wide variety of products. Both nicotine and caffeine enhance concentration and mental performance, produce a sense of well-being, and elevate mood. Both raise heart rates and blood pressure levels temporarily during use. Additionally, abstinence after regular use of both these substances can be difficult and even “unachievable for many users.”[19]

There is no significant scientific evidence connecting major health problems with the use of nicotine alone. However, because nicotine enters the body along with many harmful chemicals while smoking combustible cigarettes, many erroneously believe that it is the nicotine in cigarettes that causes hazardous health conditions such as cancer.

According to Raymond Niaura, Ph.D., professor of social and behavioral sciences at New York University’s College of Global Public Health, existing evidence “indicates that nicotine itself, while not completely benign, carries substantially lower risks than smoking.”[20] This conclusion is shared by the U.S. surgeon general and the U.K. Royal College of Physicians, which agrees “nicotine, while addictive, is not the primary cause of smoking-related diseases.”[21] In a comprehensive study of nicotine health effects, Niaura noted “that even very high doses of medicinal nicotine had little effect on cardiovascular function.” Emphasizing “a continuum of harm among combustible and noncombustible, nicotine containing products,” Niaura urged the use of alternative nicotine products, with “the goal of moving users away from the most addictive, appealing and toxic combustibles to less harmful alternatives — ideally FDA approved [modified-risk tobacco products.]”[22]

Excise Tax Rate Should Reflect Harm

We are concerned that introducing taxation to ENDS and non-nicotine delivery systems (ENNDS) will cause harm to health by deterring smokers from switching from combustible cigarettes to far safer products. If further reductions in smoker prevalence are to be achieved, quit attempts using electronic cigarettes should be encouraged.

As discussed in the consultation documents, the World Health Organization has identified that “the demand for ENDS/ENNDS is price sensitive” and that “ENDS/ENNDS and cigarettes are substitutes – higher cigarette prices are associated with increased ENDS/ENNDS sales”[23]. By the same token, research has shown that when taxation is applied to vaping products, more people continue to smoke or relapse from e-cigarette use. A recent study observed that “e-cigarette taxes increase traditional cigarette use” and warns the data “suggest caution in regulating e-cigarettes because e-cigarette regulations may have a harmful, unintended consequence: increased smoking of traditional cigarettes.”[24]

There is a wealth of evidence that ENDS and other low-risk products are helping smokers to quit and at minimal cost to government. As a result, many countries are now implementing policies so that new technologies can compete with cigarettes. Recent research shows that in countries where liberal policies towards electronic cigarettes and vaping have been adopted, the decrease in smoking rates is twice as fast as the global average[25]. In the UK ‘risk proportionate’ regulation is in place, advised by the RCP and PHE, which promotes e-cigarette use widely as an alternative to smoking.[26] It would be disappointing if South Africa adopted regressive tobacco and nicotine policy just as other countries were modernizing their approach.

Many proposals in the Treasury’s discussion paper would protect the cigarette trade and favor the tobacco industry. Taxation levied based on strength of nicotine – as proposed by the treasury – would penalize newly-switched smokers, who require higher strength liquids to make the switch to lower-risk products. It is important to note that nicotine is not the harmful element in combustible tobacco, but instead the thousands of toxins created once a cigarette is lit.

The Treasury proposes to tax ENDS on the same basis as cigarettes by discussing a “40% benchmark” in the same way that it assesses taxes on smoking. This does not sufficiently differentiate between nicotine products which present orders of magnitude differing  levels of health risk.

Any taxation on ENDS should reflect relative risk and involve a clear price incentive to encourage smokers to switch from very harmful cigarettes to far safer vaping products.[27] In the UK where vaping products have delivered steep declines in smoking rates since becoming mainstream in 2012, ENDS are endorsed for smoking cessation by the NHS and sold as consumer products with only VAT applied.

Taxation of ENDS/ENNDS would make access to lower risk products more difficult, less appealing and more expensive.

Robust Tobacco Control Policy

Rather than taxing e-cigarettes and vapor products, public officials in South Africa ought to invest in a robust tobacco control plan that includes education and prevention measures.

Positive tobacco control campaigns to address youth use of vapor products could include media campaigns and education courses, regulatory oversight of retailers of products to ensure no youth access and working in tandem with education and public health agencies to develop programs to address youth vapor use.

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Conclusion and Policy Implications

• E-cigarettes and vapor products are significantly less harmful than combustible cigarettes and should not be subject to excise taxes.
• Low-income persons are disproportionately impacted by excises taxes. In South Africa, smoking is more common among lower income persons.
• Nicotine, while itself is not benign, is the not the cause of harm related to combustible cigarettes.
• Numerous studies suggest increases and/or introducing excise taxes on vapor products leads to increased combustible cigarette use.
• Many lawmakers justify taxes on tobacco products in an effort to incentivize smokers to quit. As vaping products are less harmful than combustible cigarettes, policymakers should seek to incentivize persons to use them and not subject them to punitive tax rates.
• South Africa should fund robust tobacco control programs that utilize comprehensive education and prevention strategies and refrain from enacting draconian taxation on tobacco harm reduction tools.

[1] A. McNeill et al., “E-cigarettes: an evidence update,” Public Health England, August, 2015, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachm.

[2] A. McNeill et al., “Evidence review of e-cigarettes and heated tobacco products 2018,” Public Health England, February 2018, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/684963/Evidence_review_of_e-cigarettes_and_heated_tobacco_products_2018.pdf.

[3] A. McNeill et al., “Vaping in England: an evidence update including vaping for smoking cessation, February 2021,” Public Health England, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/962221/Vaping_in_England_evidence_update_February_2021.pdf.

[4] Royal College of Physicians, Nicotine without Smoke: Tobacco Harm Reduction, April, 2016, https://www.rcplondon.ac.uk/projects/outputs/nicotine-without-smoke-tobacco-harm-reduction-0.

[5] Committee on the Review of the Health Effects of Electronic Nicotine Delivery Systems, “Public Health Consequences of E-Cigarettes,” The National Academies of Science, Engineering, and Medicine, 2018, https://www.nap.edu/catalog/24952/public-health-consequences-of-e-cigarettes.

[6] Hartmann-Boyce J. et al., “Can electronic cigarettes help people stop smoking, and do they have any unwanted effects when used for this purpose?,” Cochrane Review, September 14, 2021, https://www.cochrane.org/CD010216/TOBACCO_can-electronic-cigarettes-help-people-stop-smoking-and-do-they-have-any-unwanted-effects-when-used.

[7] David J. K. Balfour, et al. “Balancing Consideration of the Risks and Benefits of E-Cigarettes”, American Journal of Public Health 111, no. 9 (September 1, 2021): pp. 1661-1672. https://ajph.aphapublications.org/doi/10.2105/AJPH.2021.306416

[8] 1 Kevin Callison and Robert Kaestner, “Cigarette Taxes and Smoking,” Regulation, Cato Institute, Winter 2014-15, https://object.cato.org/sites/cato.org/files/serials/files/regulation/2014/12/regulation-v37n4-7.pdf. 

[9] Centers for Disease Control and Prevention, “BRFSS Prevalence & Trends Data,” 2020, https://www.cdc.gov/brfss/brfssprevalence/.

[10] Michael Kofi Boachie and Hana Ross, “Determinants of smoking intensity in South Africa: Evidence from township communities,” Preventative medicine reports, April 25, 2020, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7280760//

[11] Ibid.

[12] Israel Agaku et al., “Utilisation of smoking cessation aids among South African adult smokers: findings from a national survey of 18 208 South African adults,” Family Medicine and Community Health, 2020, https://fmch.bmj.com/content/9/1/e000637.

[13] Chad D. Cotti et al., “The Effects of E-Cigarette Taxes on E-Cigarette Prices and Tobacco Product Sales: Evidence from Retail Panel Data,” National Bureau of Economic Research, April 2021, https://www.nber.org/papers/w26724.

[14] Michael F. Pesko, Twitter, November 3, 2021, https://twitter.com/mikepesko/status/1456097441334321156?s=20.

[15] Ibid.

[16] Brad Rodu, For Smokers Only: How Smokeless Tobacco Can Save Your Life, Sumner Books, 1995, p. 103.

[17] American Lung Foundation, “What’s In a Cigarette?,” February 20, 2019, https://www.lung.org/stop-smoking/smoking-facts/whats-in-a-cigarette.html.   

[18] Centers for Disease Control and Prevention, “Health Effects of Cigarette Smoking,” January 17, 2018, https://www.cdc.gov/tobacco/data_statistics/fact_sheets/health_effects/effects_cig_smoking/index.htm.

[19] Brad Rodu, “The True Consequences of E-Cig and Vape Use,” Presentation at the National Association of Tobacco Outlets’ Annual Meeting, April 22, 2015. Full presentation available from author upon request.

[20] Raymond Niaura, “Re-thinking nicotine and its effects,”  Truth Initiative,  accessed June 5, 2019, http://vapit.it/wp-content/uploads/2016/12/ReThinking-Nicotine.pdf. 

[21] Peter N. Lee, “Summary of the Epidemiological Evidence Relating SNUS to Health,” Regulatory Toxicology and Pharmacology, March 2011, https:// www.sciencedirect.com/science/article/pii/S0273230010002229?via%3Dihub.

[22] Raymond Niaura, supra note 20.

[23] Conference of the Parties to the WHO Framework Convention on Tobacco Control Seventh session. Delhi, India 7–12 November 2016.

[24] Pesko et al (2021): The effects of traditional cigarette and e-cigarette tax rates on adult tobacco product use. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7880200/

[25] Vaping Works. International Best Practices: United Kingdom, New Zealand, France and Canada. Property Rights Alliance, 2021. https://www.propertyrightsalliance.org/wp-content/uploads/PRA_VapingWorks.pdf

[26] Promote e-cigarettes widely as substitute for smoking says new RCP report, 28 April 2019. https://www.rcplondon.ac.uk/news/promote-e-cigarettes-widely-substitute-smoking-says-new-rcp-report

[27] Chaloupka FJ, Sweanor D, Warner KE. Differential Taxes for Differential Risks–Toward Reduced Harm from NicotineYielding Products. New England Journal of Medicine 2015;373:594–7.