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Learn from cigarette tax

Friday, 22 August 2014   (0 Comments)
Posted by: Author: BDlive
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Author: BDlive 

Taxation is a necessary evil in modern societies, but it is no panacea, as the South African Revenue Service (SARS) has learnt through its experience with cigarette taxes.

The government should therefore think twice before following the advice of researchers led by the University of the Witwatersrand, who concluded in a study published by the Public Library Service earlier this week that a 20% tax on sugar-sweetened drinks could cut the number of obese South Africans by almost a quarter of a million and save both lives and money.

Addressing Parliament’s trade and industry committee on Tuesday, SARS chief customs and enforcement officer Gene Ravele lamented the fact that the illegal trade in cigarettes "lost” the state more than R3bn in excise duty and value added tax in the past year. But rather than make the obvious link between excessive taxes, which comprise more than half the retail price of a pack of cigarettes in SA at present, and rampant smuggling, the department seems to believe the solution is stricter enforcement of the law and better policing of the country’s porous borders.

This is an exercise in futility, because all taxes create perverse incentives and the more punitive they are the more they encourage people to cheat. There may be more law-abiding societies than SA, with more efficient police services and borders that are easier to control, where it is possible to impose swingeing taxes and prevent them from being circumvented, but we have a way to go before we are that country. There is a point where "sin taxes” become counterproductive.

Rather than reducing smoking and improving the nation’s overall health, excessive cigarette taxation results in less revenue for the fiscus, more cigarettes of dodgy quality being smoked, and a thriving unregulated, illicit industry actively encouraging youngsters to take up the habit.

The most compelling reason for caution, however, is clear evidence that using taxes as a blunt instrument to achieve social goals does not work. Alcohol is also heavily taxed, yet alcohol abuse remains rampant. Sales of fuel-guzzling SUVs have actually increased since an emissions tax was imposed. Taxing sugar is not the way to deal with obesity — education is, but that is unfortunately not the short cut politicians tend to favour.

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