What is sin tax and how has it increased?

Sin tax is the name given to tax levied on cigarette and alcohol products. The only way it has changed over the last five years is that excise duties increase quite substantially every year.

The sin tax increase for the last tax year raised R36-billion in additional tax revenue. Last year, excise duties on a 340ml of beer, cider or alcoholic fruit beverage increased by 10%. Duties on traditional African beer remained unchanged.

Wine drinkers paid 30c more per litre as the duties increased from R3.61 to R3.91 per litre. The tax on spirits increased to R190.08 per litre, up from R175.19. This amounts to about R61.30 in excise duties per 750ml bottle, a staggering increase.

Smokers paid R15.52 in tax per box of 20 cigarettes, an 8.5% increase from a rate of R14.30 per pack, also a whack of an increase. Excise taxes are a certainty at an above inflation rate, which has been the case since 2002. Because of the tax revenue windfalls resulting from the hikes, it is likely to continue.

Does it work?

Many governments claim they impose sin taxes to dissuade people from smoking and drinking alcohol. While this does have a ring of truth and it’s certainly an incentive not to indulge, the point is does it really work? Many governments (including that of South Africa) have also started imposing tax on sugary drinks to help stop obesity.

Studies have shown that sin taxes do lead to lower consumption. The amount varies according to the study being used to illustrate this fact.

Economists in the US have found as a rule of thumb that a 1% rise in the price of tobacco and alcohol has led to a 5% decline in sales. While it is too early to gauge if the obesity tax has had any effect, it more than likely will lead to reduced sales.

Less effective on binge drinking

According to data in the US, New Hampshire consumes some 4.55 gallons of alcohol per capita per year. It also has the lowest taxes on alcohol, with only beer being taxed at 30c per gallon. There are no taxes on wine or spirits. Alcohol taxes also appear to less effective at having any effect on binge drinking.

According to a research paper by the World Health Organisation and quoted in the Cape Business News, “In the past decade the South African government has substantially increased the excise tax on tobacco for health reasons.”

The paper also states that “econometric evidence also indicates that the resulting price increases have had a significant impact on cigarette consumption”.

Quality of life

However, from research conducted by a Facebook poll, respondents gave quality of life and health, not price, as the main reasons for quitting. It is likely that in the case of sugary drinks, the reason will be the same for the drop in sales.

Probably, what the government slap of sin tax has done is motivated people who were thinking about health issues, to quit buying products that were harmful to their health.

The problem of binge drinking remains a big issue, both socially and economically. Nothing seems to have any effect on the purchase of alcohol for this sector and it could be that only psychological intervention will have any effect.


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