Higher ‘sin taxes’ likely to come into effect on 1 April

CapeTalk's Lester Kiewit speaks to Professor Corné van Walbeek of the School of Economics, and the Director of REEP (Research Unit on the Economics of Excisable Products) at the University of Cape Town.

Listen below:

Van Walbeek points out that the Budget Speech is usually delivered in February, with the changes coming into effect at the start of the following month. 

But due to the delay this year, he says it's likely they will be implemented on 1 April.

"In the past, the excise tax increases have been completely uncontroversial and have always passed... I think that the producers of these products are pretty sure that these excise tax increases will be effected."

- Prof Corné van Walbeek

Regarding the impact of these increases on consumers, Van Walbeek says many shop owners do not necessarily wait for the following month to hike their prices.

"Sometimes the tobacco industry and the retailers preemptively increase the retail price... Sometimes they do it in the same month, and sometimes there's a delay... there's nothing in the law that says the companies cannot do that."

- Prof Corné van Walbeek

Kiewit raised the issue of the possibility of these higher taxes driving people to rather consume illicit substances and the potential effect of that on communities and the public health system.

Van Walbeek replied that the research data shows that sales of beer are actually on the increase.

"If legal beer consumption is going up by 0.8%, which is more than the economic growth rate... it means that there's very limited scope to make the argument that suddenly there's this huge increase in illicit beer."

- Prof Corné van Walbeek

The professor did concede, however, that there is a problem with the illicit trade of cigarettes, due to the value-to-volume ratio.

Kiewit then asked whether there is evidence that these increased prices encourage people to consume less.

"The evidence is absolutely clear... Even for addictive products like cigarettes, for potentially problematic products like alcohol - we know that if the price goes up, the quantity demanded goes down."

- Prof Corné van Walbeek

Van Walbeek explains that for every 10% increase in the price, the consumption of these products goes down by between 5% and 7%.

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Scroll up to the audio player to listen to the interview.