The Standing Committee on Finance published a report yesterday, summarising the findings of the 2021 Fiscal Framework and Revenue Proposals. This is of particular interest as it relates to a submission made by REEP to the Standing and Select Committees of Finance in early March, addressing the tobacco excise tax increases laid out in the February 2021 National Budget speech.
The document includes a summary of issues raised during the public participation process: “There were some mixed reactions to increasing tobacco and alcohol excise duties by 8 per cent. Some views were that increases are bad and might encourage illicit trade, others opined that the increase in the current context is not appropriate, or high enough, while others expressed satisfaction with the proposed increase above inflation.”
There is also a section highlighting recommendations from stakeholders such as REEP, for tax and revenue proposals. The recommendations on tobacco include:
“4.3.3. On excise tobacco duties, NT and SARS should (1) consider postponing any increases in the applicable excise duties pending the outcome of the announced review as this will provide a better understanding of the potential implications, (2) discard the failed fiscal rule of setting excise taxes to about 50 per cent of the retail price of a popular brand of cigarettes and (3) rapidly move to achieve the World Health Organisation (WHO) and World Bank targets for excise taxes.
4.3.4. In order to crack down on the illicit tobacco trade, (1) there is a need for strong tax administration, (2) prominent; high-tech tax stamps and other pack markings; unique identification codes on packages; export bond; tracking and tracing; better enforcement; increased resources with a focus on large scale smuggling and stronger penalties, (3) there is a need for speedy ratification of the WHO Protocol to Eliminate Illicit Trade in Tobacco Products and implementation of its recommended measures and (4) NT and SARS should not include the tobacco industry representatives in any illicit trade discussions as they are involved to some extent and (5) prioritise additional measures to address tax evasion and illicit financial flows by individuals and companies.”
The committee’s observations and recommendations around the revenue and tax policy issues raised are available on pg 16 (Section 6.3) of the report, and conclude that National Treasury and SARS should engage the relevant civil society stakeholders to find practical solutions. A key concern noted in the letter from Corné van Walbeek and Sam Filby, was around the fact that South Africa has signed but not ratified the WHO Protocol to Eliminate Illicit Trade in Tobacco Products. In section 6.3.3. of the report, the Committee recommend that this protocol be signed.