Tobacco taxes and government revenue in South Africa

The South African government’s objectives relating to tobacco, primarily deterrence and revenue generation, have since the early 1970s not been maintained. The real value of tobacco taxes fell over the 20-year period 1970 to 1990 and, as a result, consumption steadily increased. Since 1990, however, the government has, despite vociferous opposition from the industry, embarked on a stronger programme of tobacco control and has increased excise taxes in real terms. Uses a simulation model of the government’s non-optimal tax policy to show that revenue could have increased by 2 per cent, had the government maintained the real value of excise duties. These findings suggest that, despite government moves in the right direction, there is still much room for a stronger tobacco taxation policy in South Africa that will enhance government revenue and contain consumption.