# 1. **Introduction**

Tobacco is the second leading cause of death and disability worldwide, accounting for 6.3 percent of the total burden (Ng et al. 2014). Moreover, smoking is among the major preventable causes of disease and premature death globally (Doll and Hill 1956; Wynder and Graham 1950). Diseases associated with tobacco use include lung cancer, stroke, ischemic heart disease, and respiratory diseases (DHHS 2004). The World Health Organization (WHO 2017) estimates that tobacco kills more than 7 million people worldwide each year. Lowand middle-income countries, including South Africa, harbor nearly 80 percent of the world’s smokers and are less likely to be informed about the adverse health effects of tobacco use relative to individuals in high-income countries. In South Africa, over 170,000 deaths annually, equivalent to 36 percent of all adult deaths in 2015, were attributed to tobacco use (Stats SA 2017; see table 3).

The proportion of regular smokers among adults in South Africa has shown a marked decline over the past two decades (31.0 percent in 1994 and 18.2 percent in 2012). This is largely attributed to the country’s aggressive tobacco tax policy, one that has made South Africa a global leader in tobacco control. In 1994, the government announced it would increase the tax on tobacco, the excise tax, and the value added tax combined, from 32 percent of the retail price to 50 percent.<sup>2</sup> By 1997, the target had been achieved, and the excise tax was adjusted annually until 2005 to maintain the 50 percent threshold. In 2006, the total tax target was increased to 52 percent and has remained unchanged since. Overall, cigarette sales declined by a third, and government revenue from tobacco taxes rose from R 1 billion in 1993 to R 9 billion in 2009 (ACS 2012). Furthermore, in 1993, with the Tobacco Products Control Act, health warnings were introduced on cigarette packs, and advertising material and smoking was banned in public transport. In 1999, the original legislation was further strengthened: tobacco advertising, smoking in all indoor public areas, and the sale of tobacco to minors were all prohibited.

Even though increasing taxes on tobacco seem to be one of the most efficient measures for reducing tobacco consumption and increasing government revenue, its effectiveness largely depends on how the tax increase impacts the final price paid by consumers (IARC 2011; World Bank 1999). In South Africa, the tobacco industry enhanced the impact of the excise tax and the industry’s profitability- by raising the real retail price by more than the increase in the real excise tax. British American Tobacco has been the dominant cigarette producer and distributor in the country and, prior to 2010, the undisputed price setter. Between 2001 and 2010, the real price of cigarettes rose by 64 percent. Post-2010, the high profits earned by multinationals attracted small cigarette producers that sold at prices significantly lower than the economy brands of their competitors.<sup>3</sup> This changed substantially South Africa’s cigarette market: the real price of cigarettes remained relatively constant after 2010. These changes have made passing excise tax increases onto consumers more difficult, rendering cigarettes more affordable and ultimately resulting in a less effective tool to reduce tobacco consumption (Linegar and van Walbeek 2017).<sup>4</sup>

> 2 In South Africa the excise tax is levied as a specific tax, that is, a certain amount per pack of cigarettes. During the 1970s and 1980s, the excise tax on tobacco was not adjusted for inflation, resulting in a 56 percent decrease in the real value of the excise tax, ultimately eroding its effect on real cigarette prices. The value added tax has remained at 14 percent of the retail price since 1994.

> 3 British American Tobacco’s market share shrank from 91 percent in 2005 to 74 percent in 2016 (Euromonitor International 2017). Its main competitors prior to 2010 were other multinationals (Philip Morris International, Japan Tobacco International, and Imperial Tobacco).

4 Other than in 2010, despite industry claims that a growing illicit cigarette market in South Africa undermines government revenue, there is no evidence of a sustained expansion in illicit trade or that such a trade has undermined tobacco control policy in South Africa (Blecher 2011; Linegar and van Walbeek 2018). Estimates suggest that the illicit trade made up 3– 12 percent of the total cigarette market in 2009, well below the industry claims of 20 percent.

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