In June 2023, South Africa will impose a flat excise duty of R2.90/ml on nicotine substitutes, including vaping products. This tax has been anticipated since finance minister Enoch Godongwana announced it in his 2022 budget speech. Vaping manufacturers and special storage warehouses must obtain licenses from the South African Revenue Service (SARS) by June 1, 2023.
Asanda Gcoyi, CEO of Vapour Products Association SA, fears that this tax could harm the R1.5 billion industry by causing a 22% drop in sales. The tax might also drive consumers to the illicit market, as vaping product prices could more than double. Currently, vaping is largely unregulated, but new legislation is in progress.
Vaping’s popularity as a cigarette alternative has grown, especially among youth. A recent study by Professor Richard van Zyl-Smit at the University of Cape Town found that over 25% of high school seniors use vaping devices. This new tax aims to regulate the industry, but the potential consequences remain uncertain.
Q1. Define the term demerit good.
Q2. Explain why vaping is a demerit good.
Q3. Analyse the impact of the new excise duty on the market for vapes in South Africa.
Q4. Discuss whether taxation is an effective solution for reducing the consumption of vapes.
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