While Botswana Confederation of Commerce Industry and Manpower (BOCCIM) accepts the principle of sin tax thought excise, its President, Leta Mosienyane explained that on the other hand, they strongly oppose the additional 30 percent tobacco levy which came into effect in February 14th 2014.
Mosienyane highlighted that it needs to be understood that BOCCIM is opposed to the proliferation of off budget levies. While BOCCIM accepts the principle of sin tax thought excise, Mosienyane explained that on the other hand, they strongly oppose the additional tobacco levy.
“A separate off budget levy is not only unwarranted and burdensome but complicates our tax at a time when the business community could do with a bit of simplicity to remain competitive. These are levies which are not under the purview of the Ministry of Finance and Development Planning and are not accounted for in the consolidated fund. Our position is that levies, despite the moral desires of those imposing them, have serious economic consequences on the business environment and should therefore be formulated and presented to Parliament by the competent authority on such matters namely; the Minister of Finance during the annual budget or at any other appropriate time. A levy on consumption of tobacco or alcohol invariably hits the poor the hardest,” he explained.
Given the foregoing, BOCCIM is concerned that the tobacco levy will have a number of serious unintended consequences, such that it undermines the livelihoods of potentially thousands of people across the economy. “By our calculations, this will directly impact close to 60 wholesalers, over 2400 formal and informal retailers directly, while potentially impacting over 180,000 workers in the retail sector and multitudes of dependents. The stakeholders represented by BOCCIM should have been consulted on the levy because they are directly affected to mitigate the risks played out with the alcohol industry.
Tobacco Institute of Southern Africa (TISA) also last week released a statement of concern that this will create opposite effects but not the intended reduction of tobacco consumption in Botswana, which is a great concern to the institute.
TISA Chief Executive Officer, Francois van der Merwe said, “As costs of compliance increase, tobacco products become more expensive. Illegal operators seize the opportunity to make huge profits by avoiding the payment of the levies and other taxes imposed by Government. The potential for Botswana becoming a tobacco smugglers’ paradise is created because illicit operators can sell their products at substantially lower prices than the legal products on which the levies and taxes are paid. The playing field becomes uneven with Government losing revenue and the legal tobacco industry losing market share. Illicit trade already accounts for more than 30% in the SA market, which costs the SA fiscus R5 billion per year. This has a direct impact on the income received by Botswana in terms of the Revenue Sharing Agreement. Furthermore, health objectives are not achieved as the environment is created for tobacco consumption to increase because of cheap products in the market, rather than decrease. Everyone loses except the illicit operators.”
Apart from local concerns, TISA argued that the levy goes against the spirit of the SACU agreement as it eradicates trade harmonization and hampers the free flow of goods within the SACU community. The levy also seems to impose a larger burden on importers than local manufacturers, which is in contravention of the SACU agreement. “We call on the Botswana government to afford an opportunity for public‐private sector engagement on the tobacco levy”, van der Merwe concluded.
Also BOCCIM shares the same sentiments with TISA and believes that the levy will precipitate the illicit trade of cigarettes in Botswana. “A second tax on tobacco products will no doubt raise the price of tobacco products and hit low income earners the hardest leading them to resort to illegal brands. Lastly, the levy works against the harmonization of tariff policy at SACU and therefore undermines regional trade facilitation and has implications for revenue sharing. The Government already receives R600 million a year in tobacco excise form the existing 45% total tax incidence consumers have to bear. Imposing an additional tax on an already taxed product only serves to undermine regional integration. Whatever revenues the Government anticipates to derive from the levy in pursuit of the tobacco control agenda, could be undermined by these unintended consequences,” said BOCCIM President.
Botswana Institute for Development of Policy Analysis Research Fellow, Professor Roman Grynberg has said that increasing the tobacco levy will have no appreciable effect on the overall economic environment in Botswana.
The research think tank told Gazette Business in an interview that, if it helps decrease the number people suffering from smoking related illnesses and deaths then it may help the economy. “But it will, as TISA points out, result in a real boost for Zimbabwean smugglers where tobacco remains very cheap by international standards,” he added.
Responding to TISA statement, Prof Grynberg said the statement is obviously self serving but the economics are correct. He said, “the government cannot simply raise the levy without BURS implementing measures to counteract smuggling. There is a need for heavy fines and imprisonment for people or businesses trading in smuggled tobacco need to be implemented. The more differences in taxes are between ourselves and our neighbours and the higher the price the more people will smuggle. In Botswana the DoA used to report the number of chickens being caught smuggled across the border. When you create a price differential for any product you are bound to have smuggling.”
With regards to trade harmonisation by SACU, he said Most of the smuggling of tobacco will almost certainly come from Zimbabwe where the price differentials for tobacco are largest and Zimbabwe is not a member of SACU.
He further submitted that, “the government needs to develop a more comprehensive approach to substance abuse irrespective of whether the substance is alcohol or tobacco. Taxation is important but it can only be one measure. I am surprised that given the high taxes on beer some smart entrepreneur is not importing home-brew kits for brown beer. This is available from all the world and results in what is excise tax free beer.”
Permanent Secretary in the Ministry of Health Dr Malefho in an interview with Gazette Business said their intention is to stop people from smoking and eventually cigarette trading. People smoke too much and it weakens their body immune system. It is expensive to cure diseases that are caused by smoking, therefore we hope if the levy works there should be no Motswana smoking.
Responding to the consultation part, Dr Malefho admitted that indeed they did not consult the affected parties as this was a health decision; however, “we only consulted our health partners. We do not have benefit in tobacco trading, therefore we cannot be talking to people who bring harm to the society. As eluded by SATI, that is the intention to hamper the free flow of tobacco so that it doesn’t destroy our societies.”