The rationale of cigarette and alcohol taxes in South Africa

M.Com.Abstract: On a domestic scale, there are several considerations that need to be addressed before policies can be formulated. The tobacco industry is a significant contributor through the rural economy, farming and custom duties paid. The liquor industry has also been identified as a key contributor to the South African gross domestic product through employment, exports and social investment, among other factors. Health and the economic contributions are some of the factors used as justification for the taxing cigarettes and alcohol. Socioeconomic factors, consumer behaviour and international trends play a pivotal role in the influence of South African excise policies. The purpose of the research is to investigate the rationale of taxing cigarettes and alcohol in South Africa. In order to investigate the rationale of taxing cigarettes and alcohol available research and literature was identified, analysed and synthesised using the literature review methodology. The literature review methodology will be used to answer the research questions. The literature revealed that an increase in the excise tax rates indeed decreased the prevalence of smoking and drinking. This study found that the rationale of taxing cigarettes and alcohol is health motivated and not revenue driven. The government objective is to protect consumers from the health hazards attached to the consumption of cigarettes and alcohol. The significant collection of revenue from the taxing of cigarettes and alcohol is a derivative from this objective. The economic contributions and external costs that sprout from the taxing of cigarettes and alcohol also outlines the importance of this study