News in South Africa 20th January:

1. Vape industry targeted:

National Treasury published a discussion paper on the intended taxation of electronic nicotine and non-nicotine delivery systems – vaping products – on December 15 last year, following the heads-up given by the Minister of Finance in the 2021 February Budget.

Vape industry targeted
Image taken by: Tnarg

The government had signalled its intention to start taxing these new products in the previous two budgets.

Vaping products are mostly unregulated in South Africa, and the Department of Health plans to amend the current tobacco control legislation to include these products in the regulatory framework.

The taxation of this highly profitable new business, which may or may not use tobacco, is given the rationale of the government’s concern over the “health consequences of tobacco consumption”.

Nevertheless, with South Africa’s increasing debt levels, National Treasury is under pressure to increase taxes wherever it can.

Treasury estimates that vaping products generated about R2.54 billion in revenue in 2018.

The average annual growth between 2013 and 2018 was 21.25%.

Vaping delivery devices are battery-powered and do not burn or use tobacco leaves; instead they “vaporise e-liquid solutions to create an aerosol” which is inhaled by the user. The liquid contains a number of chemicals, and may include tobacco oils (or equivalent).

Design of tax system for vaping products

Designing a tax system for vaping products requires taking into consideration many factors, such as:

  • The different components of electric cigarettes such as the battery, vaporising chamber (with or without a heating coil), and the cartridge containing the liquid solution (various chemicals).
  • South Africa has a separate ad valorem excise regime that applies to luxury goods or non-essential goods.
  • Whether a tax should be imposed on the liquid solution based on volume (an amount per millilitre) on a sliding scale, depending on the ratio of nicotine in the solution. E-liquid solutions may indicate the nicotine strength as a percentage of 1ml of liquid – hence a “30ml bottle with 18mg” actually means there is 540mg (30 x 18) of nicotine in the bottle.
  • Whether a tax should be imposed on the liquid solution regardless of whether it contains nicotine, propylene glycol, vegetable glycerine, and flavourings or other ingredients or chemicals.
  • Whether a hybrid excise tax system should be imposed, combining both the solution-based tax and nicotine-based structures. A specific excise rate will be levied per volume of liquid solution measured in millilitres and an additional rate for the nicotine content measured in milligrams.

Treasury has recommended the hybrid excise tax system, which has already been implemented in Latvia. Latvia has imposed an excise tax on e-liquid at €0.01 per ml and €0.005 per 1mg of nicotine.

Excise structure

The excise structure to be implemented will have to address the following:

  • If a solution-based excise tax is implemented, should the applicable rate be a flat rate or should it assume a progressive or tiered structure with bands?
  • If a nicotine-based system of excise tax is implemented, should the nicotine levels be taxed at a flat rate or take a form of a progressive rate structure? And should a threshold above which the tax is payable be applicable?

Treasury cautions that a tax policy design must take into account the administrative feasibility of the tax system.

2. Fuel and food prices to soar:

South African consumers face little reprieve in the coming months as both fuel and food prices look to creep higher, says Investec chief economist Annabel Bishop.

Commenting on Statistics South Africa’s latest CPI data, Bishop noted transport inflation rose from 15% y/y in November to 16.8% y/y in December, as petrol prices rose by 75c/litre.

“While there was a 68c/litre cut in January, a huge increase of around R1.30/litre is building for February on the back of a rising global oil price. Brent crude oil price has reached $87.5 a barrel from closer to $73.5 a barrel a month ago,” she said.

Goldman Sachs Group said this week it sees prices reaching $100 in Q3 2022 as consumption surprises to the upside. An increase of R1.30 a litre in February would once again push South Africa’s petrol prices above the R20/litre mark after a January decrease brought some reprieve at the pumps.

Looking ahead, food price inflation is expected to climb higher as heavy rains have caused crop damage and delayed planting, Bishop said.

“Lower yields are thus expected for crops such as sunflower seeds, maize, sorghum, soybeans, other dry beans and peanuts. The current La Nina phenomenon, expected to last until Autumn, causes extreme rainfall, in contrast to the dry conditions of Le Nino.”

Investec now expects CPI inflation to average closer to 5.3% y/y for 2022, as the December figure established a higher base for the 2022 CPI figures.

3. End to rotational teaching:

The Democratic Alliance (DA) does not believe that there is any justification for continuing with rotational schooling.

With the 2022 academic year now in full swing nationwide, the party intends heading to court to try and force government to allow all learners to return to school on a full-time basis.

The DA said that government’s one-meter policy for schools meant that schools were forced to operate on a rotational basis and as a result pupils only attend 50% of the time.

DA leader John Steenhuisen has labelled this policy as irrational.

“It is also incredibly unequal. Rotational schooling is deepening inequality as it disproportionately impacts poor children from schools in poorer communities who can least afford to miss school,” Steenhuisen said.

Steenhuisen also argued that the one-meter policy was being inconsistently applied.

4. Travel despite Omicron:

South Africa’s airports were still a hive of activity during the traditionally busy December period, despite the discovery of the Omicron variant and return of international travel bans.

The global aviation sector has suffered staggering losses during the pandemic, with travel bans, capacity constraints, and Covid-19 fears resulting in losses of close to $51.8 billion. South Africa’s airlines and airports haven’t been spared.

Airports Company South Africa (ACSA) recorded its worst financial results in history with a net loss of R2.6 billion. The number of passengers passing through Johannesburg’s OR Tambo International Airport dropped by more than 80% in 2020 compared to the previous financial year. Similar downturns were experienced at Cape Town International Airport and King Shaka International Airport in Durban.

Additional waves of Covid-19, driven by new variants, resulting in harsher lockdown restrictions at various points in 2021, did little to aid the airline industry’s rebound. Data supplied by ACSA shows a correlation between Covid-19 waves, rising infections and downturns in passenger volumes at all three major airports.

The exception to this has been South Africa’s fourth wave, which resulted in the highest infection rates but no harsher lockdown restrictions, driven by Omicron.

5. Cape Town water purification struggles:

Despite a shortage of chlorine, which is used to purify drinking water, the City of Cape Town is likely to receive some supplies soon, preventing it from running out.

“Cape Town is planning for an extended period of supply constraints and is executing contingency plans to ensure chlorine is available to meet the national… drinking water quality standards at all times,” mayoral committee member for water and sanitation Zahid Badroodien said in a statement on Thursday.

He also said that tap water is currently safe to drink

NCP Chlorchem, headquartered in Kempton Park in Gauteng, supplies the City of Cape Town. It has faced a double whammy of delays in obtaining imported raw materials due to infrastructure problems at KwaZulu-Natal ports, as well as electricity problems at its plant.

If there are dips in electricity, the production plant often shuts down and needs to be restarted again.

“We did have some hiccups and ran close to empty this time around, but our teams on site are working through the night and doing all possible to get to a higher level of production. We seem to be back to normal levels again now,” the company’s managing director Andre Harding said on Wednesday afternoon.

NCP put out a warning to its customers on Wednesday to say it might possibly run out of chlorine, but it believes there are enough chlorine molecules available so that drinking water will not be impacted.

“Usually we would ask other chlorine manufacturers for help when we run low, but this time they were facing challenges as well,” says Harding. “We are doing all we can to make sure the Cape Town area gets its chlorine supply in time to ensure it does not run out of drinking water.”

Harding points out that, even if there is no chlorine supply, there are alternatives in place, approved by the Department of Water and Sanitation, which can be used as a backup plan.

All information sourced from articles posted by: Moneyweb, BusinessTech, EWN, Business Insider, and Fin24.

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