Potential revenue from taxing e-cigarettes and comparison of annual costs of daily e-cigarette use versus daily cigarette smoking among South African adults
Noticed today not sure if its been posted before I couldn't find it on the forum. Its quite a long research paper.
http://www.tobaccoinduceddiseases.o...son-nof-annual-costs-of-daily,131861,0,2.html
This is just an extract of the report produced, to read the very long full report click on the link above or download the attached PDF file at the end of the post.
ABSTRACT
Introduction:
To inform policy making under the proposed The Control of Tobacco and Electronic Delivery Systems Bill, we compared annual costs of using e-cigarettes versus cigarettes, and estimated revenue from e-cigarette taxation.
Methods:
We extracted e-cigarette retail prices from 231 South African e-cigarette vendor websites. We compared annual costs associated with daily cigarette smoking (self-reports from daily smokers in the 2018 South African Social Attitudes Survey, SASAS) versus daily e-cigarette use (based on cumulative costs of consumables plus device costs). We estimated revenue from excise tax if e-cigarettes were taxed at 75% (the rate proposed by the government) and 37.5% (half of the government’s proposal as a hypothetical scenario) of the cigarette excise rate. We applied the different rates to e-cigarette consumption in 2018 SASAS and projected for 2021.
Results:
Mean annual cost associated with daily use was ZAR 6693 (US$460.32, based on an exchange rate of about 69 US$ to 1000 ZAR) for manufactured cigarettes; for e-cigarettes, this ranged from ZAR 8574.69/year (with price minimizing strategies) to ZAR 19780.83/year (retail products exclusively). Expected revenue from e-cigarette excise tax at 75% of the cigarette tax rate was up to ZAR 2.20 billion (95% CI: 0.96–3.44). If taxed at 37.5% of the cigarette tax rate – half of the government’s proposed rate – the projected revenue was up to ZAR 1.10 billion (95% CI: 0.48–1.72). Of the projected revenue from e-cigarette excise tax at 75% of the cigarette rate, the portion attributable to hardware (device and batteries) was 61% (ZAR 1.35 billion), while the portion attributable to e-liquid was 39% (ZAR 0.86 billion).
Conclusions:
Calculated daily costs were higher for e-cigarettes than cigarettes. We recommend an e-cigarette excise tax. The government’s proposed tax rate may reduce youth e-cigarette access, while allowing adult smokers wishing to switch exclusively to e-cigarettes to reduce their tobacco-related harm.
1. E-cigarettes are not regulated under the Tobacco Products Control Act of 19932-4. Although e-cigarettes are required to be registered with the Medicines Control Council for legal sale; they are currently promoted as consumer products5.
To protect youth from e-cigarettes, South Africa proposed The Control of Tobacco and Electronic Delivery Systems Bill, which aims to regulate e-cigarettes as traditional tobacco products6. To inform policy making on e-cigarettes in South Africa, data are needed on price, especially as this is a major determinant of demand among youth7. Data on pricing are especially important to evaluate the claim by the e-cigarette industry that e-cigarettes are cheaper than traditional cigarettes8, a claim that seeks to increase product appeal, acceptance, and use. Both cigarette smokers and e-cigarette users are known to utilize various price-minimizing strategies, and estimation of price must account for these various tax avoidance strategies9,10.
This study has two objectives. The first is to assess comparative costs of using e-cigarettes versus cigarettes daily among South African adults. Analyzing daily users ensured balanced comparisons using reasonably ‘exchangeable’ groups. Second, we estimated how much revenue can be generated from implementing excise taxes on e-cigarettes in South Africa.
10. One of the authors, IA, registered on the forum on 9 April 2019 and posted the following question: ‘Curious how much variation in total MONTHLY cost from vaping is within the vaping community and how this differs between newbies versus the more experienced vapers. Please, can you tell me your average monthly cost and how long you have been vaping?’. A total of 20 responses to the question were analyzed (Supplementary file Table S2). Users also provided estimates of the amount of e-cigarette liquid they consumed weekly; the modal response was approximately 200 mL/week (e.g. ‘about 60 mL of juice every 2nd day’ or ‘pretty much 2 × 100 mL a week’). We conservatively used half of this quantity (100 mL/week) as representing the ‘average’ user, given the possibility that users on dedicated e-cigarette forums such as ECIGSSA may be outliers in their pattern of e-cigarette use. For e-cigarette price minimizing strategies, we estimated costs assuming consumables like coils or refill liquids were homemade (i.e. do-it-yourself or DIY).
11. Reflecting this, the e-cigarette tax should be lower than cigarettes. The South African Finance Minister announced plans for excise tax on heated tobacco products at the rate of 75% of the cigarette tax rate in cognizance of the potential for harm reduction12,13. In this study, we estimate potential revenues from implementing e-cigarette excise tax at the announced rate of 75% of the cigarette excise tax rate; we also made estimates at 37.5% of the cigarette excise tax rate (half of the proposed threshold) as a hypothetical worst case scenario to examine what the government revenue would be under this assumption (e.g., if we assumed the own price elasticity of demand for e-cigarettes was twice that for cigarettes).
(2) While e-cigarettes have some potential to help adult, non-pregnant smokers quit if used exclusively in lieu of cigarettes14, concerns exist regarding population-level harms such as youth initiation. Given that youth are generally price-sensitive, imposing excise taxes on e-cigarettes may discourage youth initiation while allowing adults to benefit from them. On the other hand, not taxing e-cigarettes would make them more affordable to youth and lead to an epidemic of use.
(3) To adopt a pragmatic approach that acknowledges real-world patterns of use and ensure effective tax collection, we focus on e-cigarette device, batteries (including replacements), and refill liquids, but not other consumables such as coils, which could easily be homemade. Similarly, our analyses assume that e-liquid used was mixed by the user from marketed concentrates as a price-minimization strategy (discussed below).
(4) Taxation of e-cigarettes should be based on ‘typical’ consumption patterns, bearing in mind that the ‘average’ South African e-cigarette user is behaviorally different from the ‘average’ South African cigarette smoker. Most current cigarette smokers are daily smokers, whereas most current e-cigarette users are only occasional users; in the 2018 SASAS, 65.3% and 75.5% of all ever and current smokers of manufactured cigarettes, respectively, were current daily smokers, whereas only 18.0% and 27.1% of ever and current e-cigarette users, respectively, used e-cigarettes every day. These considerations become relevant when deciding what amount of e-liquid consumption is equivalent to a cigarette pack for taxation purposes. We propose that 1 cigarette pack is equivalent to 100 mL of e-liquid based on ‘typical’ weekly cigarette consumption among non-daily cigarette smokers, and e-liquid consumption for the ‘typical’ e-cigarette user, who is a non-daily user as well. From 2018 SASAS, non-daily cigarette smokers reported 3 sticks as their median number of cigarettes smoked per day on the days they smoked (mean = 7.34). A pack of 20 cigarettes is therefore the average maximum quantity smoked per week for the non-daily cigarette smoker (considering the median cigarettes smoked per day) and could therefore be considered, for taxation purposes, equivalent to 100 mL of e-liquid, the average weekly consumption for e-cigarette users. Henceforth, we refer to 100 mL of ready-to-use e-liquid as 1 cigarette-pack-equivalent (CPE) of e-liquid for tax purposes, regardless of whether user-mixed or pre-mixed.
For our calculations, estimates are generated for 31 December of a given year and apply to the whole year. To estimate potential revenue from taxation of e-cigarettes, we examined hardware (device and batteries) separately from e-liquids. We assumed only one device per year, one replacement battery per month of usage, and e-liquid consumption based on ad libitum usage. We assumed e-cigarette users will mix their own liquid as a tax avoidance strategy (i.e. will DIY 100 mL of user-mixed liquid from 1 pack of 10 mL concentrate, rather than purchasing 100 mL of pre-mixed liquid). Device price used in our estimation was averaged across ‘mods’.
We divided e-cigarette users into four groups, by frequency of e-cigarette consumption, based on data in 2018 SASAS: 1) ‘every day’, 2) ‘some days’ 3) ‘stopped completely less than 6 months ago’, and 4) ‘stopped completely more than 6 months ago’. Prevalence and extrapolated counts were generated for each of these categories using nationally representative weights. Assumed consumption patterns, based on parameters obtained from ECIGSSA, were as follows:
Group 1 (daily users) – consume 1 CPE of e-liquid (100 mL) per week, 52 weeks in a year. From a DIY perspective, this is equivalent to 1 pack of 10 mL concentrate per week, or 52 packs of 10 mL concentrates per year, since each pack of 10 mL concentrate yields about 100 mL of vape juice on mixing.
Group 2 (non-daily users) – consume 75% of the e-liquid as the daily users since they also use e-cigarettes throughout the year, albeit non-daily.
Group 3 (regular users for half of the year) – consume 50% of e-liquid as the daily users as we assume, they used an e-cigarette at least all through the first half of the year.
Group 4 included not only individuals who may have used e-cigarettes for part of the current year before quitting, but also those who quit before the current year.
To estimate the number in just the current calendar year, we used an ‘all or none assumption’, i.e. that all of those individuals used e-cigarettes for parts of the current calendar or none of them used for any part of the year. A third assumption was that the number who quit in the earlier half of the current calendar year (i.e. subset of Group 4 restricted to the current year) was numerically equal to those who quit in the latter half of the year (i.e. Group 3). In analyzing Group 4, we applied 25% of the consumption rates of daily users to this group, assuming they used e-cigarettes for ≤3 months in the current calendar year.
15. Hence, 75% of this amount yields ZAR 11.64, while 37.5% yields ZAR 5.82 per cigarette-pack-equivalent of e-cigarette liquid. Total tax was the sum of e-liquid and hardware taxes. We generated total projected taxes for 2021 from the 2018 estimates based on market forecasts for e-cigarettes in South Africa during 2018–2021 by Euromonitor International, a global market research firm (forecast: 24.9% increase in consumption during 2018–2021)1. Regression analyses were performed to explore the relationship between cost and product type using the online vendor data. Data were analyzed with Stata Version 14 in 2020.
15. To estimate total cigarette excise taxes for 2018, we used the 2018 SASAS data. All parameters were self-reported. In brief, we summed expected annual consumption for daily and non-daily smokers. Total revenue on cigarettes by daily smokers assuming they smoked all 365 days of a year was:
Total cigarette expenditure =(Mean number of cigarettes per day × days smoked in a year/20) × average pack price
We assumed daily smokers smoked all 365 days in a year and that non-daily smokers smoked 75% of the year. Analyses also accounted for former smokers who smoked for part of the year as described above for e-cigarettes. We applied the cigarette excise tax rate of 40% to total cigarette expenditure during the one-year period exclusive of value added tax (i.e. calculations based on pre-VAT price) and generated the final expected revenue by subtracting lost revenue because of illicit cigarettes from the total projected excise tax. The extent of illicit trade was estimated in 2018 SASAS with the question: ‘Overall, how many of the cigarettes that you have smoked could possibly be counterfeit or illegal (tax not paid/smuggled)?’. Response options were ‘none’, ‘a little’, ‘about half’, ‘most’, and ‘all’. Using these responses, we estimated the magnitude of illicit trade as 33.21%, based on the sum of the following percentages with corresponding weights: % ‘none’ × 0, % ‘a little’ × 0.25, % ‘about half’ × 0.5, % ‘most’ × 0.75, and % ‘all’ × 1.0)16. Similar estimates of up to 30–35% for illicit cigarette trade in South Africa have been reported elsewhere
Noticed today not sure if its been posted before I couldn't find it on the forum. Its quite a long research paper.
http://www.tobaccoinduceddiseases.o...son-nof-annual-costs-of-daily,131861,0,2.html
This is just an extract of the report produced, to read the very long full report click on the link above or download the attached PDF file at the end of the post.
ABSTRACT
Introduction:
To inform policy making under the proposed The Control of Tobacco and Electronic Delivery Systems Bill, we compared annual costs of using e-cigarettes versus cigarettes, and estimated revenue from e-cigarette taxation.
Methods:
We extracted e-cigarette retail prices from 231 South African e-cigarette vendor websites. We compared annual costs associated with daily cigarette smoking (self-reports from daily smokers in the 2018 South African Social Attitudes Survey, SASAS) versus daily e-cigarette use (based on cumulative costs of consumables plus device costs). We estimated revenue from excise tax if e-cigarettes were taxed at 75% (the rate proposed by the government) and 37.5% (half of the government’s proposal as a hypothetical scenario) of the cigarette excise rate. We applied the different rates to e-cigarette consumption in 2018 SASAS and projected for 2021.
Results:
Mean annual cost associated with daily use was ZAR 6693 (US$460.32, based on an exchange rate of about 69 US$ to 1000 ZAR) for manufactured cigarettes; for e-cigarettes, this ranged from ZAR 8574.69/year (with price minimizing strategies) to ZAR 19780.83/year (retail products exclusively). Expected revenue from e-cigarette excise tax at 75% of the cigarette tax rate was up to ZAR 2.20 billion (95% CI: 0.96–3.44). If taxed at 37.5% of the cigarette tax rate – half of the government’s proposed rate – the projected revenue was up to ZAR 1.10 billion (95% CI: 0.48–1.72). Of the projected revenue from e-cigarette excise tax at 75% of the cigarette rate, the portion attributable to hardware (device and batteries) was 61% (ZAR 1.35 billion), while the portion attributable to e-liquid was 39% (ZAR 0.86 billion).
Conclusions:
Calculated daily costs were higher for e-cigarettes than cigarettes. We recommend an e-cigarette excise tax. The government’s proposed tax rate may reduce youth e-cigarette access, while allowing adult smokers wishing to switch exclusively to e-cigarettes to reduce their tobacco-related harm.
1. E-cigarettes are not regulated under the Tobacco Products Control Act of 19932-4. Although e-cigarettes are required to be registered with the Medicines Control Council for legal sale; they are currently promoted as consumer products5.
To protect youth from e-cigarettes, South Africa proposed The Control of Tobacco and Electronic Delivery Systems Bill, which aims to regulate e-cigarettes as traditional tobacco products6. To inform policy making on e-cigarettes in South Africa, data are needed on price, especially as this is a major determinant of demand among youth7. Data on pricing are especially important to evaluate the claim by the e-cigarette industry that e-cigarettes are cheaper than traditional cigarettes8, a claim that seeks to increase product appeal, acceptance, and use. Both cigarette smokers and e-cigarette users are known to utilize various price-minimizing strategies, and estimation of price must account for these various tax avoidance strategies9,10.
This study has two objectives. The first is to assess comparative costs of using e-cigarettes versus cigarettes daily among South African adults. Analyzing daily users ensured balanced comparisons using reasonably ‘exchangeable’ groups. Second, we estimated how much revenue can be generated from implementing excise taxes on e-cigarettes in South Africa.
10. One of the authors, IA, registered on the forum on 9 April 2019 and posted the following question: ‘Curious how much variation in total MONTHLY cost from vaping is within the vaping community and how this differs between newbies versus the more experienced vapers. Please, can you tell me your average monthly cost and how long you have been vaping?’. A total of 20 responses to the question were analyzed (Supplementary file Table S2). Users also provided estimates of the amount of e-cigarette liquid they consumed weekly; the modal response was approximately 200 mL/week (e.g. ‘about 60 mL of juice every 2nd day’ or ‘pretty much 2 × 100 mL a week’). We conservatively used half of this quantity (100 mL/week) as representing the ‘average’ user, given the possibility that users on dedicated e-cigarette forums such as ECIGSSA may be outliers in their pattern of e-cigarette use. For e-cigarette price minimizing strategies, we estimated costs assuming consumables like coils or refill liquids were homemade (i.e. do-it-yourself or DIY).
11. Reflecting this, the e-cigarette tax should be lower than cigarettes. The South African Finance Minister announced plans for excise tax on heated tobacco products at the rate of 75% of the cigarette tax rate in cognizance of the potential for harm reduction12,13. In this study, we estimate potential revenues from implementing e-cigarette excise tax at the announced rate of 75% of the cigarette excise tax rate; we also made estimates at 37.5% of the cigarette excise tax rate (half of the proposed threshold) as a hypothetical worst case scenario to examine what the government revenue would be under this assumption (e.g., if we assumed the own price elasticity of demand for e-cigarettes was twice that for cigarettes).
(2) While e-cigarettes have some potential to help adult, non-pregnant smokers quit if used exclusively in lieu of cigarettes14, concerns exist regarding population-level harms such as youth initiation. Given that youth are generally price-sensitive, imposing excise taxes on e-cigarettes may discourage youth initiation while allowing adults to benefit from them. On the other hand, not taxing e-cigarettes would make them more affordable to youth and lead to an epidemic of use.
(3) To adopt a pragmatic approach that acknowledges real-world patterns of use and ensure effective tax collection, we focus on e-cigarette device, batteries (including replacements), and refill liquids, but not other consumables such as coils, which could easily be homemade. Similarly, our analyses assume that e-liquid used was mixed by the user from marketed concentrates as a price-minimization strategy (discussed below).
(4) Taxation of e-cigarettes should be based on ‘typical’ consumption patterns, bearing in mind that the ‘average’ South African e-cigarette user is behaviorally different from the ‘average’ South African cigarette smoker. Most current cigarette smokers are daily smokers, whereas most current e-cigarette users are only occasional users; in the 2018 SASAS, 65.3% and 75.5% of all ever and current smokers of manufactured cigarettes, respectively, were current daily smokers, whereas only 18.0% and 27.1% of ever and current e-cigarette users, respectively, used e-cigarettes every day. These considerations become relevant when deciding what amount of e-liquid consumption is equivalent to a cigarette pack for taxation purposes. We propose that 1 cigarette pack is equivalent to 100 mL of e-liquid based on ‘typical’ weekly cigarette consumption among non-daily cigarette smokers, and e-liquid consumption for the ‘typical’ e-cigarette user, who is a non-daily user as well. From 2018 SASAS, non-daily cigarette smokers reported 3 sticks as their median number of cigarettes smoked per day on the days they smoked (mean = 7.34). A pack of 20 cigarettes is therefore the average maximum quantity smoked per week for the non-daily cigarette smoker (considering the median cigarettes smoked per day) and could therefore be considered, for taxation purposes, equivalent to 100 mL of e-liquid, the average weekly consumption for e-cigarette users. Henceforth, we refer to 100 mL of ready-to-use e-liquid as 1 cigarette-pack-equivalent (CPE) of e-liquid for tax purposes, regardless of whether user-mixed or pre-mixed.
For our calculations, estimates are generated for 31 December of a given year and apply to the whole year. To estimate potential revenue from taxation of e-cigarettes, we examined hardware (device and batteries) separately from e-liquids. We assumed only one device per year, one replacement battery per month of usage, and e-liquid consumption based on ad libitum usage. We assumed e-cigarette users will mix their own liquid as a tax avoidance strategy (i.e. will DIY 100 mL of user-mixed liquid from 1 pack of 10 mL concentrate, rather than purchasing 100 mL of pre-mixed liquid). Device price used in our estimation was averaged across ‘mods’.
We divided e-cigarette users into four groups, by frequency of e-cigarette consumption, based on data in 2018 SASAS: 1) ‘every day’, 2) ‘some days’ 3) ‘stopped completely less than 6 months ago’, and 4) ‘stopped completely more than 6 months ago’. Prevalence and extrapolated counts were generated for each of these categories using nationally representative weights. Assumed consumption patterns, based on parameters obtained from ECIGSSA, were as follows:
Group 1 (daily users) – consume 1 CPE of e-liquid (100 mL) per week, 52 weeks in a year. From a DIY perspective, this is equivalent to 1 pack of 10 mL concentrate per week, or 52 packs of 10 mL concentrates per year, since each pack of 10 mL concentrate yields about 100 mL of vape juice on mixing.
Group 2 (non-daily users) – consume 75% of the e-liquid as the daily users since they also use e-cigarettes throughout the year, albeit non-daily.
Group 3 (regular users for half of the year) – consume 50% of e-liquid as the daily users as we assume, they used an e-cigarette at least all through the first half of the year.
Group 4 included not only individuals who may have used e-cigarettes for part of the current year before quitting, but also those who quit before the current year.
To estimate the number in just the current calendar year, we used an ‘all or none assumption’, i.e. that all of those individuals used e-cigarettes for parts of the current calendar or none of them used for any part of the year. A third assumption was that the number who quit in the earlier half of the current calendar year (i.e. subset of Group 4 restricted to the current year) was numerically equal to those who quit in the latter half of the year (i.e. Group 3). In analyzing Group 4, we applied 25% of the consumption rates of daily users to this group, assuming they used e-cigarettes for ≤3 months in the current calendar year.
15. Hence, 75% of this amount yields ZAR 11.64, while 37.5% yields ZAR 5.82 per cigarette-pack-equivalent of e-cigarette liquid. Total tax was the sum of e-liquid and hardware taxes. We generated total projected taxes for 2021 from the 2018 estimates based on market forecasts for e-cigarettes in South Africa during 2018–2021 by Euromonitor International, a global market research firm (forecast: 24.9% increase in consumption during 2018–2021)1. Regression analyses were performed to explore the relationship between cost and product type using the online vendor data. Data were analyzed with Stata Version 14 in 2020.
15. To estimate total cigarette excise taxes for 2018, we used the 2018 SASAS data. All parameters were self-reported. In brief, we summed expected annual consumption for daily and non-daily smokers. Total revenue on cigarettes by daily smokers assuming they smoked all 365 days of a year was:
Total cigarette expenditure =(Mean number of cigarettes per day × days smoked in a year/20) × average pack price
We assumed daily smokers smoked all 365 days in a year and that non-daily smokers smoked 75% of the year. Analyses also accounted for former smokers who smoked for part of the year as described above for e-cigarettes. We applied the cigarette excise tax rate of 40% to total cigarette expenditure during the one-year period exclusive of value added tax (i.e. calculations based on pre-VAT price) and generated the final expected revenue by subtracting lost revenue because of illicit cigarettes from the total projected excise tax. The extent of illicit trade was estimated in 2018 SASAS with the question: ‘Overall, how many of the cigarettes that you have smoked could possibly be counterfeit or illegal (tax not paid/smuggled)?’. Response options were ‘none’, ‘a little’, ‘about half’, ‘most’, and ‘all’. Using these responses, we estimated the magnitude of illicit trade as 33.21%, based on the sum of the following percentages with corresponding weights: % ‘none’ × 0, % ‘a little’ × 0.25, % ‘about half’ × 0.5, % ‘most’ × 0.75, and % ‘all’ × 1.0)16. Similar estimates of up to 30–35% for illicit cigarette trade in South Africa have been reported elsewhere
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