Columnist Peter Bruce has done us a service by exposing the absurdities of government policy that has driven BAT out of local production of tobacco products and promoted illegal production, which is of great value to its criminal participants and of huge damage to the tax base (“ANC simply does not get economics”, January 22).
But are the outcomes simply the result of ignorance and stupidity? I suspect not, and they are therefore far more difficult to reform. The illegal gains are enormous and spread widely around to help protect them — as we learn from inquiries into corruption in SA.
The useful idiots in this unfortunate state of affairs are those who — in apparent good faith — always recommend ever higher excise taxes, which are intended to discourage consumption with higher prices.
But the profit margin for illegal production is thus increased, illegal gains improve and crime is encouraged. Prices on the street do not necessarily rise as illegal producers compete on price sacrificing high margins for more sales.
However, the taxes collected falls. The realistic way out is to cut excise duties, reduce the price of cigarettes closer to their low cost of production and revive legal production.
Perhaps also provide the police with financial incentives to close down the illegals. High levels of excise duties are a dangerous temptation in a lawless society.
Brian Kantor
Investec Investment Management
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