Treasury turns its attention to the vaping market

Not an unexpected move.
Electronic ‘smoking’ represents a highly profitable new business. Image: Timothy Fadek/Bloomberg

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.

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 health rationale

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).

As an aside, The Devil’s Playbook: Big Tobacco, Juul, and the Addiction of a New Generation by Lauren Etter (Crown, May 2021) makes for very interesting reading. (Juul is an e-cigarette brand.)

Global developments

Treasury has come late to the party. Jurisdictions such as the European Union have placed a restriction on the concentration levels of nicotine in electronic cigarettes. South Africa still has to legislate for “e-cigarettes containing no nicotine and making no therapeutic or smoking cessation claims”.

The World Customs Organisation’s seventh edition of the Harmonised Commodity Description and Coding System in the classification of products includes a new tariff headline for “products containing tobacco, reconstituted tobacco, nicotine, or tobacco or nicotine substitutes, intended for inhalation without combustion; [and] other nicotine containing products intended for the intake of nicotine into the human body”.


Countries that are already regulating the use of e-cigarettes and have introduced taxes on vaping products include the US, the Republic of South Korea, the Philippines, Sweden, Latvia, Russia, and Kenya.

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.

The more complex a tax system, the greater the costs for the South African Revenue Service (Sars) to administer it and the greater the compliance costs for taxpayers.

Treasury recommends the implementation of an excise regime with flat rates for liquid solutions and nicotine content. This would minimise the administrative costs of the tax system and reduce the compliance burden for taxpayers.

Written comments on the discussion paper can be submitted to by close of business next Tuesday (January 25).



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Tax nicotine? next they would have to (constitution and all that) impose a tax on those patches and gums that contain nicotine that help some people quit smoking. Unintended consequences…

Governments would tax breathing if they could.

In 2020, during lockdown cigarettes were banned. Because of this, many smokers were finally able to finally quit smoking.

The government should treat cigarettes like drugs. All tobacco products should be illegal in South Africa. Lengthy jail sentences for possession and sales of tobacco products.

End of comments.




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