African States: New Nicotine Product Tax Systems Face Loopholes

• African states are grappling with outdated tax frameworks that fail to adequately address the rapid growth of new nicotine products like e-cigarettes, heated tobacco, and nicotine pouches.
• While traditional cigarette consumption declines globally, overall tobacco product use is increasing in Sub-Saharan Africa, with new nicotine products growing at over 30% annually.
• Existing tax definitions, often based on tobacco leaf, allow many new nicotine products to partially escape excise duties and marketing regulations.
• Youth exposure to e-cigarettes and other new nicotine products is rising, with usage among young people in some African countries surpassing traditional cigarettes.
• Experts advocate for broad fiscal designs to prevent manufacturers from adapting products to circumvent taxes, emphasizing the need for comprehensive Africa tobacco tax reform.

Many existing tax systems define tobacco products based on the presence of tobacco or tobacco leaf.

Experts, policymakers, and civil society representatives recently convened in Dakar for the 14th Pan-African Conference on Illicit Financial Flows and Taxation to address the growing impact of novel nicotine products on public finances and health across the continent. The discussions highlighted a critical challenge for African states: existing fiscal and regulatory frameworks are struggling to keep pace with the rapid proliferation of products such as e-cigarettes, heated tobacco, and nicotine pouches.

While global consumption of traditional cigarettes is on a downward trend, data presented at the conference indicated an increase in overall tobacco product consumption within Sub-Saharan Africa. This rise is attributed to factors like demographic growth, a significant young and urban population, and persistently low taxation levels in many markets. Against this backdrop, new nicotine products are experiencing rapid expansion across the continent, with an annual growth rate exceeding 30%, according to research presented by Estelle Dauchy, a Principal Research Officer at the University of Cape Town's Research Unit on the Economics of Excised Products (REEP).

A key issue identified by REEP researchers is the significant disconnect between the evolving nature of these products and the current fiscal frameworks designed to tax them. Many existing tax systems define tobacco products based on the presence of tobacco or tobacco leaf. This outdated approach creates substantial loopholes, as e-cigarettes often utilize e-liquids and can contain synthetic nicotine, while nicotine pouches are entirely tobacco-free. Consequently, some new nicotine products can partially evade excise duties, which are taxes applied to specific goods like tobacco, alcohol, or fuel, as well as certain marketing and advertising regulations.

Despite these challenges, some African states have begun to adapt their fiscal policies. Kenya and South Africa, for instance, have implemented taxation mechanisms for certain electronic nicotine products. Similarly, Ghana and Zambia have started integrating these products into their tax structures. However, the study presented in Dakar revealed inconsistencies, noting that tax bases and rates vary significantly between countries, and crucially, nicotine pouches are not yet subject to specific taxation in the four countries examined in the comparative study (Kenya, Ghana, Nigeria, and Zambia), which was supported by the Tax Justice Network Africa (TJNA).

The rapid growth of new nicotine products in Africa is particularly concerning due to increasing youth exposure. Research indicates that young people are increasingly encountering e-cigarettes and other nicotine products through appealing flavors, social media promotion, and their availability near educational institutions. In several countries studied or cited, including South Africa and Mauritania, the use of new nicotine products among young people is reported to be higher than that of traditional cigarettes. This trend underscores the urgency for robust Africa tobacco tax reform.

Another significant challenge for tax administrations is the ability of manufacturers to adapt product characteristics to circumvent existing regulations. Researchers cited the example from Europe, where plant-based heated products emerged after taxes were imposed on certain heated tobacco products. This highlights the critical need for African states to design fiscal policies for new nicotine products that are sufficiently broad and flexible to prevent manufacturers from exploiting definitional gaps and adapting their products to avoid taxation, ensuring that the intended public health and revenue objectives of e-cigarette taxation Africa and nicotine pouch excise duty Africa are met.

Lawyers advising clients in the nicotine product sector across Africa should anticipate and monitor legislative reforms to broaden tax bases and update definitions for e-cigarettes, heated tobacco, and nicotine pouches. Compliance officers must prepare for potential new excise duties and marketing restrictions as governments move to close existing loopholes.

Source: Original reporting via SenePlus