An overview of the retail cigarette price landscape and response of prices to tax increases in Lesotho: evidence from African cigarette prices (ACP) data

Pheea, Beresi

An overview of the retail cigarette price landscape and response of prices to tax increases in Lesotho: evidence from African cigarette prices (ACP) data

Thesis / Dissertation

2026

Publisher

University of Cape Town

Department

School of Economics

Faculty

Faculty of Commerce

Abstract

This dissertation provides a landscape of cigarette prices in Lesotho, over the years 2016 to 2024, looking at both legal and illicit cigarettes. In addition, in 2023, a tobacco levy was implemented. The dissertation also investigates how the price landscape changed in response to this levy. I first assessed whether cigarette prices significantly differ by brand, packaging format, outlet type, and district. I subsequently estimated the availability of illicit prices in the sample. Lastly, I used a regression analysis to determine the impact of the tax increase on the real cigarette prices of premium, mid-priced and cheap brands in formal and informal outlets. I calculated the tax pass-through parameter to determine if the tobacco industry fully passed on the tax increase or if it was differentially shifted to consumers. I used the Minimum Legal Price (MLP) approach to assess the availability of illicit prices in the sample. For estimating the impact of the levy on real cigarette prices, I used the Difference-in-Differences (DID) approach using Namibia and South Africa as control groups. The results indicate that cigarette prices significantly differ by brand, packaging format, outlet type and district. Price differences between informal and formal outlets are large. Districts in the rural parts of the country have relatively higher average prices than for those in urban areas. In response to the tax increase, the results suggest that the tobacco industry undershifted the tax increase in all price segments, both in formal and informal outlets. The undershifting behaviour was relatively large in the economy segment. 19.3% of all prices collected in the sample were illicit, with most of these prices coming from regionally located producers. The availability of illicit cigarettes increased over time. The regression results reveal that the real prices of premium and mid-priced segments in the sample for Lesotho increased in both formal and informal outlets in response to the tax compared to those in the control groups. In contrast, the prices of regional brands significantly declined. This study recommends that Lesotho implement the cigarette minimum legal price because low prices attract people to smoke. Also, the country should ratify the Protocol to Eliminate Illicit Trade in Tobacco Products and implement a track and trace system, and ban the sale of single cigarettes. The government should take strong action to these problems.

Keywords

Lesotho

cigarette prices

Reference:

Collections

Masters

Full item page