When was the last time that you thought of buying a plastic carrier bag when you visited your favourite or most convenient retailer? You know the place where the cashiers generally say just a single word – not “Hi” or “Hello”, but “Plastic?”

And when last did you notice anyone with a reusable plastic bag – those big ones featuring an advertisement, or the “recyclers” who meticulously unwind the plastic bag of a previous purchase, only to find that the plastic bags are not as durable as was expected, and then have to purchase another?

Allow me to ask another question: Do you know what a plastic bag sells for? At the four major grocery retailers, the price ranges from 45c to 49c.

The reason for asking these questions is not to make you feel bad or to turn you into an environmentalist, but to highlight something which has intrigued me for some time.
The reason why we are paying for the ‘plastic’ is that, in May 2003, government introduced an environmental levy – to be more precise, a plastic bag levy – on imports and locally manufactured plastic bags, which, at the time of its introduction, was 3c. Do you know what the current rate is? It is 6c (imported plastic carrier bags are also subject to a 15% ordinary ad valorem customs duty).

The motive for the levy was to address the scourge of littering, which had resulted in the plastic carrier bag being dubbed South Africa’s ‘national flower’. The ‘polluter pays’ principle and the ‘internalisation of external costs’ were cited as the economic foundations on which the levy was based. You might rightly ask: “But why only the plastic bag?” This is a question for another instalment of this column.

The levy was intended to generate funds for the creation of a recycling company, which would collect and recycle the plastic carrier bags. According to the 2014 Tax Statistics, a joint publication of the National Treasury and the South African Revenue Service (Sars), “the plastic bag levy aims to encourage the reuse of these bags”. Not quite recycling, but reusing plastic bags. In my experience, most plastic bags are only good to get the product home and cannot sustain a second use.

Till now, there is very little that you could do in faulting the levy.

Do you know the amount that the levy generates for government each year? The table below is adapted from the 2014 Tax Statistics publication. The first two columns are from the publication. The ‘quantity’ is derived from dividing the levy of 6c.

In 2003, when the levy was introduced, the demand for plastic bags declined dramatically – by as much as 90%. This was in line with economic theory, which holds that, if a price is put on a ‘free good’, there will be a definite reduction in the demand for the good. However, as is evident from the table, the quantity demanded is on an upward trajectory, implying that the demand for plastic bags is increasing. This means that, despite the fact that government imposed a 6c levy on locally manufactured and imported plastic bags, as well as a 15% ordinary ad valorem customs duty on imports, more plastic bags are being bought.

In essence, the levy is a Pigouvian tax in that it is applied to a good that is generating negative externalities. It is fair to conclude that the levy, the purpose of which is to reduce the environmental impact by repricing, is not producing the desired results – it has not resulted in a change in behaviour. The economic reasoning that could be offered is that the demand for plastic bags has become price inelastic to such an extent that, as the price of the good increased, the quantity demand also increased. Who would have guessed this of an essentially ‘free good’?

Buyisa-e-Bag, a Section 21 entity mandated to “promote waste minimi- sation and awareness initiatives in the plastics industry, expand collector networks and create jobs, as well as kick-start rural collection [by small, medium-sized and microenterprises] and create additional capacity in nongovernmental organisations” was dissolved in 2011. It is understood that the levy is not ringfenced and, as a consequence, is absorbed into South Africa’s tax revenue. This implies that the levy is now nothing more than a fiscal (or revenue) measure, with the revenue collected not being used to remedy a designated external cost.

As a matter of interest, the levy is assessed and collected on the principle of what Sars calls ‘duty at source’. This raises an interesting observation: if the intention is for the polluter to pay, why not impose a levy on plastic poly- mer (polyethylene) or polypropylene, which could then account for all types of goods made from this material? But this is a topic for another column.

Let us turn our attention to something slightly different. Who would you think derives the most benefit (monetary) from the levy (tax)? Government collects 6c on each plastic bag, whether imported or domestically manufactured. An imported plastic bag is subject to a 15% ordinary ad valorem customs duty.

Now what does a plastic bag or a printed plastic bag cost? A search on the Internet revealed that the cost of a white plastic carrier bag (vest style) and a printed plastic carrier bag range from 2c to 7c. Assuming an imported plastic bag attracts 1c in customs duty, 7c will be the cost of the plastic bag, 1c the customs duty and 6c the levy. This gives a total of 14c and, if a conservative figure of 6c is added as the cost to get the plastic bag to the consumer, the new total becomes 20c.

The consumer pays anything between 45c and 49c for a plastic bag. If my calculations are correct, this is a conservative profit of at least 25c a plastic bag, and considering the 2 816 666 667 plastic bags on which the levy was paid in 2013/14, a profit of R704 166 670.25 was generated.

So, while government potentially collects about 7c a plastic bag (6c levy, plus potentially 1c in ordinary customs duty) the sellers of plastic bags are collecting at least 25c on each bag sold.