THE government and law enforcement agencies have been called to act against the trading of illicit cigarettes as this continues to harm the sector and economy.
South Africa’s largest tobacco manufacturer, British American Tobacco South Africa (Batsa), has said the government should investigate the trading of illicit cigarettes and take decisive action.
Batsa said this had been costing the economy more than R20 billion in excise revenue every year, and led to job losses in the legal tobacco sector.
“Independent studies show there has been an enduring shift in the South African tobacco market since the Covid-19 tobacco ban in favour of the illegal trade in tax-evading cigarettes. Up to 70% of all cigarettes consumed in South Africa belong to illicit brands. This has turned South Africa into one of the biggest illicit tobacco markets in the world,” said Batsa spokesperson Johny Moloto.
He said this has affected the country’s tax revenue and the economy as a whole – which lost more than R20 billion in excise revenue every year.
“This is borne out by the official cigarette excise numbers reported by the National Treasury. Comparing the revenue collected during the latest full financial year (2022/23) to the year before the sales ban (2019/20), there is a substantial drop of R4bn, from R14bn to R10bn. This is while excise increased by 19% over the same period and the total number of cigarettes consumed remained relatively stable.
“In addition, the illicit trade causes job losses in the legal tobacco sector as manufacturers, farmers and processors struggle to survive. We have been calling for an investigation into the entire tobacco sector in South Africa for the past two years, and strongly repeat this call again. Now is the time for the government and law enforcement agencies to act,” said Moloto.
In January this year, Batsa announced that it had started a Section 189 retrenchment process, which could affect 200 jobs at its local operations. Since 2020, the company has retrenched more than 30% of its workforce, equating to around 500 positions.
The company said this was due to further losses in cigarette volumes in South Africa, which it blamed on the surge of the illicit market in the country – exacerbated by the 2020 lockdown and ban on cigarette sales in the country.
Asked how much Sars had lost in the past three years, the media team said they would provide feedback as soon as possible, but failed to respond.
However, on Monday Sars announced that it had destroyed R43 million worth of illicit cigarettes smuggled through the Beitbridge border post. This, according to Sars, was part of the customs division of Sars’s major push to crack down on illicit goods filtering into South Africa, bypassing excise and customs levies.
Sars said the illicit trade robbed the government of much-needed revenue and destroyed industries, exacerbating unemployment, poverty, and inequality.
Sars deputy commissioner Johnstone Makhubu said a huge volume of cigarettes would be destroyed, in total 2 000 master cases, or 20 million cigarettes, with the process expected to last a few days.
The cigarettes were seized in multi-agency operations as well as dedicated and intelligence-driven operations as part of the customs division’s tobacco strategy, led by its National Response Team, SANDF, the SAPS, and the Hawks, including the immigration division of the Department of Home Affairs.
Sars said its customs division had a strategic intent of promoting voluntary compliance among taxpayers and traders – meaning it had a strategic objective to make it easy and simple to comply and provide information and education for clarity and certainty.
“This means Sars has zero tolerance for persons or organisations that are involved in tax crime or illicit trade, and that Sars will pursue them relentlessly.”
Makhubu added that theyhad conducted the same operation in February this year, resulting in the following:
- A total of 1 211 master boxes of illicit cigarettes by Remington Gold, Chelsea, and Royal Express, with an estimated value of R26m, were seized.
- 4 people were arrested, and criminal cases were opened with regard to dealing in the smuggling of illicit cigarettes.
- 4 trucks, one bakkie, and one tractor and trailer that was used to carry the illicit cigarettes were detained with an estimated value of more than R3m.
UCT’s director of the research unit on the economics of excisable products, Professor Corne van Walbeek, said according to research conducted by his colleague, Professor Nicole Villios, 55% to 60% of the tobacco market in South Africa was illicit. However, Van Welbeek said he could not guarantee that the figures were correct, saying the market had been rapidly growing since 2010.
“But they have given an indication that the problem is very significant in South Africa. We probably have some of the highest illicit trade numbers,” said van Walbeek.
He added that Batsa’s estimation that the country had lost R20bn in excise revenue every year was an exaggeration, adding that according to their calculations, the number was R14bn.
Van Welbeek said any company that was selling cigarettes at a cheap price should be traced and investigated. He said many of these companies had not declared their businesses.
“We know where the factories are, and is it not possible for the revenue authorities to put the systems in place so that they can track how much has been produced in these different companies? Why has South Africa not imposed a tracking and tracing system when it has been successful in other countries such as Kenya, Brazil, and Turkey,” said Van Welbeek.
Ipsos market researchers added that the illicit trade of cigarettes reached an all-time high in November 2021, with nearly half of all stores (43%) across the country selling illegal cigarettes.
The National Treasury also noted in the 2023 February Budget Review that excise duty collections on cigarettes and tobacco products remained below pre-Covid-19 lockdown levels.