Since the unconstitutional Covid-19 tobacco sales ban in 2020, the illicit tobacco trade in SA has surged, with the latest study by Ipsos confirming that now, products selling for less than the minimum collectable tax (MCT) are available in almost 60% of stores around the country.
Many people mistakenly believe this is a border control problem and indeed news reports of illicit cigarette seizures by law enforcement agencies frequently depict foiled smuggling attempts at border crossings.
The real picture is somewhat different. While smuggling does occur – and was a component of the illicit tobacco trade in the past – the Ipsos study shows that, since 2021 at least, a core group of manufacturers whose factories are located in SA, which are licensed by Sars, have consistently supplied large quantities of cigarettes at prices well below MCT over the entire three-year period.
The production and distribution of illicit tobacco products is happening right under the noses of the South African authorities. This likely explains the fierce resistance by certain manufacturers to attempts by Sars to install CCTV cameras at all tobacco factories so the revenue service can monitor production.
As Sars commissioner Edward Kieswetter noted in a recent TV interview, “Why are these businesses resisting surveillance if they have nothing to hide?”
BAT SA has welcomed the installation of these cameras at our factory in Heidelberg and fully supports the measure as one home-grown tool in the fight to stamp out the illicit tobacco trade.
But, perhaps more startling, is several new manufacturers have entered the market, who now also appear to be chasing a share of the lucrative illicit tobacco trade by selling their products at prices well below MCT.
According to a written parliamentary reply by finance minister Enoch Godongwana, a total of 12 new licences have been issued since 2022.
This is incomprehensible in a sector already ravaged by high levels of noncompliance and calls into question the government’s commitment to protecting legitimate businesses such as ours that pay their taxes and abide by the law.
The sustainability of our operations depends on a level playing field on which we can compete fairly. The reality, however, is that high levels of illicit trade continue to place enormous pressure on our business and may compel us to review our investment in SA.
On top of this, any tobacco control measures will continue to prove futile while illicit cigarettes are available for as little as R5 for a pack of 20, resulting in continued growth in overall consumption.
The bulk of the illicit trade is currently on South African soil highlights the key question that should accompany any attempt to address a crisis that BAT SA estimates costs the government R24bn a year in uncollected excise taxes alone: is there sufficient political will?
The country has a new government of national unity (GNU), which has stated its commitment to eliminating crime and corruption. The GNU now has a clear opportunity to show it is taking urgent and concrete steps to stamp out the illicit tobacco trade.
By our estimates, 78% of all illicit cigarettes are locally produced, with the remaining 22% smuggled into the country across the border.
That SA has an enormous illicit tobacco problem has been well understood since even before the 2020 tobacco sales ban, which opened the floodgates for the exponential growth of the problem. And yet, attempts to tackle it have so far barely scratched the surface.
OPINION | Illicit tobacco trade: GNU must protect legal traders
Introduction of minimum retail price can help tackle unlawful dealings
Image: 123rf.com/ marcbruxelle
Since the unconstitutional Covid-19 tobacco sales ban in 2020, the illicit tobacco trade in SA has surged, with the latest study by Ipsos confirming that now, products selling for less than the minimum collectable tax (MCT) are available in almost 60% of stores around the country.
Many people mistakenly believe this is a border control problem and indeed news reports of illicit cigarette seizures by law enforcement agencies frequently depict foiled smuggling attempts at border crossings.
The real picture is somewhat different. While smuggling does occur – and was a component of the illicit tobacco trade in the past – the Ipsos study shows that, since 2021 at least, a core group of manufacturers whose factories are located in SA, which are licensed by Sars, have consistently supplied large quantities of cigarettes at prices well below MCT over the entire three-year period.
The production and distribution of illicit tobacco products is happening right under the noses of the South African authorities. This likely explains the fierce resistance by certain manufacturers to attempts by Sars to install CCTV cameras at all tobacco factories so the revenue service can monitor production.
As Sars commissioner Edward Kieswetter noted in a recent TV interview, “Why are these businesses resisting surveillance if they have nothing to hide?”
BAT SA has welcomed the installation of these cameras at our factory in Heidelberg and fully supports the measure as one home-grown tool in the fight to stamp out the illicit tobacco trade.
But, perhaps more startling, is several new manufacturers have entered the market, who now also appear to be chasing a share of the lucrative illicit tobacco trade by selling their products at prices well below MCT.
According to a written parliamentary reply by finance minister Enoch Godongwana, a total of 12 new licences have been issued since 2022.
This is incomprehensible in a sector already ravaged by high levels of noncompliance and calls into question the government’s commitment to protecting legitimate businesses such as ours that pay their taxes and abide by the law.
The sustainability of our operations depends on a level playing field on which we can compete fairly. The reality, however, is that high levels of illicit trade continue to place enormous pressure on our business and may compel us to review our investment in SA.
On top of this, any tobacco control measures will continue to prove futile while illicit cigarettes are available for as little as R5 for a pack of 20, resulting in continued growth in overall consumption.
The bulk of the illicit trade is currently on South African soil highlights the key question that should accompany any attempt to address a crisis that BAT SA estimates costs the government R24bn a year in uncollected excise taxes alone: is there sufficient political will?
The country has a new government of national unity (GNU), which has stated its commitment to eliminating crime and corruption. The GNU now has a clear opportunity to show it is taking urgent and concrete steps to stamp out the illicit tobacco trade.
By our estimates, 78% of all illicit cigarettes are locally produced, with the remaining 22% smuggled into the country across the border.
That SA has an enormous illicit tobacco problem has been well understood since even before the 2020 tobacco sales ban, which opened the floodgates for the exponential growth of the problem. And yet, attempts to tackle it have so far barely scratched the surface.
Huge counterfeit goods bust in downtown Joburg
For Sars to make meaningful inroads against the scourge of this illicit trade, it must be adequately resourced to conduct forensic tax investigations and step up visible enforcement efforts against tax evaders like those manufacturers complicit in the illicit tobacco trade.
The Hawks should prioritise investigating and prosecuting complex crimes such as these, and the NPA must do everything in its power to secure convictions.
One of the most effective solutions to the illicit tobacco trade is for the minister of finance to introduce a minimum retail price, which would make it illegal to sell cigarettes for less than a stated amount. This would provide law enforcement agencies with a valuable tool as they seek to enforce and prosecute and would empower them to tackle illicit trade head-on.
Apart from the substantial public health considerations, there is every incentive for the government to invest in dismantling the illicit tobacco trade.
Internationally, countries are increasingly recognising the “return on investment” that additional expenditure on tobacco enforcement can have.
The illicit tobacco trade is a public health and fiscal disaster hiding in plain sight. When the public can buy these products for as little as R5 at any corner shop or spaza in the country, it is obvious that the kingpins behind the crisis feel they have little to fear from the authorities.
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