The 2018 National Tobacco Market Study shows that the South African Revenue Services loses R7 billion to the illicit tobacco trade annually.
The study has also found that nearly 80 percent of illegal cigarettes are sold in the informal sector. The illicit cigarette industry is driven by cigarettes sold at a price below the minimum collectible tax of 17.85 rand a pack.
The 2018 National Tobacco market study shows that 80 percent of these cigarettes are sold as single items at 50 cents each.
The study alleges that the Gold Leaf Tobacco Company makes up over 75 percent of the illegal cigarette trade. It’s RG brand can be found in mainstream supermarkets. However, the bulk of its sales come from the illegal trade through informal convenience outlets like spaza shops.
Zibusiso Ngulube is with IPSOS, a company commissioned to do the study.
“It’s alarming in particular in terms of government health agenda – R0.50 becomes affordable to kids in terms of buying a loose draw. Globally it’s the cheapest stick price around.”
The study reveals that these tobacco companies avoid paying taxes by understating their profits. Tobacco regulatory body TISA says it’s alerted SARS of tax avoidance practices in the illicit tobacco trade, which led to SARS establishing project honey badger.
But TISA alleges this stopped after suspended SARS Commissioner Tom Moyane’s appointment. TISA says the illicit tobacco trade is at the centre of state capture allegations and was left to run unabated during Moyane’s reign.
The legal tobacco value chain supports more than 108 000 jobs, including those of 8000–10 000 farm workers, all of which will be destroyed unless the government takes decisive steps to eradicate illicit tobacco.
“The shortfall of government’s income this year is estimated at R50 billion. The Ipsos research shows that almost 8 billion cigarettes this year will be sold illegally, which translates to a more than R7 billion loss to the fiscus, or 14% of the shortfall. This is an outrage considering the country’s public finances and the fragile economic recovery,” said TISA Chairman Francois van der Merwe.
TISA proposes that government should place officials in cigarette manufacturing plants to monitor production and declarations. The body is also calling for the removal of illegal cigarettes from the market.
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