R7 cigarettes expose scale of illicit tobacco trade in SA
Almost 75% of all cigarettes sold in SA go for far less than the R27.12 minimum collectable tax price, raising questions about enforcement and lost revenue.
The illicit tobacco trade in South Africa is growing rapidly, a recent study by Ipsos commissioned by British American Tobacco South Africa (Batsa) reveals. The share of illicit cigarettes in the market surged from 27% in 2022 to an alarming 75% this year. This surge translates to a massive loss of tax revenue of R30 billion, as cigarettes are being sold below the minimum collectable tax price of R27.12.
Despite President Cyril Ramaphosa's announcement of the Illicit Economy Disruption Programme in February, aimed at combating organized crime and illicit trade, this initiative has shown little impact on the problem. Johnny Moloto, head of corporate and regulatory affairs at Batsa, pointed out that illicit trade extends beyond the tobacco industry, affecting at least 12 other sectors, with the illicit economy estimated to be worth around R280 billion.
This illicit trade costs the legal industry over R190 billion in lost production and threatens more than 87,500 jobs. The researchers from Ipsos found cigarettes being sold as low as R7 per pack, while the Minimum Tax Collectable price (MTC) is R27.12, comprising of R23.58 excise and R3.54 value-added tax per pack. The illicit trade primarily targets the informal sector, but its penetration into the formal market is alarming.
The legitimate sector is running out of time, according to Moloto, warning that if the trend continues, the legal industry will cease to exist. Batsa announced it will close its manufacturing facility in Heidelberg this year due to severe volume losses caused by the illicit tobacco trade. This decline in legal industry volumes has been exacerbated by the Covid-19 pandemic, with legal industry production dropping by 54% and farmworkers and livelihoods in rural communities facing a loss of over 3,000 and 10,000, respectively.
While there has been some disruption in the market, it is only a surface-level solution. The controllers of the illicit industry must be held accountable, according to Francois van der Merwe, spokesperson for the SA Tobacco Transformation Alliance. He emphasized the need for strong political will to tackle this issue effectively.
The report suggests halving the excise on cigarettes and setting a minimum retail price of R38 per pack to level the playing field for all players.
Written by urgent.news from The Citizen's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
