R30bn illicit cigarette trade puts pressure on South Africa to act

South Africa is losing an estimated R30 billion each year due to illicit cigarette trade, according to British American Tobacco South Africa (BATSA). The company is advocating for a minimum retail price of R38 per pack to help authorities identify and combat the illegal market. A recent Ipsos study found that cigarettes priced below the minimum tax of R27.12 per pack were prevalent in 75% of surveyed stores, and products priced under R20 were found in nearly 65% of outlets.

BATSA estimates that illicit tobacco costs the country R30 billion annually in lost excise revenue. An independent study by Econometrix and Oxford Economics suggests that South Africa lost R31.4 billion in direct tax revenue in 2024, with illicit products contributing to around 66% of total factory-manufactured cigarette consumption.

Johnny Moloto, BATSA's head of corporate and regulatory affairs for Sub-Saharan Africa, notes that illicit manufacturers continue to operate without sufficient consequences, despite the President's acknowledgment of the threat and government's intention to address it. BATSA argues that a clear minimum price would simplify the identification of suspiciously cheap products and disrupt the economics of illicit trade.

However, the proposed price floor would not automatically prove tax evasion, as a low retail price does not definitively indicate that taxes have not been paid. BATSA is also seeking to withdraw manufacturing licences from companies with a history of under-declaring production or evading taxes. The issue impacts the legitimate tobacco industry, which competes with products that may be sold without full tax compliance.

BATSA's campaign is part of a longstanding debate over the tobacco industry's efforts to fight illicit trade. The latest Ipsos findings raise questions for policymakers about the effectiveness of a compulsory minimum retail price in improving enforcement against illicit cigarettes without treating low prices alone as proof of tax evasion.