BAT Sub-Saharan Africa (Batsa) on Friday called on the National Treasury to capacitate the South African Revenue Service (Sars) with additional funding for it to step up visible enforcement efforts against tax evaders like those in the illicit tobacco trade.
According to new Ipsos research released on Friday, close to 60% sampled South African stores are selling illicit tobacco products, with prices as low as R5 for a pack of 20 cigarettes – intensifying the ongoing price war among illicit cigarette manufacturers.
The research also revealed there were new manufacturers in the market, fuelling intense competition at the bottom end of the market.
The Ipsos research was commissioned by Batsa.
Johnny Moloto, the area head of corporate and regulatory affairs for Batsa, said the entrance of new players raised some serious concerns about the government’s commitment to address this illicit trade.
“Nothing justifies licensing new manufacturers in a sector already ravaged by high-levels of non-compliance without conducting proper due diligence,” Moloto said.
“The Ipsos study highlights the challenge facing the new government in getting to grips with illicit trade and cross-border illicit financial flows, which are wreaking havoc with our economy and tax revenues. To right the ship, the authorities urgently need to prioritise the fight against illicit tobacco and secure convictions against the ring leaders,” Moloto stressed.
In the past few years, the availability of cigarette packs selling below the Minimum Collectable Tax (MCT) had fluctuated in retail outlets: from 44% in March, 2021 it dropped to 27% in October, 2022 before surging to 59% this year.
There was also of concern a high level of cigarette packs available below R25.05 in the wholesale and informal trade at 83% and 72%, respectively.
Ipsos’s findings indicated that the Gold Leaf Tobacco Company (GLTC), which operated out of Johannesburg and Harare had doubled down on an aggressive pricing strategy, with 79% of its brands available for less than MCT in May this year, compared to 28% in March, 2021.
Companies like Carnilinx, Afroberg and Best Tobacco were all competing with GLTC at the lower end of the market, as new manufacturers like Bozza added to the pressure. A GLTC brand named “Chief” – a recent addition to its portfolio was the most widely available cigarette brand selling below R25.05, according to Ipsos’s findings.
Batsa said it the Hawks should prioritise investigating and prosecuting complex crimes such as these, and that the National Prosecuting Authority must do everything in its power to secure convictions to signal the new government’s clear intent to step up the fight against crime and corruption.
Batsa estimates the government would continue to lose an estimated R24 billion in excise tax revenue to the illegal cigarette trade annually.
“An urgent task for the new Government of National Unity is to stabilise the fiscus and bring rising debt under control, and take decisive steps to reverse the exponential growth of the illicit tobacco trade that has taken place since the 2020 Tobacco Sales Ban.
“One of the most effective solutions to the illicit tobacco trade is for the finance minister to introduce a Minimum Retail Price, which would make it illegal to sell cigarettes for less than a stated amount,” it said.
In April Batsa said it had been forced to scale down its direct retail product distribution and delivery operations, as its sales volumes continue to decline due to the heightened illicit trade in a major blow to local jobs. This leads to less jobs, it said.
On Sunday Yusuf Abramjee, founder of Tax Justice SA (TJSA), said “these shocking figures explained why some cigarette-makers might be so keen to keep Sars’s cameras out of their premises”.
“The survey proves that a core of manufacturers has been flooding the market with tax-evading cigarettes for years. They’re stealing over R24 billion in vital excise revenue annually and they want to carry on this industrial-scale looting without interference from the taxman,” Abramjee lamented.
BUSINESS REPORT