By Odwa Bafana Mkentane
The growth of South Africa’s illicit cigarette trade is raising concerns about lost tax revenue and the impact on the country’s economy. A new Ipsos study, commissioned by British American Tobacco South Africa, has found that cigarettes priced below the minimum collectable tax threshold remain widely available, with 75% of stores surveyed selling these products. The study also found that cigarettes priced below R20 a pack were available in 65 percent of outlets. We speak to an expert about the findings, the economic implications of the illicit tobacco trade, and what can be done to address the problem.
Speaking to VOC News, Abraham Nelson, Executive at Consumer Goods Crime Risk & Initiative, warns that the illicit tobacco trade in South Africa is increasingly driven by domestic under-declaration, growing demand for cheaper products and weak enforcement.
“The reality of the matter is that we have to be honest: many legal tobacco manufacturers and distributors in the country are also guilty of participating in the illicit tobacco trade. Although a significant amount of illicit tobacco crosses our borders from neighbouring countries, the study has also found that most of the illicit product available on the market originates domestically. Not all legitimate manufacturers and distributors are involved. However, under-declaration is taking place, whereby taxes are paid on a declared quantity of tobacco products, while the bulk that is not declared is sold at bargain prices,” said Nelson.
Nelson added that organised crime syndicates are exploiting regulatory weaknesses to establish a parallel illicit economy, threatening legitimate businesses.
“Over the years, law enforcement agencies have certainly made efforts. Various task teams and specialised units have been established to tackle illicit trade, but these efforts are only scratching the surface. Much more needs to be done, and unfortunately, law enforcement agencies do not have the resources required. This is why I believe there is a definite need for collaboration between government and the private sector. Essentially, when tobacco is manufactured, machines in the factory count every cigarette produced. For example, if a machine manufactures 100,000 cigarettes per day, that quantity is declared to the South African Revenue Service (SARS). SARS then calculates the tax payable on that consignment, and the manufacturer receives a bill for the tax due on the 100,000 cigarettes produced that day,” Nelson said.
Nelson concluded by calling for stronger collaboration between government, law enforcement and the private sector to address the problem.
Photo: Pixabay
