According to a study by independent market researcher Ipsos, 26.8% of all cigarettes in South Africa are sold under the R17.85 minimum, which is payable at excise duty and value-added tax (VAT).
It is the responsibility of cigarette manufacturers, the company that owns the trademarks, to pay the excise duty and VAT on each packet of cigarettes, and by not declaring volumes properly and not paying full taxes, these manufacturers can flood the market with illegal goods, industry body Tobacco Institute South Africa (Tisa) chairperson Francois van der Merwe said on Thursday.
According to Ipsos’ study into the illegal trade of tobacco, commissioned by Tisa, illegal cigarettes, costing about R5 a pack, are now available for sale in more than 100 000 shops nationally, with no excise duty being paid.
Legally, on average, cigarette packs should be sold for about R36.50 each.
Tisa, however, believes that brands selling below the minimum taxes due have “almost certainly not paid their taxes due, and are therefore deemed to be illicit”.
The result of this is that South Africa now has the cheapest ‘first smoke’ in the world, with illicit loose cigarettes being sold at an average of 50c.
This, Van der Merwe stated, is further compromising government’s efforts to reduce the incidence of smoking.
He further pointed out that, according to the research done by Ipsos, almost eight-billion cigarettes a year will be sold illegally, thereby translating into a loss of more than R7-billion to the fiscus, or about 14% of government’s income shortfall of R50-billion.
According to Van der Merwe, the Ipsos study investigated brands retailing below the minimum tax due of about R17.85 per pack of cigarettes and found that the illegal market grew exponentially since South African Revenue Services (Sars) ordered that investigations and the inspection of cigarette factories be stopped, under suspended Sars commissioner Tom Moyane.
With the trade in illegal cigarettes having bloomed in recent years with sophisticated distribution networks across all provinces, the sales of legal, regulated and taxed cigarettes have dropped by 15% in two years.
The legal tobacco chain, however, supports over 108 000 jobs, he said, including those of between 8 000 and 10 000 tobacco farm workers.
“All of these jobs will be destroyed, unless the government takes decisive steps to eradicate illicit tobacco,” Van der Merwe warned.
"The implication of the findings goes further than tobacco," Agri SA corporate affairs director Pietman Roos commented in a separate statement.
“If criminal organisations earn billions of rands each year by circumventing excise tax, the next step is to infiltrate the value chains of other commodities,” he added.
Encouraging commitments have, meanwhile, been made to Parliament by Sars acting commissioner Mark Kingon, to take immediate steps to stop the illicit trade in the country, he pointed out.
As a short-term solution, Van der Merwe suggested that Sars agents be placed in all factories to ensure that all production is declared and that duties are paid, “as was done before”.
Tisa said it stands ready to assist and cooperate with Sars to rid the country of illicit operators.