The South African Revenue Service (SARS) is going after sin taxes owed to it from the illicit sale of cigarettes in the country.
Johnny Moloto, the general manager for British American Tobacco South Africa (BATSA), told Fin24 that almost 70% of all cigarettes consumed in the country now belong to illicit brands, turning South Africa into the biggest illicit tobacco market in the world.
BATSA is now echoing its previous calls for an investigation into the entire tobacco sector in South Africa.
The country saw a surge in illicit cigarette sales after the departments of health and cooperative governance and traditional affairs pushed strict anti-smoking laws at the start of the Covid-19 pandemic in 2020.
The so-called ‘cigarette ban’ halted the sale of cigarettes and resulted in huge losses for legitimate producers and retailers, the removal of a significant chunk of tax revenue, and pushed many smokers onto black-market brands.
It also did not stop people from smoking, as intended.
Moloto said that SARS – and the nation’s economy as a whole – suffered the most from the ban, with R19 billion lost in terms of revenue from excise duties.
Tax revenue from cigarette sales has still not returned to pre-pandemic levels for SARS, he said.
According to the revenue service, the revenue generated from high-volume daily consumables – namely, alcohol, tobacco, petrol and some luxury items – makes up approximately 10% of the total revenue received by SARS.
Market researchers at Ipsos said that the illicit trade of cigarettes hit record highs in November 2021 with almost half of the stores (43%) nationwide selling illegal cigarettes.
The group noted that cigarettes were selling for as little as R8 per pack – less than one-third of the minimum collectable tax (MCT).
Earlier this year, SARS made it harder and more costly to sell illicit tobacco. Through its Criminal and Illicit Economic Activities and Customs Divisions, it carried out inspections and search and seizure operations on cigarette companies and manufacturers in KwaZulu-Natal, Western Cape and Gauteng.
Edward Kieswetter, the SARS commissioner, employed a strong stance against the illicit trade of goods that bring in revenue from excise duties.
“Those who systematically and deliberately set out to deprive what is due to fiscus through fraudulent and other non-compliant activities will be confronted and dealt with. This kind of conduct will be made hard and costly,” he said.
On 26 August, SARS won a preservation order against Gold Lead Tobacco, a company with factories in South Africa and Zimbabwe, that has been accused of the illegal sale and smuggling of cigarettes.
Ipsos’ data shows that Gold Lead was winning the illegal price war in 2021 by being the cheapest option in 1,791 (39%) stores it assessed, with close to half of its options being below the minimum collectable tax threshold.
A preservation order is obtained to prevent realisable assets from being dissipated, thus frustrating the collection of taxes, said SARS.
SARS said that this is one of many enforcement steps taken by the revenue service to take on the illicit economy.
It said it is harnessing its capabilities to make non-compliance with legal tax obligations hard and costly to those who are engaged in this criminal pursuit.
“The conduct of non-compliant taxpayers is depriving Government of legitimate resources to the prejudice of both the State and the South African public. In aggressively addressing this scourge, SARS will continue to pursue its mandate without fear, favour or prejudice,” said Kieswetter.