Edward Kieswetter kisses R100 billion goodbye

Tax Justice South Africa founder Yusuf Abramjee said more than R100 billion in tax revenue is lost annually due to illicit trade, more than enough to compensate for the lost VAT increase.

Finance Minister Enoch Godongwana recently withdrew his 2025 Budget due to legal action from the Democratic Alliance related to a planned 0.5 percentage point VAT increase.

Godongwana said the National Treasury will re-table the 2025 Budget Review on Wednesday, 21 May 2025.

The new budget will maintain the value-added tax (VAT) rate at 15%, reversing the 0.5 percentage point increase proposed in the 12 March budget.

The biggest concern about the VAT reversal is that it will leave a R13.5 billion gap in the 2025 Budget, which must be filled.

Many economists advised the government to cut spending, including reducing the public wage bill, slashing the number of ministries, and curbing corruption.

Abramjee said another revenue source for the state is clamping down on illicit trade, which costs the country an estimated R100 billion annually.

He explained that eliminating the illicit cigarette trade alone would generate as much money as raising VAT by one percentage point.

South Africa has one of the world’s largest markets for illegal cigarettes, with at least two in every three cigarettes sold evading tax.

“A study by Oxford Economics has found that South Africa lost R27.1 billion in tax revenue due to illicit cigarettes in 2022 alone,” Abramjee said.

He slated Godongwana’s initial plan to increase taxes, calling it ill-judged, unjust and counterproductive.

He said the 2025 Budget, released on 12 March, would have punished law-abiding businesses and consumers, driving even more economic activity into the hands of criminals.

“Minister Godongwana ignored reality and chose a path that will only worsen South Africa’s economic crisis,” Abramjee said.

He argued that increasing VAT and sin taxes will not raise the revenue the government hopes for and will fuel illicit traders who operate with impunity.

“The Budget fails to address the real problem: criminals looting the nation on an industrial scale in virtually every sector,” he said.

Government must prioritise enforcement over tax increases

Tax Justice South Africa urged the government and the National Treasury to prioritise enforcement over tax increases.

“SARS and the National Prosecuting Authority (NPA) must be adequately resourced and empowered to take decisive action against illicit trade,” it said.

“Until then, raising taxes will only drive more consumers into the black market, further eroding the country’s revenue base.”

Abramjee said the government must take immediate action and implement more vigorous enforcement at border posts.

There should also be more stringent monitoring of the tobacco industry supply chains and urgent enforcement of the rules.

It includes allowing the South African Revenue Service (SARS) to install CCTV cameras in all tobacco factories.

Another area of concern is the illicit trade in non-compliant electrical plugs, cables, and fittings in South Africa.

Abramjee highlighted that illicit electrical products lead to tax evasion and rob law-abiding businesses of billions of rands.

A Tax Justice South Africa survey of South Africa’s leading electro-technical companies revealed the extent of this problem.

78% of industry leaders said they were very concerned about the growing influx of non-compliant goods, which are flooding the retail market unchecked.

The survey pointed to the widespread circulation of dangerous products such as electrical cables, sockets, switches, lighting, and circuit breakers.

“Illicit trade attacks our safety, economy, and future. We call on the government to take urgent action to enforce existing laws and bring any transgressors to justice,” he said.