Johnstone Makhubu’s missing R27 billion
The South African Revenue Service (SARS) Commissioner Johnstone Makhubu is looking to recover billions in lost tax revenue due to the illicit cigarette and alcohol markets.
This comes as SARS is now preparing to introduce a new tracking system aimed at tackling the country’s illicit trade.
Up to 75% of cigarettes sold in South Africa are estimated to be illicit, which costs the government more than R27 billion in lost tax revenue annually.
Research by Oxford Economics also estimated that South Africa lost R85.6 billion in potential value-added tax (VAT) and excise duty revenue from illicit cigarette sales between 2019 and 2022.
This is significant given that excise duties have increased annually over the years, while VAT rose from 14% to 15% in 2018.
Excise duties now account for more than half the average retail price of legally sold cigarettes, with compliant manufacturers passing these increases on to consumers.
However, higher taxes have not translated into higher revenue for the government. Oxford Economics found that excise duties collected from the tobacco industry fell by 36.3% in 2020 to R11 billion.
SARS data presented by the Finance Minister also showed that revenue from tobacco and cigarette products declined from R13.4 billion in the 2015/16 financial year to R9.4 billion in 2024/25.
This represents a decline of R4 billion, or 29.6%, over a decade.
The 2020 Covid-19 prohibition on cigarette sales was a major contributor to the expansion of the illicit market, although increasing excise duties have also played a role.
The price difference between legal and illegal cigarettes also highlights the problem. The cheapest illicit pack of 20 cigarettes can cost as little as R5, compared with approximately R37 for the cheapest legal pack.
With the minimum collectable tax on a pack of 20 cigarettes set at R27.12, SARS is missing out on substantial excise revenue.
Plan to make cigarettes more like banknotes
National Treasury and SARS addressed the problem during a presentation to Parliament’s Standing Committee on Finance on 14 October 2026, following public submissions on the 2026 Draft Tax Bills.
The presentation highlighted the difficulty of increasing cigarette excise duties while the illegal market accounts for such a large proportion of sales.
Unlike other tobacco products, cigarette excise increases have been limited to inflationary adjustments since 2023. SARS is now looking to technology to strengthen enforcement.
In September 2026, SARS Commissioner Johnstone Makhubu reaffirmed the organisation’s commitment to disrupting illicit trade.
“SARS aims to disrupt illicit activities that undermine fair competition, threaten jobs, and weaken economic growth,” he said.
“The organisation is using technology and coordinated enforcement to strengthen its response to fraud, tax evasion, and cross-border syndicated financial crime.”
More recently, SARS has told Parliament that it would publicly introduce its proposed track-and-trace solution in the coming weeks.
The initial rollout will focus on tobacco products, with implementation expected in the second quarter of the 2027/28 financial year.
Professor Keith Engel, CEO of the South African Institute of Taxation, believes electronic security markers on cigarette and alcohol packaging could significantly reduce illicit trade.
The technology works like an electronic stamp, allowing SARS to follow products from factories through the supply chain and verify whether the correct excise duties have been paid.
Engel said it could also help prevent products from leaving South Africa and subsequently returning without the appropriate duties being paid.
“When a shopkeeper buys some of these things, they’ll see that there’s supposed to be an excise charge on this. If they resell them, they’ll be caught with a liability,” he said.
Although the system would not eliminate illegal trade entirely, Engel believes it could substantially shrink the market and generate enough additional revenue to justify its implementation costs.
“It is somewhat expensive, but according to the research studies, it takes such a drastic cut that the revenue is well worth it. You’ll get your money back very, very quickly,” he said.
He pointed to countries such as Kenya, Germany, and France, which have implemented similar tracking systems with varying degrees of success.
However, Engel cautioned that recovering lost revenue should also be accompanied by greater scrutiny of government spending and the cost of the public sector.
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