Cigarette sales in South Africa still haven’t recovered since ban: Spar

 ·25 May 2021
Nkosazana Dlamini Zuma South African Minister of Cooperative Governance and Traditional Affairs

Retail group Spar says that the ban on cigarettes during South Africa’s hard Covid-19 lockdown in 2020 has had a long-term impact on sales.

This was highlighted in the group’s unaudited interim results for the six months ended 31 March 2021, which were published on Tuesday (25 May).

Spar’s data shows that alcohol sales were greatly impacted by the national bans imposed over the last year. However, these sales largely recovered when restrictions were relaxed.

By comparison, the sales of cigarettes has remained subdued – even after the ban was lifted.

“Tops at Spar continued to be negatively impacted by the reduced retail hours and lost trading days, effectively losing 72 trading days, approximately 40% of available trading days during this period,” it said.

“Although the liquor business has started to recover in the last quarter, the impact of the lost trading days saw wholesale liquor sales decline by 7.8% for the period. In a related category, the cigarette business was severely impacted by the initial restrictions on the sale of cigarettes.”

Counting the costs

Tobacco sales were prohibited between 25 March and 17 August 2020 as part of the government’s response to the Covid-19 pandemic.

Cooperative Governance and Traditional Affairs (Cogta) minister Nkosazana Dlamini-Zuma argued that the ban eased the burden on hospitals and reduced the prospect of contagion from cigarette sharing.

In response, critics highlighted an explosion in black-market sales and a slump in tax revenue for the National Treasury.

During the time of the ban, conservative estimates are that between R4.5 billion and R6 billion was lost in excise taxes on tobacco products, while 300,000 jobs were put on the line. Research – which now includes the NIDS-CRAM survey – shows that the impact on smoking habits was minimal.

Bernard Sacks, Tax Partner at Mazars, said that the long-term impact of the cigarette (and alcohol) bans on tax revenue in South Africa is almost incalculable.

“It is estimated the excise taxes that SARS could not collect as a result of the product bans were around R13 billion – but that is only part of the picture. This figure excludes any VAT losses, which – though difficult to calculate – are likely to amount to several billion rand.

“While excise taxes are only imposed when that product is manufactured and sold, stopping the sale of alcohol and cigarettes also halts all economic activity throughout the entire value chain,” he said.

For example, raw materials aren’t being sold, nothing is being spent on transport, and packaging isn’t being produced.

“In the end, the ripple effect of taking just a few products off the market results in an incredible amount of lost tax revenue, which adds up to many hundreds of millions of rand lost each month,” he said.

At the time of the tobacco ban, analysts pointed to R35 million in taxes being lost every day.

Read: Health department submits recommendations for tighter lockdown in South Africa

Show comments
Subscribe to our daily newsletter