The ban on the sale of tobacco products in South Africa during lockdown has been the subject of furious debate, with the matter heading to the Supreme Court of Appeal over whether the government’s prohibition is justified.<\/p>\n
In a webinar facilitated by financial services group, PSG on Tuesday (7 July), investigative journalist, Jacques Pauw, said that lockdown is only part of the reason the illegal cigarette trade in South Africa is thriving.<\/p>\n
\u201cThe story heats up in 1997, when government increased the tax on cigarettes from 20% of the sale price to 50%,\u201d Pauw said. \u201cThis suddenly made it very expensive to smoke and boosted the underground world of illegal cigarettes.\u201d<\/p>\n
After all, without the excise, you can sell your product below market price and still make a huge profit. Currently a pack of 20s costs R36 in a large retail outlet, of which the government gets R18. Even though it costs under R2 to manufacture a pack of smokes, he said.<\/p>\n
The lockdown, however, has made it even more profitable to trade in illegal tobacco products. Supply and demand has meant that sellers can charge premium prices, well beyond what a legal pack of 20s would cost, if you could buy one, Pauw said.<\/p>\n
The government could have already lost up to R4.5 billion in revenue as a result of the tobacco ban.<\/p>\n
A number of prominent South African companies published an open letter to Cyril Ramaphos<\/a>a, asking him to lift the country\u2019s ban on the sale of tobacco products.<\/p>\n The letter \u2013 which was published by the Sunday Times \u2013 included prominent signatories such as the British American Tobacco, SAAI, Fresh Stop, South African Tobacco and retailer Spar.<\/p>\n The group said that the ban has also cost the country R3.5 billion in excise taxes to date.<\/p>\n Why criminal tobacco networks are flourishing<\/strong><\/p>\n Pauw said the criminal tobacco networks are flourishing because they haven\u2019t been brought to book, and not just during lockdown.<\/p>\n He said that the last time SARS tried was 2012, when it launched operation Honeybadger to investigate and prosecute illegal tobacco. Driven by Johann van Loggerenberg, then head of the SARS Investigate Unit, the operation raided tobacco companies, withdrew licenses, and closed down manufacturers.<\/p>\n \u201cBy 2014, fifteen companies were facing criminal prosecution and tobacco smuggling had dropped off significantly. In 2012 tax evasion of tobacco products was worth R3 billion a year.<\/p>\n “Thanks to Honeybadger, contraband tobacco products dropped from 26% of the total market for tobacco products in 2013 to only 17% in 2014.\u201d<\/p>\n Unfortunately, the figure is back up to 35-40% today, he said.<\/p>\n What happened?<\/strong><\/p>\n \u201cSARS was ready to pounce on the smugglers, had prepared the criminal cases, and then everything just stopped when Tom Moyane became Commissioner,\u201d Pauw said.<\/p>\n \u201cHe disbanded the Investigative Unit and embroiled SARS in years of dysfunction with the sole purpose of protecting former president Zuma, his friends and family, and the Guptas from the many investigations underway into their nefarious exploits.\u201d<\/p>\n Pauw said that it is not only smaller tobacco companies that are involved in the illegal tobacco trade, though they do get most of the blame. \u201cThe big companies are involved as well,\u201d he said.<\/p>\n \u201cIn the 2017\/2018 tax year, the 3 big tobacco companies \u2013 BAT, Japan Tobacco and Philip Morris \u2013 produced 19 billion cigarettes for the SA market, but tax was only paid on 15.3 billion cigarettes.\u201d What happened to the other 3.7 billion?<\/p>\n \u201cYou can do the sums,\u201d said Pauw. \u201cIt\u2019s enough for 185 million packs of 20s with tax on that worth R4.6 billion. As such, government can\u2019t afford to bring the big companies down.\u201d<\/p>\n Looking at BAT alone, Pauw said the state can\u2019t afford to be in conflict with the massive company as the state pension fund holds about 43 million shares of BAT at a value of R27 billion.<\/p>\n In addition, the GEPF holds 23 million shares in Reinet, whose biggest investment is in BAT.<\/p>\n “If BAT closes down, South Africa\u2019s state pensioners will lose way over R30 billion, so the state can\u2019t afford to be in conflict with BAT. Essentially, BAT is too important to fail.\u201d<\/p>\n The lockdown has brought the criminal network of illegal tobacco traders into leafy, middle class suburbs, giving them a new foothold they didn\u2019t have before, he said.<\/p>\n \u201cBuying cigarettes during lockdown is against the law, but smokers justify it on the basis that their civil liberties have been infringed on.\u201d<\/p>\n A recent study by the University of Cape Town found that the vast majority of smokers \u2013 over 90% – still have access to cigarettes. And some very peculiar brands are being smoked.<\/p>\n \u201cPeople are smoking whatever they can, and many of them are being smuggled in over our borders, mostly from Zimbabwe and Malawi,\u201d Pauw said. \u201cThe problem is, what\u2019s in them, and what chemicals have they been treated with,\u201d he asked.<\/p>\n He said the profits on smuggling illegal tobacco products are similar to the profits on smuggling cocaine. The difference, however, is that smuggling cocaine could lead to a prison sentence, while smuggling tobacco could get you a fine.<\/p>\n \u201cThis makes it a relatively \u2018safe\u2019 commodity to smuggle and is part of the reason that the illegal tobacco trade continues to flourish.\u201d<\/p>\n Cigarettes and tobacco products remain banned under current legislation around the coronavrius in South Africa. The Fair-Trade Independent Tobacco Association has asked for urgent leave to appeal the high court’s dismissal of its challenge of the ban<\/a> in the Supreme Court of Appeal.<\/p>\n
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