Tobacco giant calls for zero tolerance on tax evasion by illicit suppliers

After four months of not being allowed to sell tobacco products, British American Tobacco South Africa (Batsa) is now more than ever convinced that the cigarette ban is increasing illicit trade.

This comes after an independent study done by the Research Unit on the Economics of Excisable Products (Reep) within the University of Cape Town revealed that 93% of South Africa’s approximately 11 million smokers are still able to purchase cigarettes.

Read: Consumer criminalisation could encourage a culture of tax avoidance

Batsa says this means millions of illegal transactions are taking place across the country every day.

“The market has been completely taken over by illicit cigarette suppliers at the expense of law-abiding and tax-compliant manufacturers like Batsa, and the fiscus continues to lose R35 million in taxes every single day.”

It adds: “After 118 days of lockdown [as at July 22], the ban on tobacco products sales has now cost over R4 billion in excise taxes alone and substantial job losses.”

It says the research also shows that there has been a 430% increase in the number of people sharing cigarettes and potentially exposing themselves to Covid-19.

Sars, consumers being hit in the pocket

“This is largely due to the high price of the illicit products, which on average are 250% higher than the pre-lockdown price,” it says.

Batsa head of external affairs Johnny Moloto also warned that replacing the prohibition with excise increases would compound the devastating damage of the last four months. A post-ban hike in excise tax will “permanently” hand most of the cigarette market to criminals who do not contribute to this country’s fiscus.

“At the moment the tobacco market in South Africa is being run and dominated by illicit suppliers who, quite obviously, are breaking the law and making billions of rand in illicit profits.”

Moloto says the “criminal” behaviour shown by those selling cigarettes on the black market is nothing new.

Billions being made, all tax-free

“These illicit suppliers are not suddenly going to become compliant and start obeying the law and paying taxes when the ban is eventually lifted. They evaded taxes prior to the lockdown, they’ve made billions tax-free during the ban, and they will evade taxes after the ban.”

Moloto calls on government to allocate significant new resources to the South African Revenue Service to ensure that the market can be taken back from criminals in the aftermath of the ban – as well as a zero-tolerance approach to evasion when the ban is lifted.

“A dramatic increase in excise taxes would be second only to the ban itself as an absolute gift to the criminal suppliers,” he says.

“It would prevent the legal and tax-compliant industry from taking some of the market back from the illegal suppliers and make South Africa the largest illicit tobacco market in the world.”

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