THE South Africa Tobacco Transformation Alliance (SATTA) has added its voice in calling on government law enforcement authorities to work together to destroy the R100 billion-worth illicit tobacco industry that is devastating to the economy.
The illegal industry, according to Transnational Alliance to Combat Illicit Trade (TRACIT), has robbed the taxman of billions of rand while mopping thousands of jobs in the legitimate sector.
As a result of the illicit cigarette selling on the street and in informal shops, the legal industry is suffering a devastating blow. According to SATTA, there are currently only 10 emerging tobacco farmers compared to 125 that existed in 2019 before the Covid-19 lockdown.
“Independent research by Oxford Economics shows that the tobacco industry supported a total of 160 924 jobs in 2019.
“Since then, however, the industry has struggled to regain the jobs it supported as illicit trade gained the upper hand.
“By 2022, when the most recent survey was undertaken, the industry supported 124 933 jobs – 35 991 fewer jobs than in 2019, which represents a 22.4% decline,” SATTA’s spokesperson Zachariah Motsumi said in response to questions from this reporter.
He said Zimbabwe was the major source of illicit cigarettes coming to South Africa.
“According to Ipsos, more than 80% of all illicit cigarettes are produced by local manufacturers, registered and licensed by SARS. The balance of around 20% is smuggled into our country, mainly from Zimbabwe,” he said.
SATTA’s call was in support of TRACIT’s recently published report that stated that illicit cigarette sales in the country had grown by 60% in 2021, and slightly declined to 58% in 2022.
The report stated that this had robbed the state of R18 billion in revenue, R15 billion in excise duties, and R3 billion in VAT.
It said between 2002 and 2022, the losses in excise and VAT revenue amounted to R119 billion.
Motsumi said in a statement released on Friday that the alliance proposed that the South African Revenue Service (SARS) be provided with additional resources to tackle and investigate the illicit tobacco trade.
It also called for more arrests and prosecutions of the fraudsters involved in this underworld business.
“It is time the government got its act together and various arms of the state worked in unison.
“In our view, it is only decisive and integrated action that will break the back of the R100 billion illicit economy. And it has to happen now,” said Motsumi.
SATTA’s report points out that: “Illicit trade continues to pose a serious threat to South Africa’s economic stability, governance, and the country’s international standing.”
He described statistics released by TRACIT as having a devastating impact of illicit trade on the tobacco sector.
“Tobacco farmers, processors, manufacturers, and importers of tobacco products in the legal value chain can bear witness to the profound drop in the sale of legal tobacco products as the illicit tobacco market has grown to comprise around 70% of the total market.
“And, as a consequence, thousands of workers have lost their jobs – and billions of rand have been lost in unpaid taxes.”
He said the illicit trading contributed to the Financial Action Task Force (FATF) placing the country on greylisting in February 2023.
“Surely there is now sufficient evidence before the government of the benefits of acting against illegal traders in general and illegal cigarette traders in particular? Illicit trade in tobacco is estimated to cost the government R28 billion a year in lost revenue.”
He said instead of talking about increasing the Value Added Tax, Finance Minister Enoch Godongwana should have been emphatic on the fight against illicit cigarettes, which evade paying tax.
“This at a time when the Finance Minister is threatening to increase VAT – effectively punishing law-abiding and tax-paying citizens at a time when the focus should be on the industrial-scale tax-dodging that we are seeing in the tobacco industry,” said Motsumi.
He said the SATTA was fully behind former Trade & Industry Director-General Lionel October’s suggestion that there should be collaboration between government and business to deal with the illicit economy and that this should be a national priority.
“These are vital steps to stamping out the illicit economy once and for all.
“It is also encouraging that Business Unity South Africa is partnering with TRACIT on tracking illicit trade in our country, and we fully support greater involvement in this process.
“TRACIT’s proposal of creating a national Anti-Illicit Trade Coordinator makes complete sense as a move to strengthen inter-agency coordination and ensure unified enforcement strategies,” he said.
In its report, TRACIT said Godongwana announcement of R7.5 billion on April 1 aimed at bolstering SARS’s enforcement and modernisation its crime fighting efforts that would help the taxman to intensify its actions against the illicit economy, including illicit cigarettes, trade-based money laundering, second-hand gold, crypto-related crimes, and customs fraud such as mispricing and undervaluation.
“It will also accelerate the modernisation of its tax and customs systems to improve detection, risk profiling, and operational efficiency,” read the TRACIT’s report.
