Edward Kieswetter kisses R28 billion goodbye every year

The latest research shows that South Africa loses approximately R28 billion in tax revenue due to illicit cigarette sales.

A study by Ipsos, commissioned by the South African unit of British American Tobacco (BAT South Africa), shed light on the size of the illicit cigarette trade industry in South Africa.

The study surveyed 4,812 retail outlets nationwide, purchasing the cheapest cigarettes available at each location.

The study concluded that illicit cigarette availability in South Africa has reached the highest levels on record.

69% of retailers are selling cigarettes below R20 per pack, and it was discovered that products as cheap as R5 per pack are available in some outlets.

76.7% of shops in South Africa are now selling cigarettes below the minimum tax threshold applicable on a pack of 20.

Johnny Moloto, area head of corporate and regulatory affairs for BAT South Africa, said the problem is not going away.

“Despite increased enforcement activity over the past year, including more raids and product seizures, illicit products remain as available as ever,” he said.

He said this suggests that current tactics and law enforcement are failing to address the root causes of tax evasion.

“Our analysis indicates that the illicit cigarette trade costs South Africa approximately R28 billion annually,” Moloto said.

In other words, the South African Revenue Service (SARS) loses approximately R100 million every working day.

“Eliminating this leakage would protect law-abiding taxpayers from bearing additional tax burdens,” said Moloto.

Combating trade in illicit cigarettes

Earlier this year, Finance Minister Enoch Godongwana said an estimated 70% of cigarettes sold in South Africa are illicit.

He added that this illicit trade leads to annual tax revenue losses of over R27 billion, aligning with the research from Ipsos.

The minister explained that due to the market’s illicit nature, it is difficult to quantify the amount lost to cigarette smuggling reliably.

However, he said that over the past five years, South Africa’s illicit cigarette trade has escalated into a significant economic and enforcement challenge.

Most of the illicit cigarettes consumed in South Africa are produced locally but are sold without the collection of excise taxes, VAT, and other applicable duties.

Thus, some may be legally produced but are ‘bootlegged’ and sold cheaply. Others are illegally produced and have fake labels or trademarks.

SARS Commissioner Edward Kieswetter has also previously highlighted that this trade costs the country billions and poses a risk to consumers.

“Everyone who purchases these products is complicit in the crime, and these products are very unsafe and are cheap because they are not taxed properly,” Kieswetter said.

SARS is cracking down on the burgeoning illicit cigarette trade and has created a dedicated team to investigate the sector and pursue the illegal profits generated by it.

SARS is increasing supervision of cigarettes exported via warehouses in South Africa as part of this initiative.

It is also improving the manual tracking of cigarettes in transit through South Africa, and working with Tobacco industry experts to detect illicit cigarettes.

“We’re improving authentication marking on cigarettes and are doing more retail inspections,” SARS said.

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Illicit cigarette sales pricing structure

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Illicit cigarette sales at stores

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Illicit cigarette sales growth

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