Criminals must know they are in the tax man’s sights.
The South African economy loses billions of rands to tax evasion and illicit financial flows annually, but the South African Revenue Service (Sars) continues to wage its battle against tax fraud.
In 2020, Business Leadership South Africa estimated that the country lost around R250 million daily as a direct result of illicit trade. In 2022, the Organisation for Economic Cooperation and Development estimated that South Africa was losing $3.5 billion to $5 billion (R62 billion to R88.8 billion) a year, or more than 1% of its GDP, to illicit financial flows.
In a statement on its website at the end of last year, Sars said it was determined to act on tax crime in SA and it wanted those committing this crimes to know that they are firmly in its sights.
ALSO READ: SA loses R30 billion in revenue due to illicit trade in cigarettes and liquor
Real threat
Sars notes that the impact of activities within the illicit economy is enormous and poses a real threat to the country. It quotes the United Nations, which stated that “money flowing to organised crime outstripped all the money that the developing countries could devote to long-term development”.
A large number of illicit cigarettes are consumed in South Africa every year. “That means we lose excise revenue every year. That sort of revenue would build quite a few more schools, roads and houses which we need,” says Sars.
Moneyweb recently reported that cheap cigarettes, sometimes selling for around R5 per packet of 20 in the market, translate into an estimated R28 billion loss to the fiscus annually. Or put differently, around R100 million each working day.
ALSO READ: Illicit tobacco sales a drag on excise tax collections
A win for Sars
One recent success for Sars was a high court confirmation of a preservation order against several entities associated with Amalgamated Tobacco Manufacturing.
In June this year, the Durban High Court issued its judgment in an application by Sars for the confirmation of a preservation order against two entities, Plus0 (read PlusZero) and Dodo, after a provisional preservation order was granted against 20 respondents in February this year.
The matter pertains to a Sars investigation into a “co-ordinated scheme of tax evasion” and the potential dissipation of assets. The two entities wanted the preservation order to be discharged completely. Plus0 and Dodo were placed in the hands of a curator bonis following the execution of the preservation order in March this year.
Tax Justice SA last week issued a statement welcoming the confirmation of the preservation order. Its founder, Yusuf Abramjee, said the order will allow Sars to continue securing assets while investigating more than R96 million in suspicious financial transfers involving the Pietermaritzburg-based cigarette maker.
ALSO READ: SA losing nearly R30bn to illicit cigarettes as Sars tools face delays, says Godongwana
Robust powers
“This case demonstrates exactly why Sars needs robust investigative powers and why the illicit tobacco trade continues to devastate our fiscus,” Abramjee said.
“When a court finds a tobacco manufacturer has a case to answer over millions in under-declared income, it confirms what we’ve been saying for years – the industry is riddled with tax dodgers who are bleeding the country dry.”
Sars says on its website that every South African can help stem the growth of the illicit economy by refusing to buy counterfeit goods or contraband cigarettes, and by reporting poaching incidents to Sars, the police, and the Department of Environmental Affairs.
They are also encouraged to report informal trade in precious stones.
Sars said it is taking specific actions, including:
- Increased supervision of cigarettes exported via warehouses;
- Improving the manual tracking of cigarettes in transit through South Africa;
- Working with tobacco industry experts to develop a way of detecting illicit cigarettes; and
- Conducting more retail inspections.
ALSO READ: South Africans smoked 37 billion cigarettes in 2023, but only 13 billion were taxed
Research firm Ipsos conducted a study commissioned by British American Tobacco into the cheapest purchase prices in the cigarette market. The study indicated that almost 70% of 4 812 retailers approached in their mystery shopper research sold cigarettes below R20 per pack.
The minimum collectable tax (MCT) for a packet of 20 cigarettes is R26.22 (R22.80 for excise duties and R3.42 for Vat).
Ipsos found that cigarettes sold for less than MCT have reached record-high levels in 2025, at 76.6% up from 27% in 2022.
The hotspots for cheap cigarettes sold by retailers in SA are the Eastern, Northern and Western Cape as well as North West province. Purchases at R26.22 and below occurred at more than 80% of the retail stores sampled in these provinces.
Moneyweb is awaiting a response from Sars regarding the impact of its actions over the past six months.
This article was republished from Moneyweb. Read the original here.
