South Africans smoked 37 billion cigarettes in 2023, but only 13 billion were taxed

South Africans smoked 37 billion cigarettes last year, but Sars only collected tax on 13 billion of these as the illicit market takes over the industry.

Francois Van der Merwe from the South African Tobacco Transformation Alliance (SATTA) mentioned the number of cigarettes smoked and the number that was taxed when he was interviewed on Newzroom Africa.

Zachariah Motsumi, spokesperson of SATTA, says since its formation in 2019, the alliance has called for stronger action against the criminal networks that smuggle, manufacture and sell illicit products.

“SATTA therefore appreciates the spotlight that has been shone in recent days on the devastating impact that these criminal networks are having: not just on the national fiscus, but on those who make a living producing legal products.”

Research by the University of Cape Town’s Research Unit on the Economics of Excisable Products (REEP) shows the scale of this theft in its recent report on the tobacco industry, with R119 billion in excise and VAT revenue lost over the past 20 years due to tax-dodging illicit cigarette networks.

ALSO READ: Sars loses R119 billion in tax revenue due to illicit cigarette sales since 2002

Sars says illicit cigarettes now its biggest fight

Edward Kieswetter, Sars commissioner, said last week that illicit tobacco is “the biggest fight we face now”. Motsumi says Kieswetter must be commended for steps that Sars already implemented, for example, against companies such as Gold Leaf.

“Government should allocate more resources to Sars to pursue these complex crimes. As the commissioner pointed out, illicit tobacco products account for 60%-70% of cigarette sales and causes tremendous damage to the fiscus.”

Motsumi says SATTA also welcomes the Supreme Court of Appeal’s decision to allow Sars’ evidence of illegal tobacco dealing to be submitted in the criminal trial against Walter and Letisha Cyril, who face 164 counts of tax fraud charges regarding illicit cigarettes.

“The couple, former directors of companies CEW Logistics and Tish Maritime, allegedly formed part of a R120 million fraud scheme with some Sars officials selling contraband cigarettes. The National Prosecuting Authority (NPA) alleges the couple imported cigarettes from Zimbabwe and then falsely claimed they were shipped to Mozambique when they were, in fact sold in South Africa without duties or VAT payments.”

He says this kind of tax evasion is typical of the illicit tobacco sector and SATTA welcomes the positive developments in this case.

ALSO READ: Tighter tobacco use control will boost economy and jobs – scientists

The whole value chain suffers due to illicit cigarettes

Motsumi adds that the national fiscus is not the only place where the illicit tobacco sector is causing tremendous harm.

“Cigarette producers like BATSA has to retrench tobacco factory workers and about 500 jobs are currently at risk in third-party logistics companies that transport their products.”

As things stand, he says, BATSA has already cut 584 jobs out of a total workforce of 1 800, primarily because it sells 40% fewer cigarettes than it did in 2020.

“People are not smoking less – it is the sale of legal cigarettes that decreased. The net effect of this is twofold: it has devastated tax collection and decimated the legal tobacco sector.”

Motsumi says if you drill deeper into the tobacco industry, you will find it is not only cigarette manufacturers that have taken a massive knock. The farmers who grow tobacco and the companies that process it also suffered. “The entire value chain has been hammered.”

The Black Tobacco Farmers Association, which founded SATTA in 2019 to protect the industry’s interests, has, for example, seen a wholesale exit of members due to declining market opportunities. There were 125 black tobacco farmers when SATTA was formed but today there are only 10, a decrease of 92%. South Africa also has less than 155 commercial tobacco farmers, 21% fewer than the 197 it had in 2019, he says.

ALSO READ: Limpopo cops nab two suspects with R300k illegal cigarettes

Impact on workers

SATTA’s tobacco processing affiliate, Limpopo Tobacco Processors, has directed farmers to even cut back on planting new crops and it had to shorten its working week in some areas to two days due to the drop in demand for legal tobacco leaf.

“Across the value chain, the ones who suffer are farmworkers, growers, processors and factory workers. Hundreds of them.

“The tobacco mafia networks, like all mafias, are complex and elaborate and what is needed are even more confiscations and prosecutions. Illicit products should be taken off the streets and the people who make, distribute and sell them should be locked up.”

Motsumi calls on communities to get involved in identifying those involved in this activity and says law enforcement must make its prosecution of the tobacco mafia a national priority.

“It is time to say: No more. No more places for the politically connected tobacco mafias to hide. No more truckloads of illicit cigarettes making their way onto the streets. No more lost revenue. No more lost jobs. It’s time to turn the tide. Together.”