Gopolang Moloko
3 minute read
23 Jul 2020
12:16 pm

How the age-old cigarette smuggling industry works

Gopolang Moloko

There need to be policy measures, minimum pricing measures as well as traits that identify whether tax has been paid on a particular box of cigarettes.

Picture: iStock

Telita Snyckers, former SA Revenue Service lawyer and author to a gripping exposé uncovering the dark underbelly of the tobacco industry, says the story of illicit cigarettes long precedes lockdown.

Smokers have been left fuming since the country went into lockdown after President Cyril Ramaphosa announced a national state of disaster.

Certain products were deemed non-essential items and both alcohol and cigarettes were snubbed off the retail lists of items for purchase as a measure to reduce and manage the impact on the buckling health sector.

During an address in May, Ramaphosa reiterated that the ban on tobacco products would remain in place under Level 3 and that the sale of alcohol would be restricted to home consumption.

In July, Ramaphosa sent consumers into a tailspin after reinstating the order to ban the sale of alcohol, this time with immediate effect, as there were identified links of the pressure added to the health sector, which already was under severe pressure.

Studies by the University of Cape Town showed that most smokers were able to buy cigarettes during the lockdown, despite the ban.

This indicated the ban was backfiring, as smokers now paid a substantially higher price for different brand cigarettes, signalling an underbelly of a black market for tobacco products.

Public figures such as Tax Justice South Africa founder Yusuf Abramjee have highlighted the backfiring effects to the ban on cigarettes.

Snyckers, author of Dirty Tobacco: Spies, Lies and Mega-Profits, said in a podcast that the profit margin on products was known to be huge, and “because the profit margins are so huge, it’s dead easy to get your cigarettes on the illicit market on one of two ways”.

“Either you [manufacture] certain volumes that you don’t declare to Sars, as Sars can only tax what it sees. You take a volume produced and sell them to the market untaxed, or you pretend that you export the cigarette and actually sell them tax-free on the [black] market.”

She said most companies doing this are not illegal. They do pay taxes.

“Part of the challenge is that when you find packs on the local market from a supermarket or boot of a car its impossible to determine if tax has been paid on a particular pack or not.”

This was an issue to be looked into, as it left a grey area.

Truck drivers and reported smugglers arrested for contraband in their vehicles were a small part of the issue, as real action would be to target the guys manufacturing the products, “to shut down the source”.

“The focus must be on the money trail,” and this needed better analytics capacity, she stressed.

She also seconded a University of Cape Town study which suspected a possible price war in the midst after the lockdown, when cigarettes made a comeback.

When tobacco products make their way back into the market after the lockdown, it’s likely that the big companies could play dirty tactics in an effort to reclaim their share of the market.

There need to be policy measures, minimum pricing measures as well as traits that identify whether tax has been paid on a particular box of cigarettes.

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