NATIONAL NEWS - The illegal trade of tax-evading cigarettes continues to thrive in defiance of recent high-profile actions by the South African Revenue Service (SARS), according to a new retail study from independent market researchers Ipsos.
Ipsos’s latest study shows that shops nationwide are still flooded with illegal tobacco products more than two years after the unconstitutional tobacco sales ban was imposed by Government as part of their response to the Covid-19 pandemic.
Among the most disturbing findings in the Ipsos report are that:
- almost four out of five stores in the Western Cape (77.9%) sell cigarettes below the Minimum Collectible Tax (MCT) rate of R22.79 per pack;
- almost three in four shops in Free State (72.3%) sell cigarettes below MCT, as do 66.2% of outlets in Gauteng, a significant increase compared to research conducted a year ago;
- a single pack of 20 cigarettes can be bought for as little as R7 – which is less than a third of the MCT, and down from R8, which was the lowest price found in the October 2021 study; and
- this illegal price war is being won by brands licensed to or owned by Zimbabwe-based Gold Leaf Tobacco Corporation (GLTC), as well as Carnilinx and Best Tobacco.
Carnilinx and Best Tobacco are the sole remaining significant members of the Fair-Trade Independent Tobacco Association (FITA)[1]. GLTC was expelled from FITA in September 2020, amid rumours of illegal sales during the tobacco sales ban[2]. It has since formed its own tobacco industry association, the South Africa Tobacco Organisation (SATO), of which it is the sole member[3].
“The latest Ipsos study is irrefutable proof that the unconstitutional lockdown tobacco sales ban created a monster with an insatiable appetite,” says Johnny Moloto, general manager of British American Tobacco South Africa (BATSA).
“Criminal manufacturers of tax-evading cigarettes are refusing to give up their control of the South African tobacco market and are pocketing billions in illicit profits that deprive the state of vital revenue and destroy honest jobs.
“SARS may have the law on its side, but it evidently lacks the resources and support to defeat the menace of illicit trade that threatens our nation’s hopes of stability and prosperity.”
In August this year, SARS obtained a preservation order against GLTC and its two directors, Simon Rudland and Ebrahim Adamjee[4]. SARS is reportedly seeking to recover more than R3 billion in unpaid tax from the company. Media reports have shown this to go beyond a ‘normal’ tax dispute, describing it as a “a cross-border money laundering racket”[5].
Global leader in market research Ipsos conducted its sixth such study of the South African tobacco market between 28 September and 25 October 2022. Looking at 4,593 nationwide retail outlets, ‘mystery shoppers’ were tasked with trying to buy the cheapest cigarettes available at an outlet.
Ipsos researchers found that the vast majority of stores in hotspot provinces – the Western Cape (77.9%), the Free State (72.3%) and Gauteng (66.2%) – sold cigarettes below MCT, indicating that the manufacturers could not have paid all due taxes on these products.
Products bearing trademarks licensed to or owned by Zimbabwe-based Gold Leaf Tobacco Corporation (GLTC), Carnilinx, Best Tobacco and Afroberg remain the most frequently found selling below MCT.
MCT is calculated at R22.79, made up of R19.82 excise tax plus 15% VAT. It does not include production costs, nor profit for the manufacturer. Cigarette packs that sell for less than the MCT could be considered illegal, as this means the manufacturer is unlikely to have paid the minimum amount of excise duty and VAT (or ‘taxes’) due to SARS.
“Time and again, in shops all over the country, researchers have gathered evidence of tax-evading cigarettes that are depriving the fiscus of more than R19 billion a year,” says Moloto.
“This brazen theft from the state is being conducted on an industrial scale, in plain sight and seemingly without meaningful penalty, while honest South Africans endure a soaring cost of living and record unemployment.
“For the sake of our economy and the future of all our citizens, authorities must be empowered to tackle this scourge, retrieve the billions of Rands stolen by criminal masterminds and dismantle the illicit tobacco networks once and for all.
“BATSA is calling on SARS to enforce production-counter regulations, which have been mandatory for manufacturers for two years, and to implement the CCTV policy for local manufacturers that was released earlier this year. The authorities also need to implement a minimum retail sales price that will allow police to seize illegal cigarettes and shut down offending factories,” concludes Moloto.
[2] www.iol.co.za/news/south-africa/western-cape/fita-terminates-gold-leafs-membership-as-rumours-swirl-about-illegal-sales-during-tobacco-ban-ec14a361-f1be-5879-9f4d-98d9f4abead7
[4] www.sars.gov.za/media-release/media-statement-on-gold-leaf-tobacco
[5] www.dailymaverick.co.za/article/2022-08-26-r3-billion-sars-swoops-on-gold-leaf-tobacco-over-transnational-plunder-network
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