Tobacco excise revenue plunges

A plunge in the excise revenue collected from tobacco products in the past two years suggests the industry had taken advantage of the diminished capacity of the South African Revenue Service to avoid paying tax, fuelling the growth of the illicit market, a senior researcher from the University of Cape Town said on Monday.

A plunge in the excise revenue collected from tobacco products in the past two years suggests the industry has taken advantage of the diminished capacity of the South African Revenue Service to avoid paying tax, fuelling the growth of the illicit market, a senior researcher from the University of Cape Town said on Monday.

Excise revenue from tobacco products slid from R13bn in the 2015-16 fiscal year to R12.1bn in 2016-17 and R10.9bn in 2017-18, a 16% drop over the period, an analysis of Treasury data by Corné van Walbeek, head of the Economics of Tobacco Control Project at UCT, showed.

The excise tax per packet of cigarettes rose from R12.42 to R14.30 per packet from 2015-16 to 2017-18, which meant the total number of cigarette packets on which tax was paid fell 27%, from 1.05-billion to 763-million in 2017-18, it shows.

“This is unprecedented. SARS has been weakened to such an extent that people are taking chances. I’m confident big industry has become more complicit in the illicit trade,” Van Walbeek said.

“We know consumption has fallen slightly, but not to this extent,” he said.

The illicit cigarette market is thriving in SA’s poorest communities, posing a health risk to some of the country’s most vulnerable citizens.

Surveys in informal settlements found that in many places cigarettes are sold at 50c a stick, or R10 per pack of 20. As the excise tax per pack is R15.52, clearly tax had not been paid on these products, he said.

The Tobacco Industry of Southern Africa (Tisa), which represents tobacco manufacturers and growers, agreed that there was a weakening in tax compliance but said its members were not to blame.

“When SARS took its foot off the pedal in 2014, it opened the door for companies to take the gap,” said Tisa chairman Francois van der Merwe.

“If SARS starts doing its job properly, they can easily get back R5bn-R6bn [a year],” Van der Merwe said.

He told Parliament on May 2 that at least a quarter of the South African cigarette market was illicit.

The loss to the fiscus in unpaid taxes on tobacco products in 2010-16 was an estimated R27bn, he said at the time.