Legal ciggy market going up in smoke

DESPITE cigarettes no longer having the “cool” allure that they had in the 90s, studies conducted by the Economics of Tobacco Control Project (ETCP) at UCT, ahead of World No Tobacco Day, indicated that the trade in cigarettes was growing in the country.

Research conducted by ETCP into tax data monitoring cigarette sales and consumption in South Africa showed a decline in excise tax revenue from tobacco products, which could mean a large increase in the illegal cigarette market trade.

ETCP head Professor Corné van Walbeek said the Budget Review released in February 2018 showed that excise tax revenue from tobacco products had decreased by about 10%. Between 2016 and 2018, there had been a 20% decrease in the number of tax-declared cigarettes, which he said pointed to a problem.

“This large decrease is cause for concern. Such a rapid decrease in consumption over this short period cannot be explained by changes in people’s smoking patterns alone. Instead, it points to a large increase in the illicit cigarette market. Cigarettes acquired illegally are cheaper. Sadly, these cigarettes are being sold in our poorest communities.”

He added that surveys conducted in informal settlements in South Africa indicated that the illegal sale of cigarettes was thriving, as they were being sold at 50 cents each, or R10 per pack. The excise tax per pack was R15.52, which Van Walbeek said indicated that the tax had not been paid.

He added that this exposed the prevalence of an illegal cigarette market in informal settlements, directly related to the inflated retail prices that were being charged by multinational companies.

“For more than 15 years, between the early 1990s and 2010, British American Tobacco was able to use its near-monopoly power to sell cigarettes at increasingly higher retail prices and make massive profits, despite sizeable increases in the excise tax.

“This created an incentive for competitors to enter the market and undercut prices. Since around 2010… (they have taken) a substantial share of business away from multinationals. The result is a very fragmented and near-chaotic market.” – Staff Reporter