How ‘Big Tobacco’ derailed Sars’ investigative ability

Amanda Watson

A new study pinning the fiscus’s R7 billion annual loss from the illicit trade of cigarettes on smaller tobacco companies is only telling half the tale.

A report from global market research company Ipsos released yesterday by the Tobacco Industry of South Africa (Tisa) stated that illegal cigarettes costing R5 per pack were available for sale in more than 100 000 shops in SA. More than one-third of cigarettes in “nonorganised” shops, which account for about 80% of all tobacco sales, are sold for well below the government’s R17.85 minimum tax payable, it said.

According to Tisa, the “le- gal” tobacco industry is worth, through excise and VAT on excise, more than R16 billion to government.

The report also showed that the illegal market has exploded since suspended SA Revenue Service (Sars) commissioner Tom Moyane put an end to investigations and inspections of cigarette factories in 2015. Which is where the dots connect up with British American Tobacco SA’s (BatSA) apparent massive disinformation campaign that seem- ingly created the conditions for illicit trade in tobacco products to flourish, and its attempt to get more of the pie collapsed Sars investigative ability.

In late 2014, the Sars “rogue unit” narrative began, with alleged honeypot triple spy Belinda Walter (Carnilinx, BatSA, State Security Agency) ousting Sars group executive Johann van Loggerenberg as head of the high risk intervention unit at Sars.

Former Sars commissioner Oupa Magashula was ousted after his offer of a R700 000-a-year job at Sars to a 28-year-old female chartered accountant and Ivan Pillay was appointed. Moyane was appointed commissioner in September 2014 by then president Jacob Zuma.

The following month, when the rogue unit stories began, allegedly fed by Walter and Sars operative Mike Peega, who was arrested for rhino poaching and disowned by Sars, it wasn’t long before Moyane hung Pillay and Van Loggerenberg out to dry.

All that needed to happen was for the stories to be swallowed by the Sunday Times to feed Moyane’s paranoia, culminating in last week’s first round of the judicial commission into how the restructuring at Sars virtually collapsed the entity as far as illicit trade was concerned. Whether he did this knowingly is for the Nugent Commission to uncover.

In 1999, about 27% of adults in South Africa smoked and Tisa members held about 80% of this market. By 2015, the total number of adult smokers was 11% of the population and Gold Leaf Tobacco Company, Folha, Carnilinx, UATM, Savannah and ATM had entered the market and were starting to offer cheaper brands.

The collapse of the base of smokers from 4.6 million to 2.7 million meant Tisa members lost massive market share, with BatSA taking the biggest hit.

Tisa chairperson Francois van der Merwe would not comment on these points and a BatSA representative missed a promised interview, electing to respond via e-mail. At the time of going to print, this had not transpired, nor had a response from Gold Leaf, the company Van der Merwe cited as responsible for 75% of the illegal trade.

There is the side that the Ipsos report did not cover – aggressive base erosion practices (BEPS), profit-shifting schemes and industrial espionage, all flourishing in the absence of a credible investigative unit at Sars.

“BEPS refers to tax avoidance strategies that exploit gaps and mismatches in tax rules and treaties of different countries to artificially shift profits to low or no-tax locations,” the Fair-Trade Independent Tobacco Association (Fita) said. “The intention is that multinationals end up paying little or no corporate income tax in any country.”

Fita said there was allegedly evidence pointing to BatSA and its “inordinate influence over law enforcement officials”.

It added: “British American Tobacco supposedly appointed law firm Norton Rose Fulbright to ‘investigate’ these allegations in SA in 2016. Yet their reports and findings have remained under wraps and away from public scrutiny, despite several requests for the release thereof.

“Because of their proximity to senior law enforcement officials, none of these allegations appear to have been investigated and prosecuted by law enforcement agencies. This must be questioned.”