Law change good for Sars

CONTROL ILLICIT CIGARETTES, THOUGH

Asmall change in the Tobacco Products Control Act will give the taxman the authority to collect an additional R5 billion per year in excise duty and solve the problem of trade in illicit cigarettes. The law must be changed to set a minimum retail price equal to the tax payable on every packet of cigarettes.

This will effectively put crooked cigarette makers, who rely on not paying tax to make huge profits, out of business.

As from March, the excise duty and VAT on the excise duty amounts to R17.85 per packet of 20 cigarettes.

The cheapest legal brands sell for about R23 per packet, which leaves about R5 after excise duty and VAT to be split between the retailer, manufacturer and distributors.

Then there are the packets of Rainbow Gold, JFK, M’s, Pacific Blue, RG, Navara, Westleigh, Ceasar, Bastille and several others which sell for between R6.20 and R10 per packet. It is unlikely that the manufacturers paid the required taxes as every sale will result in a loss of about R7 to R12 per packet. The income to these suspect producers amounts to at least twice that earned by honest manufacturers.

But according to the law, small retailers are doing nothing wrong by selling these cheap cigarettes as all taxes are supposed to be paid by the manufacturer at the factory gate. Manufacturers of cheap cigarette brands maintain tax is paid on their whole production and they use their expensive brands to subsidise the cheaper ones.

The Tobacco Institute SA (Tisa), with involved parties, briefed parliament a few weeks ago.

Tisa chair Francois van der Merwe told Moneyweb: “One of the things we asked for is for government to consider a minimum price for a packet of cigarettes. That will give law enforcement agencies the authority to raid retailers and confiscate illicit cigarettes. “This will, in time, destroy illicit trade.” The loss in tax to Treasury is huge. According to estimates, tax avoidance from the sale of illicit cigarettes has increased from around R4 billion per year in 2015 to more than R5 billion last year.