Illicit cigarette trade robbing SA of R27bn
ECONOMISTS and activists have raised concern about the damaging effect of the illicit cigarette trade on the country’s economy.
This follows the Border Management Authority’s (BMA) recent announcement of the recovery of over R3 million worth of illicit cigarettes at the Lebombo border post over the Easter weekend.
Yusuf Abramjee of Tax Justice South Africa, a civil society organisation, welcomed the seizure, but noted that the bust would hardly make a dent on the “illicit cigarette tsunami that is flooding South Africa”.
Abramjee said that criminal gangs smuggled tons of cigarettes through the country’s porous borders every day, adding that the illicit industry was robbing the country of over R27 billion in vital tax revenue annually.
“They are manufacturing even more in licensed factories in South Africa. That’s why it is essential that the Fair Trade Tobacco Association (Fita) is made to comply with laws requiring the installation of CCTV cameras. The illicit cigarette kingpins are depriving our country of money that should be spent on housing, schools and hospitals.”
Abramjee was referring to a decision by the South African Revenue Service to install CCTV monitoring equipment at licensed customs and excise warehouses operated by tobacco product manufacturers in a bid to curb illicit trade.
However, the Sars move is being challenged.
SA Tobacco Transformation Alliance (SATTA) spokesperson, Zachariah Motsumi, said that the alliance had been calling for a crackdown on the criminal networks that smuggle, manufacture, and sell illicit products as it was hurting legitimate business and the economy as a whole.
“British American Tobacco South Africa has already cut 584 jobs out of a total workforce of 1 800, primarily because it sells 40% fewer cigarettes than it did in 2020. This is due to the increase of people smoking illegal cigarettes.”
Professor Irrshad Kaseeram, from the University of Zululand’s economics department, said that credible government reports indicated that the illicit market made up to 60% of the South African cigarette market in 2022.
“The cost to the government coffers are huge, for instance in 2022 Sars lost R14.5bn in excise taxes and R3.3bn in VAT. The Covid-19 ban on tobacco products gave rise to the escalation in the illicit trade.”
Kaseeram said that the illicit cigarettes were smuggled into the country through our borders with Botswana, Zimbabwe and Mozambique.
“Zimbabwe is the largest producer of tobacco leaves and factories have been set up there targeting the illicit cigarette industry in South Africa. Organised crime, corrupt officials on both sides of the borders and trucking companies are finding it profitable to smuggle the contraband on their return trip to South Africa.”
Waldo Krugell, a professor in Economics at the North West University, said illicit cigarettes were creating problems for legitimate businesses.
He pointed out that the illicit cigarette trade was associated with other crimes and criminal syndicates, and warned that by buying these products people were supporting crime networks.
BMA commissioner, Mike Masiapato, revealed that in a joint operation the BMA had intercepted 270 cases of counterfeit cigarettes during the Easter weekend.