Clamping down on illegal tobacco trade is possible with political will
It’s time to make producers pay tax they owe – and make them pay for the devastation, writes
COMMENTS for the draft Tobacco Control Bill have closed after three months and the Department of Health is moving into the next phase of deliberating on the submissions it received.
This is a lengthy process that could take several months and might include portfolio committee discussions in Parliament. In all likelihood, the bill will be finalised in the later part of next year.
The bill is important for the average South African. In essence, it aims to reduce the prevalence of smokers, which has plateaued at 19% of the population for the past decade. It does this by removing indoor smoking areas and regulating the use and sale of e-cigarettes. And it aims to protect 81% of the population from harmful second-hand smoke.
However, the proposed changes in legislation have been challenged by the tobacco industry and those who suggest that the illicit trade in tobacco is growing.
In the latest attempts to challenge the bill and divert attention from the necessity for the changes, they’ve raised questions about the Department of Health’s socio-economic impact assessment of the bill, calling it a motivation rather than an objective assessment of the risks, benefits and costs attached to the bill.
Pushbacks from the tobacco industry are not new – nor is mudslinging.
In recent months South Africans have been privy to the gripping drama of the tobacco wars, illicit trade and tax evasion as a result of the public calamity surrounding the South African Revenue Service. This has been fuelled by explosive revelations at the Nugent Commission of Inquiry into tax administration and governance, which has been centred on suspended commissioner Tom Moyane as well as Moyane’s disciplinary hearing.
The most damning information the commission received has been the evidence presented by Cecil Morden, former chief director in the National Treasury’s Economic and Tax Analysis Unit.
He revealed the significant decline in the revenue collected from excise duty on tobacco between 2014 and this year, primarily the result of a lack of enforcement which has resulted in an increase in the illicit trade. Also, he noted a decline in the number of cigarettes that are declared to be produced in South Africa.
This too possibly stems from attempts to evade taxes or some manufacturers being involved in illicit trade.
Days later, research specialist Ipsos released a market study report commissioned by The Tobacco Institute of South Africa (Tisa) which claimed that the revenue service – under Moyane’s leadership – had cost South Africa R7 billion in lost tobacco excise revenue since 2015.
There are a few relevant observations to be made: First, the Ipsos report needs to be seen as the latest battle between competing manufacturers vying for the market share of the South African tobacco industry. The competition has resulted in the so-called “Sars wars” over the past four years.
Second, it is not only the R7bn billion that South Africans need to focus on.
Morden’s evidence and the Tisa-commissioned report show that all manufacturers have a role to play in the illicit trade in cigarettes.
The National Prosecuting Authority was asked to charge 15 local manufacturers and importers as early as 2014 for R12bn in unpaid taxes related to their involvement in tax evasion and the illicit trade. The fact that no one has been charged indicates a lack of political will to deal decisively with the issue.
The noise about the shifting size of the illicit trade is purely an attempt to sensationalise a real problem, which has had a solution for years that has not been acted upon.
The third observation relates to the steps that need to be taken to eliminate the illicit trade in tobacco as outlined in the Department of Health’s socio-economic impact assessment.
The most recent global figures suggest that Africa loses $1bn (R14bn) annually to the illicit trade in tobacco.
This is mostly driven by tobacco manufacturers in a bid to evade paying taxes. This in turn reduces revenue collection. Not paying taxes results in a cheaper product, which is more accessible to the population and defeats public health goals.
The solution is a track-and-trace system that has been proposed in the Protocol to Eliminate Illicit Trade in Tobacco Products.
The protocol forms part of the World Health Organisation’s Framework Convention on Tobacco Control – a global treaty to guide countries on how to help reduce the tobacco problem.
The protocol will come into force from next month after more then 53 countries adopted it. Like many other countries, South Africa signed the protocol in 2012, but has not yet ratified it nor taken any steps to implement it.
Kenya is the only African country to have implemented a track-and-trace system. As a result, the country’s revenue agency has intercepted 37.4 million diverted cigarette exports to the value of about R23 million, saving an estimated tax loss of just under R15m.
The numbers are paltry in comparison to the figures being bandied about in South Africa, but they provide evidence that the system does work.
The challenge in South Africa – like the rest of the world – is that the tobacco industry has tried to malign evidence-based and necessary policy changes by spreading misinformation and leaving out pertinent facts about its own role in the illicit trade.
The taxpayer is being robbed by elements in the industry who do not pay taxes, who are involved in the illicit trade and whose products cause ill health. This once again becomes the problem for the taxpayers’ purse.
It is time to introduce and implement the Draft Tobacco Bill, as well as the Protocol for the Elimination of the Illicit Trade in Tobacco Products.
It is time to take back the tax by making the importers and manufacturers of this harmful product pay what they owe – and pay for the devastation that their product causes. Savera Kalideen is executive director of the National Council Against Smoking, a Johannesburg NGO that is focused on ending smoking