Illegal cigarettes ‘costing government R3bn a year’
THE illegal trade in cigarettes has significantly undermined the fiscus and the legitimate industry, MPs learnt yesterday. Border controls have been strengthened and various state agencies are working together to fight the scourge, SARS chief customs and enforcement officer Gene Ravele said yesterday. He said the government lost more than R3bn annually in excise duty and value added tax not collected from illegal cigarettes.
CAPE TOWN — The illegal trade in cigarettes has significantly undermined the fiscus and the legitimate industry, MPs learnt yesterday.
Border controls have been strengthened and various government agencies are working together to fight the scourge, South African Revenue Service (SARS) chief customs and enforcement officer Gene Ravele said.
He told Parliament’s trade and industry committee that the government lost more than R3bn annually in excise duty and value added tax not collected from illegal cigarettes. These taxes represented 52% of the retail price of cigarettes. For a packet of 20 cigarettes, the excise duty is R11.60 and VAT R1.62.
The legitimate tobacco industry lost more than R2bn. About 29% of the total cigarette market — or more than one in four cigarettes smoked — is illegal, SARS estimates.
“A packet of cigarettes should ideally not be sold for less than R16.50 to include the manufacturing cost, distribution cost and some profit margin as well as the relevant taxes. A smuggled 40-foot container with 1,100 master cases of cigarettes amounts to a loss of approximately R7.2m to the fiscus and a clean profit to the smuggler,” Mr Ravele said.
He noted that sanctions by Europe and the US against Zimbabwean tobacco exports had created an opportunity for this illicit trade to flourish and the porous border with SA made it easy to undertake.
“SARS has seen organised crime groups move from supplying counterfeits 10 years ago to now managing all aspects of the production process, from sourcing raw tobacco product through to developing specific tobacco packaging that will generate suitable market interest,” Mr Ravele said.
Some operators worked through foreign facilitators and small, legitimate tobacco manufacturers while other groups simply exploited the cross-border price differentials through smuggling.
Last year, SARS seized 173million cigarettes valued at R109m.
Another headache for the tax authorities is undervalued imports, particularly clothing and textiles. Last year, there were 274 seizures of illegal imports valued at R28.3m.
In addition, Department of Trade and Industry deputy directorgeneral Zodwa Ntuli noted in her presentation that the statistics showed that while law-enforcement authorities such as SARS and the police were doing a lot of things to combat illicit trade, “we do not seem to be making the strides that we would want to, though there is some improvement. The syndicates are always ahead.
“Measures are put in place but they always find ways of bringing these goods into the country.”
The music industry in particular was suffering from the import of counterfeit goods, Ms Ntuli said.
The industry had asked the department to raise consumer awareness about piracy and the harm it caused the industry.
More local music was counterfeited than foreign music.
The department was in the process of developing a music strategy specifically to help foster the growth of the industry.
It emerged from engagements with the sector that legitimate businesses were also manufacturing counterfeit goods, which indicated the need for more inspections.
The National Regulator for Compulsory Specifications is also involved in preventing the importation of unsafe and noncompliant products but there had been a noticeable rise in the volume of such imports entering the country, MPs were told.