Illicit trade ‘a threat to democracy’

More than R100bn in taxes is lost due to the illicit trade in a wide range of products in SA, tax expert judge Dennis Davis said on Thursday.

With the SA Revenue Service (Sars) expected to collect about R1.5-trillion in the 2022 tax year, this is a significant loss to the fiscus and represents more than 6% of all tax revenue collected.

To get a sense of the scale of the figure, research firm Intellidex estimates a basic income grant would cost R200bn, meaning lost taxes would cover half of this proposal.

Speaking in his capacity as a consultant to Sars, Davis said grey or illegally imported goods lead to a loss in customs and excise duties and are used to fund organised crime.

He was addressing a webinar hosted by the Consumer Goods Council of SA. The council is an industry body that represents large retailers Pick n Pay, Spar, Checkers and Woolworths as well as producers of food, household goods and alcohol.

It runs a hotline for tip-offs that flag illicit trade as the formal industry tries to work with law enforcement authorities to clamp down on illegal cigarettes, alcohol and commodities.

Davis said between R3bn and R5bn is lost annually to the fiscus in the illicit tobacco trade alone, and another R2bn, thanks to illegal steel imports. Sectors as diverse as mining, food, pharmaceuticals and clothing are also affected.

The retired judge, who in 2013 led the Davis tax committee into the role of the tax system in the promotion of inclusive economic growth and fiscal sustainability, said hardly a day goes

by without someone from an industry phoning him to complain about losing out on sales to an illegal market competitor.

Money made by illegal industries allows criminals to use top lawyers to fight cases in court and drag them out, he said — using the “Stalingrad approach and you can never get the damn case up and running.

“If we can’t get a hold on this and control it effectively, then the idea of constitutional democracy is utterly placed in jeopardy,” said Davis.

VIOLENCE

Speaking at the same event, Prof Mark Shaw, director of the Global Initiative Against Transnational Organised Crime, argued that SA was at a turning point in its fight against organised crime, which he believes is linked to and funded by illegal trade.

Shaw is concerned that SA is becoming increasingly violent and said that law enforcement authorities have to be more proactive in fighting illicit trade.

High levels of organised crime put SA in a similar position to Italy, Colombia and Mexico and is also “extremely violent. Organised crime is an existential threat to SA’s democracy,” he said.

Shaw said data collected by the authorities on crime trends is not sufficient, but nevertheless reveals the sharp rise in violence and murder linked to organised crime, which is in part funded by the illicit trade in tobacco, food, alcohol, steel and clothing, as well as illegal mining and extortion.

An analysis of 2,600 murders described in the most recent crime statistics shows that about 50% of all homicide cases can be linked directly or indirectly to the development of criminal markets, he said.

Davis and Shaw believe the alcohol and cigarettes sales bans during Covid-19 further entrenched organised crime and criminals’ routes to market. The National Prosecuting Authority and the law enforcement agencies are not adequately equipped at the moment to deal with the challenges, they said.

Davis argues SA needs a body — such as the disbanded Scorpions — that combines the prosecuting authority with investigators.

TAVERNS

Lucky Ntimane, convener of National Liquor Traders, an association that represents 39,000 legal tavern owners in townships, said the sale of illegal alcohol is rife. Usually these alcohol products look legitimate, but on closer inspection there are slight differences in labelling that can be missed by the untrained eye.

Ntimane said that in KwaZulu-Natal people often drink counterfeit alcohol, leading to a rise in the number of deaths, but there is a fear of reporting as residents suspect gangs are behind illegal liquor. He said the theft of an alcohol truck at the Durban harbour means organised crime is involved rather than small-scale thieves.