Illegal cigarettes burn the economy
THE South African Revenue Service (Sars) must stop fiddling while the economy burns.
A few months ago, I joined the #TakeBackTheTax campaign as its official spokesperson.
At the time, we said that Sars was losing R7 billion annually to the illegal cigarette trade and called on Sars to ensure that it acts with urgency to get that money back.
Many naysayers, and especially those connected to the illegal cigarette trade, criticised #TakeBackTheTax for this campaign and our call on government – but ultimately we have been vindicated!
This was especially true when the Nugent Commission ruled that since the destruction of Sars under Tom Moyane, illegal cigarette makers were “operating with little constraint”.
Let the magnitude and implications of that ruling sink in for a moment.
#TakeBackTheTax was certainly encouraged at the commitments from Acting Commissioner, Mark Kingon, to clean house and clamp down.
There were some raids in the market but only small shops were targeted – even though we’ve always said they should be left alone.
They aren’t the bad guys in this story and it is troubling to see Sars targeting these small shops and shop owners, while the big companies which make and distribute illegal cigarettes remain untouched.
It’s even more troubling to see them operating right under Sars’ nose in the very factories that Sars has licenced.
So when research house Ipsos released its second report (commissioned by the Tobacco Industry of Southern Africa – Tisa) on the tobacco industry in South Africa last week, it was with great shock and disappointment to learn that far from being clamped down on, illegal cigarettes have grown aggressively in the past three months.
They have grown by 25% in market share, to be exact.
The illegal cigarette trade appears to actually be getting stronger and gaining momentum.
Let that also sink in.
It is a great shame for South Africa that it is the first country in the world to allow an illegal tax dodging cigarette brand – namely RG – to become the largest brand in the market. And the results are staggering.
While Sars has been talking about clamping down and taking back the tax, these tax dodgers have expanded their distribution aggressively and rapidly.
They are clearly not afraid of Sars. It is a remarkable show of defiance from them that as soon as SarsS called time on tax evasion, far from reining in their fraudulent activity, the tax evaders doubled down on their production, distribution and growth.
Having grown by 25% in market share in just three months as a result, they must be rolling on the floor laughing by now.
So now Sars is losing a massive R8 billion.
Up by a massive R1 billion and the growth rate of illegal cigarettes means that logically and realistically South Africa will be losing R10 billion by the first quarter of next year.
The repercussions are massive. A largely unspoken factor about the repercussions of this is job losses.
Tobacco farmers, with the 10 000 jobs they sustain, who are fully dependent on the legal industry, will be finished by the end of next year if this carries on.
About 10 000 jobs will be lost and another 2 000 in manufacturing and processing are at risk.
For a country in a technical recession, this is something we can ill afford as a nation.
Now Gold Leaf Tobacco, the biggest company exposed by the Ipsos report, has sent threatening legal letters to #TakeBackTheTax and the Tobacco Institute of Southern Africa (Tisa).
They have also not denied or addressed the specific findings of the Ipsos report – namely, that they own the biggest brand in the market selling for R10 a pack.
The is the RG brand and its selling price can only mean that it is evading taxes because the minimum tax owed on each pack is R17.85.
That Gold Leaf has sent intimidating legal letters to Tisa and I – and has not denied the specific findings in the Ipsos report about RG – strongly suggest that it is guilty as charged.
We remain resolute – we will not be silenced nor intimidated.
Now people are calling for this government to stop increasing tobacco taxes for the legal industry and consumers until it is able to collect taxes from all role players in the sector.
And who could blame them? This government, which allowed illegal cigarettes to proliferate and grow in the first place, has no more authority to ask law abiding companies and citizens to pay more tax – especially because it is incapable of collecting what it is owed from the abundance of tax evaders that it still allows to prosper in our society.
The question now is, how big does this crisis have to get before our government finally wakes up?
More than a month ago, Judge Nugent told President Cyril Ramaphosa that he must urgently appoint a permanent Commissioner to Sars, yet Acting Commissioner Mark Kingon is still “acting”. It is unacceptable.
What country can survive without a functioning revenue service with an empowered boss?
Taxes are being lost, jobs are being lost, health policy is being undermined and this whole sorry mess is a massive turn off for those investors who we are so desperately attempting to attract to our country.
#TakeBackTheTax will continue to stand up and do what is right.
Over 22 000 citizens have signed a submission calling on law enforcement agencies to act. You can add your name by going to: www. takebackthetax.org
The illicit trade is a global problem. At the 39th annual Crime Stoppers International (CSI) conference in The Hague recently, discussions around illegal cigarettes took centre stage.
The problem is fast growing in southern Africa and we need action and we need it right now!