Illicit cigarettes burn industry

THE illicit cigarette sector in South Africa has grown, say small business owners who are still recovering from their losses due to the recent ban on the product.

Ipsos, a market research and consulting firm, conducted cigarette retail and wholesale price research at more than 151000 outlets nationally in February. It found a pack of 20 cigarettes could be bought for R20 or less. This is below the Minimum Collectible Tax Rate (MCT) of R20.01 set by law.

The research findings, commissioned by British American Tobacco South Africa, were released last week.

It found that in four of the nine provinces, cigarettes could be bought at R20 or less at more than 50% of the sampled outlets. These findings were mainly at independent superettes, or corner cafés, spaza shops and hawkers as well as wholesalers.

It said Zimbabwean-owned Gold Leaf Tobacco Corporation, which has a factory in South Africa, had the highest prevalence of cheapest-priced products with their brands mentioned more than 2 396 times.

Some of the popular brands manufactured by Gold Leaf Tobacco Corporation include Remington Gold, Sahawi, Savannah and RG.

Brands from neighbouring countries had the highest incidence of products selling at and below the R20 price mark in South Africa.

Of the local manufacturers, Afroberg and Carnillinx were the brand owners with the highest number of purchases of the cheapest product below R20.

“There is a clear penetration of foreign brands, selling at the lowest price point found in the market at a small store base. Remington Gold was found to be the foreign brand most widely available as the cheapest purchase,” the report on the research findings read.

Local businessmen who sell tobacco products, including cigars and cigarettes, said since the lockdown and ban on cigarette sales last year, customers were now buying cheaper options.

Umesh Morar, owner of Royal Tobacconist, started his business from a kiosk at The Workshop in Durban Central in October 1986. He now owns five shops at The Workshop, Davenport Square, Cityview Mall, Westville Mall and Stamford Hill. He also sells smoking pipes, vapes and accessories.

Morar said between March and August, his stock had spoiled due to the ban on cigarettes.

“When we reopened we had to dispose of stock as many of the products were dry, stale and infected. Sales were also reduced due to illicit cigarette sales and many customers chose to continue smoking those brands. To date, sales have decreased in all our stores.”

He said the government must clamp down on the illicit manufacturers and reduce the taxes on cigarettes to discourage illicit sales.

Kamlesh Bhika, the owner of Tobacco Inn, has had a store at Musgrave Centre since 1999. He said when they resumed business, they had many customers at first but numbers soon dropped.

“A lot of people lost their jobs and could not afford the legitimate brands. Others became accustomed to smoking the illicit brands. Now we have five or six customers a day and have lost about 30% of our normal sales.”

He said they opted to reduce the prices of their products.

“But we also have to survive and make ends meet, which is becoming impossible.”

Bhika said if the government did not stop the illicit trade, law and tax-abiding businessmen would continue to struggle.

Zachariah Motsumi, spokesperson for the South Africa Tobacco Transformation Alliance (Satta), said they were unhappy at the flood of illicit cigarettes.

“We see it, we feel it, and we know all about it, which is why we are not at all surprised at the dramatic increase in illicit trading that Ipsos has reported on.

“Satta’s members go about their business in a law-abiding way and pay their taxes, and it distresses us that the tobacco industry continues to be undermined by the illicit traders, whose identities are well-known to Sars and the law enforcement authorities.

“There can be no denying that the illicit manufacturers and traders are emboldened and growing their operations at a rapid pace. For example, three out of every four retail outlets in Gauteng, the Western Cape and the Free State are now openly selling illegal products on which taxes have not been paid. In Gauteng alone, there has been a 13% increase in just one month in the number of retail outlets selling a pack of 20 for less than R20.”

Motsumi said the announcement of the excise tax increase of 8%, by Minister of Finance Tito Mboweni in the Budget speech in February, had contributed to the increase in the illicit tobacco sector.

Mboweni said a packet of 20 cigarettes would be an extra R1.39; 25g of tobacco would cost an extra 47 cents; and a 23g cigar would cost R7.71 more.

“What makes us particularly angry is the fact that the latest boom in illicit sales is directly linked to the tax increase and we told the government that was exactly what was going to happen. A tax increase would only benefit the people who are already not paying taxes, as the higher price would force consumers to find cheaper options.

“The government is reaping what it has sown. Its excise increase is going to result in an increasing drop in the sale of legal, tax-compliant cigarettes,” Motsumi said.