Tobacco tax hike could prove to be the costliest mistake of them all
BRITISH American Tobacco SA (Batsa) is shocked by the double-inflation increase in tobacco excise at a time when the South African fiscus is reeling from the lockdown sales ban and the illicit tax-evading sector is spiralling out of control.
The 8% increase is far in excess of the government’s planned excise policy and is another windfall for the illegal market that flourished during the 20-week prohibition last year and is now makes up more than 50% of the South African market – one of the highest in the world.
The impact will be disastrous for the government’s attempts to recover tax from the billions of lost revenue at a time when the country needs the money the most.
The legal tax-compliant industry has failed to regain billions of sales lost to national and international criminal enterprises during the sales ban and the threat of significant job losses is greatly exacerbated by this dangerous excise hike.
Taxes are paid by lawful people only. This huge increase will further stoke the illicit market and will, undoubtedly, result in falling tax revenues for the government, while illegal players increase their profits and become even more deeply entrenched.
By radically departing from its planned excise policy, the government is compounding the losses incurred as a result of its previous mistakes.
Such a big excise increase is like pouring fuel on the fire it lit under the illicit market with the lockdown ban. It is a gift to the syndicates in the illegal market while destroying the legal tobacco market. If the illegal cigarette barons were given the opportunity to write government policy, this is exactly what they would do.
Although the lockdown ban halted the sale of legal, tax-paid cigarettes, all evidence shows it fortified suppliers and distributors in the illicit trade.
More important to tax authorities, it has possibly permanently changed consumer behaviour. Many consumers – even those who would otherwise not contemplate purchasing illegal goods – bought illicit cigarettes during the ban. tax-evading brands, providing the brands with In a year marked by costly mistakes, this could be the costliest of them all.
JOHNNY MOLOTO | British American Tobacco general manager