A recent report and documentary by Tax Justice SA (TJSA) found that the illicit cigarette trade is booming and brazen throughout South Africa. Their investigation uncovered that two out of every three cigarettes sold in the country are illicit.
The report estimates that South Africa could potentially have the world’s largest black market for cigarettes. This costs the economy billions of Rands a year in unpaid tax.
In their investigation, an undercover TJSA researcher visited 43 mainstream retail and wholesale outlets across Cape Town, Johannesburg, Pretoria and Durban to secretly film cigarettes being sold at a price below the minimum tax that must be paid on them by law. The researcher could purchase cigarettes for less than R20 in 42 of the 43 outlets.
In Cape Town, the cheapest individual pack was R10.00 (Sahawi and Cape) and the cheapest carton was R93 (Remington Gold).
“TJSA considers all cigarettes sold at R25 a pack or below to be illicit, since such a price cannot possibly cover the cost of manufacture and distribution on top of the Minimum Collectible Tax (MCT) of R20.01 due on each pack (R17.40 excise plus R2.61 VAT),” the report states.
Some cartons are sold at barely a third of the price necessary to cover tax. Two retailers openly sold the researcher illegal cigarettes with nicotine levels above South Africa’s legal 1.2mg limit, with one filmed explaining that they had been smuggled from Mozambique and no tax had been paid.
“Our extensive footage shows indisputably and beyond all doubt that the supply and sale of illicit brands below the minimum tax threshold is now rife throughout the country in mainstream outlets, and post-lockdown has become utterly brazen. Indeed, it appears that sellers are so unworried by any threat of action by the police or South African Revenue Service (SARS) that many now openly display them alongside legal brands in their stores and wholesale displays,” reads the report.
They also found that the cigarettes being sold below tax can be traced to a small number of manufacturers. Between them, Gold Leaf Tobacco Corporation (GLTC) and members of the Fair-Trade Independent Tobacco Association (FITA) accounted for the vast majority of the brands.
These manufacturers have already been singled out by the Research Unit on the Economics of Excisable Products (REEP) at the University of Cape Town for exploiting the lockdown black market to increase market share.
“The law is being broken in plain sight across South Africa, and now that TJSA has documented it clearly on film it can no longer be denied by politicians or law enforcement. Corruption and the apparent failure by manufacturers of illicit brands to pay all due tax and excise on all of their cigarettes is robbing the government and South Africa’s citizens of billions of rand a year,” the report continues.
“It is money that is badly needed to fund the country’s future – our infrastructure, health and the education of our children. Illicit cigarette manufacturers are in our view stealing the country’s money and future by dodging their tax responsibilities and SARS is failing to act to prevent the manufacture, supply and open sale of these brands on our streets.”
TJSA is now calling for:
– The arrest and prosecution of those running these organisations
– Seizure of their assets – bought with the billions looted from the South African people in tax evasion – and the return of that money to its rightful owners – the State and its people. – Immediate closure by SARS of any tobacco manufacturing plant producing brands of cigarettes being sold beneath the MCT
– A minimum price for tobacco products at retail and wholesale level of 30% above MCT, below which they are automatically recognised as illegal and instantly seized.
– An education programme for retailers, paid for from tobacco excise, to help them identify which brands are illicit and cannot be sold.
Read the full report here: TJSA-smoking-gun-report_v4