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As vape sales rise and make headaches for lawmakers, it is crucial not to turn our eyes away from the shady undercurrents of the tobacco industry in general – an imperative made all the more pressing by a new study by British American Tobacco South Africa Ipsos.

The study has lifted the proverbial log of the industry to find alarming evidence of the thriving multibillion-rand illicit tobacco trade in South Africa, hidden from the public eye. Including a close review of 4,600 stores nationwide in 2021, as well as current businesses, the data from the study revealed that many cigarette manufacturers are deeply involved in this illegal activity, using shifty methods to evade taxation and regulations.

A whopping 59.3% of the stores checked in the study were found to sell illicit cigarettes, a significant increase from 27% in 2022.

These illicit cigarettes, often produced by reputable brands, are sold at prices far below the minimum collectable tax (MCT) threshold, a somewhat obvious indication of tax evasion, with packs being sold for as little as R5, which is less than one-fifth of the MCT of R25.05.

Yusuf Abramjee acclaimed local journalist and founder of Tax Justice SA (TJSA), responded to the study highlighting how illicit tobacco is estimated to be worth R24 billion annually.

“These shocking figures explain why some cigarette makers might be so keen to keep Sars’ cameras out of their premises,” Abramjee said. “They’re stealing over R24bn in vital excise revenue annually and want to carry on this industrial-scale looting without interference from the taxman.”

The study also exposed the regional prevalence of illicit tobacco trading, with the Western Cape topping the list at 75.1%, followed closely by the Eastern Cape (74.4%), Gauteng (73.7%), Free State (73.1%), and KwaZulu-Natal (67.3%).

These scarily high figures were pushed up during SA’s COVID-19 lockdown, when cigarette smugglers capitalised both on customers’ desperation for tobacco products during the ban on these items during the lockdown, as well as the government’s inability to monitor and control the movement of untaxed cigarettes.

“This unprecedented criminality is bleeding billions of rand from our fiscus and the ringleaders are stealing from our schools, our hospitals, from our very future,” Abramjee confirmed.

Worryingly, the underground tobacco biz is so successful that brands affiliated with the Fair Trade Independent Tobacco Association (FITA) were prominently featured in the study’s findings.

Carnilinx, a FITA member, accounted for 88% of cigarettes sold at illicit prices, with other notable brands including Best Tobacco (75%), United Tobacco (91%), Protobac (100%), and Gold Leaf Tobacco Company (GLTC).

Despite evading taxes amounting to R3 billion, GLTC saw a dramatic increase in its brands being sold below MCT, from 28% in March 2021 to 79% in May 2024.

The South African Revenue Service (Sars) has consistently reminded tobacco vendors that there is currently a legal mandate in place to install CCTV cameras in factories where tobacco goods are produced – but this isn’t really enforceable, considering the amount of effort and money it would require to nail all those refusing to comply.

Abramjee and his team have now called for urgent government intervention – not looking at you, former minister Nkosazana Dlamini-Zuma.

“The message is simple: install Sars cameras, or lose your licence to make cigarettes,” Abramjee underlined. “The courts must force these companies to obey the law, enforcement authorities must crack down on their wrongdoing and the taxman must recoup the stolen revenue that’s meant to build a better future for all.”

Wise words from Abramjee, but it’s hard not to be sceptical that the government can handle just how deep this wormhole of illegal activity goes.

[source:iol]