Bleak November for South Africa’s tobacco industry

In the past two weeks, we have seen the results of the latest IPSOS research into the rampant and ongoing growth of the illicit sector, which shows that the illicit sector is now completely out of control. For example: Three out of four stores in Free State (76%) and Western Cape (77%) sell illegal cigarettes, according to the research, and illegal cigarettes are available in almost half of the stores (43%) nationwide.

The IPSOS research has been followed just this week by the publication of research by Tax Justice South Africa (TJSA) which showed that shopkeepers are selling cigarettes at up to four times below the legally feasible price in 96% of stores visited in Cape Town, Johannesburg and Pretoria. To compound the situation, criminal manufacturers are now flooding the market with mastercases – large boxes, each containing 500 packs, at impossibly low prices.

Finally, we have begun to receive reports of what this means on the ground: At least 30 of our members – all black farmers in the Mpumalanga and Limpopo provinces – have gone out of business in the past few months due to the decline in legal cigarette sales. The massive slump in legal cigarette sales means there is no longer sufficient demand for the leaf they grow, because the illicit sector has taken over.

The contrast in fortunes here is hard to ignore.

Law abiding black farmers, eking out on existence on small tracts of land while complying with all the relevant requirements in terms of tax compliance, are going out of business on a daily basis.

At the same time, the criminal networks are making further and further inroads – operating, increasingly, as an organised criminal network. They pay no tax. They do not subscribe to any legal framework around how or what they sell.

Perhaps the greatest irony here is that South Africa’s tobacco industry is one of the most highly regulated sectors of the South African economy. There are supposed to be production counters in manufacturing plants, controls around advertising, and extremely tight control on how much we, as the legal farmers, legal processors and legal manufacturers, have to pay SARS in excise taxes.

The illicit traders don’t have to worry about this at all. They were given unfettered access to the market during the ridiculous COVID-19 bans, and they have been making money hand over fist. As TJSA states in its report: “Our investigation proves there is a ready supply of illicit cigarettes across South Africa and storekeepers are keen to sell them without fear of the consequences from law enforcement authorities. Retailers apparently feel no threat from police or SARS for stocking and selling illicit brands, even when it is self-evident that tax cannot have been paid because the retail price is just a fraction of what the tax alone should have been. Our research showed cigarettes are being sold as cheaply as R6 a packet – almost 20% cheaper than previously, suggesting a fierce illegal price war more than a year since the lifting of the sales
ban.”

This situation does not only affect farmers. Workers across our value chain – in the processing sector and in manufacturing – are facing a dire future due to the drop in sales, the continued growth of the illicit sector, and the invisibility and apathy from the authorities.

The South African Government needs to come out clearly:

• Is it seriously committed to cracking down, consistently and determinedly, on the criminal networks making millions of Rands a day selling illegal cigarettes?
• Is the South African Revenue Service seriously committed to raiding and arresting the people who run these criminal networks, rather than turning a blind eye and enabling their criminality?

Finally, what does the South African Government say to the farmers who have gone out of business, to their families and dependents, and to the death of an important agricultural initiative that has attempted to restore dignity and pride to black South African farmers? Does it care? Or is our Bleak November going to pass just like every other month – to be followed by a Bleak December, a Bleak January, and ultimately a Bleak Forever?

Issued by Zacharia Motsumi

Spokesperson for SATTA
Mobile: 083 216 8842