Now Is The Time

Tobacco industry backs calls for national effort against illicit trade

The South African tobacco industry joins this week’s calls for greater action against illegal trade – particularly proposals to increase collaboration between government and business and to declare illicit trade as a national priority.

In our view, it is only decisive and integrated action that will break the back of the R100-billion illicit economy. And it has to happen now. The scale of the problem has been clearly outlined this week with the release of the South Africa Illicit Economy 2.0 Report, published by the Transnational Alliance to Combat Illicit Trade (TRACIT) in conjunction with Business Unity South Africa (BUSA).

TRACIT’s statistics on the devastating impact of illicit trade on the tobacco sector represent our lived reality. Tobacco farmers, processors, manufacturers and importers of tobacco products in the legal value chain can bear witness to the profound drop in the sale of legal tobacco products as the illicit tobacco market has grown and now comprises around 70% of the total market. And, as a consequence, thousands of workers have lost their jobs – and billions of rands have been lost in unpaid taxes.

As the TRACIT report points out: “Illicit trade continues to pose a serious threat to South Africa’s economic stability, governance, and international standing.”

Urgent action is needed – not just for the sake of the economy, but because of the ongoing damage resulting from South Africa’s greylisting by the Financial Action Task Force (FATF) in February 2023. FATF has clearly stated that South Africa needs to demonstrate “a sustained increase in investigations and prosecutions of serious and complex money laundering, in particular involving professional money laundering networks/enablers and third-party money launderers in line with its risk profile”.

Surely there is now sufficient evidence before the Government of the benefits of acting against illegal traders in general and illegal cigarette traders in particular? Illicit trade in tobacco is estimated to cost government R28-billion a year in lost revenue. This at a time when the Finance Minister is threatening to increase VAT – effectively punishing law-abiding and tax-paying citizens at a time when the focus should be on the industrial-scale tax-dodging that we are seeing in the tobacco industry.

Do the maths: allocate greater resources to dealing with illicit trade and there would be no need to consider further taxation.

It is time the Government got its act together and various arms of the State worked in unison. As SATTA, we propose an urgent three-pronged approach that encompasses the allocation of significant additional resources to SARS to tackle and investigate the illicit tobacco trade, dramatically increased arrests by the Hawks and fundamentally increased prosecutions by the National Prosecuting Authority.

And this entire process needs to be driven, and monitored, at the highest level.

We therefore fully support the suggestion from former Trade & Industry Director-General Lionel October for greater collaboration between government and business to deal with the illicit economy. We also completely agree with his view that this should be a national priority. These are vital steps to stamping out the illicit economy once and for all.

It is also encouraging that Business Unity South Africa is partnering with TRACIT on tracking illicit trade in our country, and we fully support greater involvement in this process. TRACIT’s proposal creating a national Anti-Illicit Trade Coordinator makes complete sense as a move to strengthen inter-agency coordination and ensure unified enforcement strategies.