SATTA rejects ‘ridiculous’ cigarette excise increase

Cigarette smugglers and the distributors of illicit tobacco products must be dancing in the streets today at the announcement of an 8% increase on the excise charges on tobacco products.

Those shady characters who make up the criminal network in the illicit tobacco sector are the only likely beneficiaries of this ridiculous increase.

While we fully understand Government’s desire to increase tax revenue, we believe it is going about it the wrong way.

An 8% excise increase equates to an increase of R1.39 in the price of a legally produced packet of cigarettes. It means nothing to those who manufacture and sell illegal cigarettes, apart from making their illicit products even more affordable. It will drive more and more people towards the illicit market – which means Government will make even less money than it made before.

SATTA, which represents the entire legal cigarette production value chain, has consistently argued that excise charges should not be increased, in order to avoid the switching from legal to illegal products.

We have petitioned Parliament, we have petitioned the Finance Minister, and we have petitioned organised business. But rather than realise the downside of increasing excise charges, Government has gone ahead with this increase – and in so doing, made illicit tobacco products even more attractive to already-stretched consumers.

The excise increase is effectively double the rate of inflation. It punishes those who respect the law and are prepared to pay the necessary taxes. And it gives an additional advantage to those who deal in smuggling, illicit manufacturing and under-the counter sales.

The ban on tobacco products has already had a devastating impact on the sector. Many farmers went out of business and many others are still struggling to recover from 8 months of lost business due to the COVID-19 lockdown and the ban on cigarette sales.

According to our research, the illicit market grew by a staggering 3.1 billion cigarettes in a single year. That’s a loss of excise revenue of almost R13-billion for the government, and billions more for farmers, processors and manufacturers.

We believe government should have tried to strike a balance when it comes to potential excise revenues from the sale of tobacco products, bearing in mind lessons learnt during COVID-19 lockdowns.

All stakeholders have to reverse the undesirable consequences of illicit trade. The answer to this is to ensure that the legal market can recapture lost volumes and, in doing so, grow Government excise revenues.

Government needs to wake up to this fact, and fully understand the consequences of what it has done.

Increased excise means less legal sales. That means less excise revenue – plain and simple.

Issued by: Zachariah Motsumi
Spokesperson, SATTA
Mobile: 083 216 8842