Time to turn the tide on the tobacco mafia

The South African tobacco industry is greatly encouraged by the growing national pushback against the threats posed by the illicit tobacco industry.

Since its formation in 2019, the SA Tobacco Transformation Alliance has called for stronger action against the criminal networks that smuggle, manufacture and sell illicit products.

SATTA therefore appreciates the spotlight that has been shone in recent days on the devastating impact that these criminal networks are having – not just on the national fiscus, but on those who make a living producing legal products.

Among the recent developments in this regard are:

• Research by the University of Cape Town’s Research Unit on the Economics of Excisable Products (REEP), which shows the scale of this theft: according to its recent report on the tobacco industry, R119-billion in excise and VAT revenue has been lost over the last 20 years because of tax-dodging illicit cigarette networks.
• Acknowledgement from the Commissioner of SARS, Edward Kieswetter, that illicit tobacco is “the biggest fight we face now”. The Commissioner is to be commended for steps that have already been taken – for example, against companies such as Gold Leaf – and believes SARS should be allocated more resources to pursue these complex crimes. As the Commissioner pointed out, illicit tobacco products account for 60%-70% of cigarette sales and causes tremendous damage to the fiscus.
• SATTA also welcomes the decision by the Supreme Court of Appeal to allow SARS’ evidence of illegal tobacco dealing to be submitted as evidence in the criminal trial against Walter and Letisha Cyril, who face 164 counts of tax fraud charges regarding illicit cigarettes. The couple, former directors of companies CEW Logistics and Tish Maritime, allegedly formed part of a R120m fraud scheme with some SARS officials selling contraband cigarettes.

The National Prosecuting Authority (NPA) alleges the couple imported cigarettes from Zimbabwe and then falsely claimed they were shipped to Mozambique when they were, in fact, sold in South Africa without duties or VAT payments. This sort of tax evasion is typical of the illicit tobacco sector, and we welcome the positive developments in this case.

But the national fiscus is not the only place where the illicit tobacco sector is causing tremendous harm: as reported in the media over the weekend, cigarette producers like BATSA are having to retrench tobacco factory workers and about 500 jobs are currently at risk in third-party logistics companies that transport their products.

As things stand, BATSA has already cut 584 jobs out of a total workforce of 1 800 – primarily because it sells 40% fewer cigarettes than it did in 2020.

It’s not that smoking has decreased; it’s the sale of legal cigarettes that has decreased. The net effect of this is twofold: it has devastated tax collection, and decimated the legal tobacco sector.

Drill deeper into the tobacco industry and you’ll find it’s not only cigarette manufacturers that have taken a massive knock; so, too, have the farmers who grow tobacco, and the companies that process it. The entire value chain has been hammered.

By way of example: the Black Tobacco Farmers Association, which founded SATTA in 2019 to protect the industry’s interests, has seen a wholesale exit of members because of declining market opportunities.

There were 125 black tobacco farmers when SATTA was formed; today, there are only 10, down 92%. South Africa also has less than 155 commercial tobacco farmers — 21% fewer than the 197 it had in 2019. SATTA’s tobacco processing affiliate, Limpopo Tobacco Processors, has directed farmers to cut back even on planting new crop and has to shorten its working week in some areas to two days because of the drop in demand for legal leaf. Across the value chain, the ones who suffer are farmworkers, growers, processors and factory workers. Hundreds of them.

The tobacco mafia networks, like all mafias, are complex and elaborate – and what is needed are even more confiscations and prosecutions. Illicit products should be taken off the streets and the people who make, distribute and sell them should be locked up. Communities need to get involved in identifying those involved in this activity, and law enforcement needs to make its prosecution of the tobacco mafia a national priority.

It is time to say: No more. No more places for the politically connected tobacco mafias to hide. No more truckloads of illicit cigarettes making their way onto the streets. No more lost revenue. No more lost jobs.

It’s time to turn the tide. Together.

Zachariah Motsumi is spokesperson for the South Africa Tobacco Transformation Alliance