Tobacco industry outraged at continued growth of illicit cigarette market

The South African tobacco industry is outraged by the flood of illicit cigarettes, which is growing by the day. We see it, we feel it, and we know all about it – which is why we are not at all surprised at the dramatic increase in illicit trading that Ipsos has reported on today.

No, rather than be surprised: We are outraged.

SATTA’s members go about their business in a law-abiding way and pay their taxes, and it distresses us that the tobacco industry continues to be undermined by the illicit traders, whose identities are well-known to SARS and the law enforcement authorities.

They are taking food from our mouths and killing our business.

There can be no denying that the illicit manufacturers and traders are emboldened and growing their operations at a rapid pace. For example: three out of every four retail outlets in Gauteng, Western Cape and Free State are now openly selling illegal products on which taxes have not been paid.

In Gauteng alone, there has been a 13% increase in just one month in the number of retail outlets selling a pack of 20 for less than R20.

This is a national criminal network we are talking about, not a group of hustlers standing on a street corner.

At the heart of the problem, as clearly shown by Ipsos’ independent research, are the Zimbabwean owned Gold Leaf Tobacco Corporation (GLTC), with its factory in South Africa, and the manufacturers affiliated to the so-called Fair-Trade Independent Tobacco Association (FITA).

For example: Remington Gold, a Gold Leaf brand, is “dominant” in the illicit sector and can be bought for as little as
R10 a packet, and “frequently” at R15.

Almost every single pack (99%) of Remington Gold purchased in the survey was below the MCT. What does that tell
us about the people who make and sell them?

New outlets

The Ipsos research shows that these illicit traders have flooded their outlets – and found new ones — since the announcement of the excise tax increase announced by the Finance Minister at the end of February.

In effect, they are building on the criminal networks that they set up and mobilised during the COVID-19 national lockdown, rather than being forced out of business.

They are now selling cigarettes for as little as R6 for a pack of 20 cigarettes, even though the only way they can do this is not to pay taxes. As Ipsos points out, at least R18.79 in excise tax has to be paid on every packet sold. If you add VAT, the minimum collectable tax (MCT) on a pack of 20 is R21.61. And that excludes processing, manufacturing, distribution and all the other costs in bringing legitimate products to market.

So if consumers are paying less than the MCT, they can be sure they’re buying illicit products – and that all their
money is going to criminals in the illicit trade.

Excise increase = illicit sales increase

What makes us particularly angry is the fact that the latest boom in illicit sales is directly linked to the tax increase of R1.39 a packet that the Government introduced earlier this year. And we told the Government that was exactly what was going to happen: a tax increase would only benefit the people who are already not paying taxes, as the higher price would force consumers to find cheaper options.

The Government is reaping what it has sown: its excise increase is getting to result in an increasing drop in the sale of legal, tax-compliant cigarettes — which means excise revenue will drop even further.

We told the Government this was going to happen, but they didn’t listen.

A comprehensive onslaught

It is time for the Government to do more than burn a container or two of confiscated cigarettes, like it did – with much fanfare – in Cape Town last week. That is not enough. We need a comprehensive onslaught against the clearly- identified illicit manufacturers and distributors, and in particular against Gold Leaf and the members of FITA.

The Government should demand compliance – from everybody, including the FITA renegades – with relevant legislation on paying excise and the use of SARS production counters and the introduction of a proper track-and-trace system.

The Government should also immediately ratify the WHO Illicit Trade protocol to fight illicit trade, which has been gathering dust for almost a decade despite being one of the most useful weapons, worldwide, against the illicit cigarette trade.

Without these interventions, we will be left in serious doubt as to the Government’s commitment to dealing with the illicit trade in cigarettes. And in even more doubt, unfortunately, about the future of our law-abiding, tax- paying members.

Queries contact:

Zacharia Motsumi
Spokesperson, SATTA
Mobile: 083 216 8842