British American Tobacco South Africa (Batsa) acknowledges that they have been hard hit by the illicit trade. Whilst they are still committed to purchasing tobacco from 150 small-scale farmers in Limpopo, Mpumalanga and North West, the company has written to Limpopo Tobacco Processors (LTP) to inform them that should sales volumes fall below 10 billion cigarette sticks a year, they will have to consider sourcing tobacco from outside South Africa. Batsa says there is major cause for concern because last year the volume sold was 11.5 billion cigarette sticks, down from 15.2 billion in 2016.
LTP warns that up to 10 000 agri-workers will be unemployed if Batsa should be forced to source its tobacco from other countries.
In 2018, government was defrauded of an estimated R5 billion in unpaid taxes on illegal cigarettes. Approximately 80% of the total domestic trade in illicit tobacco is manufactured locally.
This means that more than 15 million illegal cigarettes are smoked every day in South Africa.
Besides the price and branding, it’s almost impossible to tell the difference between a fake cigarette and the real product. Another problem is “look-alike” cigarettes, where criminals mimic an original design with some changes. Because illegal cigarettes are not subject to the same stringent production processes, they can also be riskier to health than the genuine product. Counterfeits are likely to contain higher levels of tar and carbon monoxide than genuine cigarettes, and in some cases can contain insects and human faeces.
Growth in locally produced illegal cigarettes has crumbled the value chain in the legal cigarette market. The volume of legal cigarettes sold by British American Tobacco has decreased from 22 billion sticks to 15 billion sticks and has resulted in the loss of 600 jobs over the past five years.
Spotting illegal cigarettes is easy if you check their price. The minimum collectable tax on a pack of 20 cigarettes is R16,30. Of this, R14,30 amounts to tariff, plus R2 of VAT on excise. According to Batsa any pack of 20 sold below R16,30 may be an indication that the taxes have not been paid, which is a contravention of the Customs and Excise and the Income Tax Acts. Most illegal cigarettes are sold at R10 a packet – considerably below the minimum collectable tax.
The sale of illicit cigarettes undermines carefully determined tax policy. Excise tax on tobacco plays a key part in pricing policy that is aimed at reducing the affordability, and hence demand, of cigarettes. This means that illegal cigarettes are more accessible to young people under the legal smoking age of 18 years.
How to spot an illegal pack of cigarettes
The Tobacco Institute of Southern Africa says it’s easy to identify to identify fake cigarettes:
- There is no excise stamp (diamond stamp) on the pack.
- There are no health warnings on the pack.
- The “quit line” number is incorrect or missing. The correct telephone numbers are 011 720 3145, 011 720-3145 or 011 720 3145.
- The tar and nicotine readings on the pack are higher than 12mg tar and 1,2 mg nicotine and/or not printed on one of the long sides of the pack.
- The words “Reduced Ignition Propensity” is not printed anywhere on the pack (in force as of 16 November 2012).
- Excise duty alone on a pack of 20’s is R15.52 (as of March 2018).
For more information on South Africa’s illicit cigarette trade, visit Batsa’s website.