For years, commentators and journalists have been writing about so-called “tobacco wars”. They have used this term to describe the supposed “bad practices” that are said to exist within the tobacco industry.
The South Africa Tobacco Transformation Alliance (SATTA) believes it is time to start talking about the real “tobacco wars”.
They describe it as “a sustained onslaught on the people and companies that are involved in the legal production of tobacco products.”
Shadrack Ntando Sibisi, executive chairman of SATTA, says this “war” has already closed down farms, put many farmers – both black and white – out of production, cut volumes by up to half, and resulted in the loss of hundreds, if not thousands of jobs.
“The real ‘tobacco wars’ started in earnest with the Covid-19 lockdown that was announced by government in March 2020,” says Sibisi.
“It resulted in a five-month ban on the sale of cigarettes and related tobacco products, which caused massive blows to farmers, processors and manufacturers. It cost jobs, it cost livelihoods, and it hit all the members of SATTA hard in the pocket.”
Massive financial and job losses suffered
Sibisi points out that the ban also resulted in big financial losses for government.
“All the cigarettes sold during the lockdown were sold illegally, which means government didn’t make one cent in excise duties for the entire five-month period.
According to some estimates, this meant government lost more than R13 billion in much-needed revenue, at a time when economic activity as a whole – and the generation of taxes – was almost at a standstill.”
Furthermore, consumers lost out during the lockdown.
“They were forced to resort to criminal activity just to get a hand on their daily smoke, risking roadblocks, fines and even imprisonment because of government’s decision to ban cigarettes,” says Sibisi.
The real “tobacco wars” also saw the emergence of an emboldened illegal sector.
Organised criminal networks swung into play, selling illicit products at vastly-inflated prices – punishing consumers, who had to pay exorbitant prices, and denying the national fiscus of much-needed revenue.
So, what is the situation like now?
It has definitely got worse, says Sibisi, with a continued increase in the sale of illicit cigarettes and a “price war” among those who make and sell these products.
“It may be true that consumers can buy now cigarettes freely again. But they are increasingly tempted to go the illicit route – mainly, because illicit cigarettes are cheaper, and the economic conditions have deteriorated for most South Africans.
“As a result, the illicit sector is as strong as it was, and continues to undermine the activities of the law-abiding people who produce and sell legal cigarettes.”
The most recent independent research, conducted by Ipsos, shows that up to three-quarters of retail outlets in some provinces – Gauteng, Western Cape and Free State, for example – are now selling illicit cigarettes.
For example: 80% of cigarettes sold in the Free State were bought at prices that show no tax was paid. In Gauteng, 70% of the outlets visited by the Ipsos research team were selling cigarettes for less than a pack of 20, and 71% in the Western Cape.
In the three provinces combined, the sale of cigarettes below the minimum collectable tax (MCT) level “shows a trend of increased availability”, from 69% to 73%.
A particularly concerning trade is the infiltration of cheap products (i.e. illegal) into formal retail outlets – up from 3% earlier this year to 11% in March.
“Government is now trying to recoup the money that it lost during the lockdown by adding an extra R1.39 per packet excise on every packet of 20 cigarettes sold,” says Sibisi, referring to the excise increase announced by finance minister Tito Mboweni in February.
“The result of the excise increase, as the Ipsos research has shown, is that people are flocking to tax-dodging illicit cigarettes because they are cheaper. SATTA warned that this would happen, but the government didn’t listen. Now we are all paying the price.
“Government is doing little more than talk about the illicit sector, despite the growing evidence of who its main players are, how they operate, and where they sell.
“To us, as people who pay our taxes and respect and obey every single rule and regulation in one of the most tightly controlled economic sectors, it really feels like government is waging a “tobacco war” against us.
“So even though government acknowledges that the tobacco sector has a right to exist, it will do everything in its power to squeeze us out of business.”
Future of legal tobacco value chain
Looking ahead, Sibisi says SATTA is deeply concerned that there may not be a legal tobacco value chain to speak of.
“The way things are going, the only people who will be left selling cigarettes in South Africa are the organised networks of criminals who smuggle cigarettes into the country, bring imported tobacco in through the back door, and sell through retailers who don’t pay taxes.
“The situation facing farmers, processors and manufacturers is bleak. Because the government is fighting the wrong war, against the wrong people. It needs to acknowledge our existence, protect us and consumers from the illicit sector, and make the right decisions about how to manage the market.”
SATTA is the voice of the legal tobacco industry. For more on SATTA, visit www.tobaccotransformationalliance.co.za.