The South Africa Tobacco Transformation Alliance (SATTA) has condemned the call by the Congress of South African Trade Unions (COSATU) for a 100% increase in the tax on tobacco products.
Ahead of the much-anticipated mid-term budget speech by minister in the department of finance, Tito Mboweni, expected to take place later this afternoon, the national union has aligned itself with an anti-tobacco campaign, #protectyournext.
If Cosatu has its way smokers could pay double the price for cigarettes. Minister Mboweni is expected to take the parliamentary podium at 14:00.
The campaign is a collective anti-smoking effort by lobby group National Council Against Smoking (NCAS), the South African medical research council (SAMRC) and the Heart and Stroke foundation who are calling for Mboweni to instate a 100% increase in the tax on tobacco products.
A 100% in excises will decimate the industry, says SATTA spokesperson Zachariah Motsumi.
“The tobacco products industry is already on its knees as a result of the Covid-19 lockdown, which resulted in the loss of billions of rands in revenue for farmers, processors and the manufacturers of legal products,”
SATTA represents 11 000 tobacco farmers, processors and manufacturers across five growing provinces who are committed to supporting transformation in the industry.
Motsumi adds that COSATU was “completely misinformed” in thinking that higher tobacco product prices will help to fight the illicit trade.
“The opposite is true, putting up the price of legal cigarettes will encourage people to smoke illicit products. It is a ridiculous suggestion.”
Motsumi reveals that it was no secret that illicit tobacco products are cheaper to buy than legal products. A simple fact is that people who make illegal tobacco products do not pay tax, Motsumi stresses.
Given the thrill-seeking nature of South Africans, Motsumi believes increasing tax on legal tobacco products will do one thing, “make it even more attractive to buy illicit products.”
“Cosatu’s proposal would be the death knell for hundreds of farmers, many of them emerging black farmers, not to mention those employed in the tobacco processing sector and in the manufacture and sale of legal cigarettes and other tobacco products.
“Does Cosatu really want to put thousands of people out of work and force them to be social grant recipients?” he asks.
“Over 290 000 people are dependent on the tobacco industry for their livelihood. Will Cosatu look after them when they are out on the streets? We think not,” he says firmly.
Motsumi has challenged Cosatu to study SATTA’s own proposals made to Parliament earlier this month for more informed ways of dealing with the illicit trade.
According to the study, there are two ways for government to increase excise revenue from the sale of tobacco products:
- Option one: Act in such a way that encourages increased legal sales volumes, which will increase the amount of revenue. This means keeping the price of tobacco products at an affordable level.
- Option two: Increase the excise on tobacco products which will decrease the amount of legal tobacco products being sold and consequently decrease the amount of revenue. It will also, we have no doubt, open more and more space for illicit traders.
“We believe that option one not to increase excise on cigarettes, to keep the prices at current levels is by far the best option.
“We have also proposed that National treasury adopts a new approach which has had significant success in other parts of the world. It hinges on the establishment of a ‘minimum price level’ (MPL) for cigarettes.
“This approach would enable law enforcement agencies (and consumers) to recognize illegal cigarettes purely by how cheap they are which is the most obvious sign that excise duties are not being paid.
“For example, if treasury adopts an MPL price point of R28 for all retail sales of cigarettes, any cigarettes sold below this price would clearly not be ‘tax-compliant’ given the amount that needs to be paid in excise.
“As a result, law enforcement agencies can enforce immediately based on a strong legal foundation and consumers would get certainty about the legality of their purchase.”
Motsumi says an MPL strategy would need to be supported by a deterrent criminal penalty regime which includes heavy fines and jailtime for traders who contravene the law. This would allow law enforcement agencies to seize illicit cigarettes in the most efficient and effective way, based on in law, and was a much more effective approach than the one floated by COSATU.
Motsumi says that an independent study by the Research Unit on the Economics of Excisable Products (REEP) at the University of Cape Town showed that the illicit trade known as the duty not paid (DNP) trade grew by an unprecedented 104% during the national lockdown period.
“Cosatu is making a fundamental mistake in thinking higher taxes will hit the illicit sector. It is the legal farmers, processors, manufacturers, and retailers who will be hit, and they and their employees will be hit hard.
“Is this what COSATU wants? Do they really want to put thousands of people out of work, in addition to the two million who have already lost their jobs during the lockdown? What on earth are they smoking?”