Smugglers of illicit tobacco products are dancing in the street following finance minister Tito Mboweni’s announcement of an 8%-increase on excise charges, tobacco heavyweights believe.
British American Tobacco South Africa (BATSA) says it was shocked by the double inflation increase in tobacco sin tax, especially while they are still reeling from the aftermath of the Covid-19 lockdown sales ban.
Furthermore, the South African Tobacco Transformation Alliance (SATTA) believes an 8% excise increase actually equates to an increase of R1.39 in the price of a legally produced packet of cigarettes.
SATTA, who represents the legal cigarette production value chain, has consistently argued that excise charges should not be increased, to avoid the switching from legal to illegal products.
Spokesperson Zachariah Motsumi says, “It (the excise hike) means nothing to those who manufacture and sell illegal cigarettes, apart from making their illicit products even more affordable.
“It will drive more and more people towards the illicit market which means government will make even less money than it made before.”
BATSA general manager Johnny Moloto warns that government’s planned excise policy is another “windfall for the illegal market that flourished during the 20-week prohibition last year.”
Moloto believes the impact will be disastrous as government attempts to recover billions of lost tax revenue at a time when the country needed the money the most.
“The legal tax-compliant industry has failed to regain billions of sales lost to national and international criminal enterprises during the sales ban. The threat of significant job losses is greatly exacerbated by this dangerous excise hike.
“This huge increase will further stoke the illicit market and will undoubtedly result in falling tax revenues for government, while illegal players increase their profits and become even more deeply entrenched.
“By radically departing from its planned excise policy, government is only compounding the losses incurred as a result of its previous mistakes,” he says.
When the lockdown halted the sale of legal cigarettes, the illegal trade mushroomed significantly, says Moloto.
The ban enabled the establishment and strengthening of new distribution networks for tax-evading brands, providing them with better penetration into the consumer market, he says.
The excise exacerbated the crisis.
“Illicit brands have become ‘normalised’, even to higher-income consumers. We are perplexed that government is not taking serious action against the illicit trade in tobacco.”
Motsumi adds, “Those shady characters who make up the criminal network are the only likely beneficiaries of this ridiculous increase.
“The excise increase is effectively double the rate of inflation. It punishes those who respect the law and are prepared to pay the necessary taxes. And it gives an additional advantage to those who deal in smuggling, illicit manufacturing and under-the counter sales.”
‘Mboweni fails to protect public health’
Meanwhile the Tobacco, Alcohol and Gambling Advisory, Advocacy and Action Group (TAG) have come out guns blazing saying Mboweni’s budgeting regarding health tax is inadequate.
Chief executive Peter Ucko argues the increase announced on alcohol and tobacco were “pathetically small”
“On a pack of 20 cigarettes only R1,39, which is about 4% of the retail selling price. On a 750 ml bottle of spirit a minuscule R5,50. That is about 3.6% on a cheaper brand and an almost invisible ineffective 1% and less on a more expensive brand.
“This is a time for tears to be flooding from the eyes of healthcare professionals, NGOs, advocates and all who care about the good health and life of our people. For government, a massive fail,” he says.
“We urge the minister to change his excise duty levels as fast as possible. Not later than his mid-term budget. The real long-term goal is to bring about changes in behaviour.”
Mhlatyana says this is reflected in the budget which reported that the agriculture sector recorded strong growth in 2020.
McCain salutes Mboweni
Meanwhile McCain Foods MD Unathi Mhlatyana welcomed Mboweni’s announcement that agriculture would be supported.
He says the agricultural supply chain holds many job opportunities and along with this, the sector has seen a positive growth trajectory since 2019.
Along with this, the 2021 outlook continues to be positive – a sentiment also shared in President Cyril Ramaphosa’s State of the Nation address.
The McCain Foods boss also welcomed Mboweni’s allocation of R1.2 billion to support climate resilience initiatives, including a legislative framework, intergovernmental coordination and job resilience plans.
“This is vital as our climate and the health of our biodiversity is integral to the sustainability and continued growth of the agricultural sector and in turn, further job creation,” says Mhlatyana.
McCain procures its potatoes from more than 100 local farmers, who plant over 4 500 hectares pER YEAR.
More money for CAPS
Mhlatyana highlights the fact that both ministers Dr Nkosazana Clarice Dlamini-Zuma and Thoko Didiza recommended that more money be earmarked for the Comprehensive Agricultural Support Programme. This will further enhance food security and jobs for poor and vulnerable people.
“Ending hunger, food security and malnutrition for all will require continued and focused efforts and we welcome these recommendations during Covid-19 and beyond.
“At McCain, we echo these sentiments with our Food Forward SA programme, whilst we are also assessing the opportunity to launch a pilot project, leveraging sweet potato to address malnutrition and support local livelihoods,” he adds.
According to Mhlatyana, McCain supports more than 6 800 full-time jobs. The company procures its potatoes from more than 100 local farmers, who plant over 4 500 hectares of potatoes annually.
“Going forward, we hope to work with government to bolster the country’s agricultural sector to create valuable jobs, improve livelihoods and bring food to tables whilst ensuring sustainable farming practices to protect our biodiversity and mitigate against climate change.”