The road towards normalcy following the lift on the tobacco sales ban will be a long and gruelling process, warns British American Tobacco South Africa (Batsa). This as the industry juggernaut and SARS struggle to come to terms with a R4.8 billion loss in excise tax following a nearly five-month ban on cigarette sales.
Batsa has vowed to remain steadfast in their legal action against government despite the scaling down of alert levels under the national lockdown.
In March, pres. Cyril Ramaphosa first announced the sales ban. The industry did not take this decision lightly and it was met with continued opposition from both Batsa and the Fair-Trade Tobacco Association (Fita). A verdict is still anticipated following two days of heated court debate early this month.
“Legal clarity is needed. For the time being, we can resume our business in South Africa, supporting thousands of jobs in our value chain, whilst combatting the grip of illegal cigarettes in the marketplace,” said Batsa’s head of external affairs, Johnny Moloto.
Recovery at this point is volatile, Batsa added. The industry, like many others, was not immune to the effects of the global pandemic.
To cover the extent of losses incurred following a five-month hiatus, Batsa called on government to urgently ratify the World Health Organization illicit trade protocol to eradicate the rampant trade of illegal cigarettes.
Seven years ago, South Africa signed the comprehensive international rules but never ratified it. Batsa has called for the implementation of the WHO’s track and trace guideline to mitigate the losses experienced under higher alert levels.
Amid the ban a study conducted by the Research Unit on the Economics Excisable Products (REEP) showed that smokers had turned to the illicit market for a fix. Tracking consumer behaviour patterns under the helm of University of Cape Town professor Corné van Walbeek, the study showed that among losses incurred, Batsa’s market share dropped from 48% prior to the lockdown to 8.7% in June.
Batsa, who once stood tall as the biggest distributer of tobacco in the country, also owned six of the top ten selling brands in South Africa, including Lucky Strike, but today it has none. The Zimbabwean brand RG, from Gold Leaf Tobacco Corporation (GLTC), exploded in sales over the course of the lockdown.
Moloto warned that an increase in excise on tobacco will only exacerbate the control illegal producers have over the market. “The ban on legal sales has been the greatest gift ever given to tobacco smuggling criminals. Increasing the rate of excise, that they don’t pay anyway, would be the cherry on top.”
“Tax is only paid by people and companies who obey the law. South Africa now has a tobacco market that is controlled by people who don’t obey the law,” he cautioned.
According to van Walbeek, Batsa had suffered the biggest knock as a result of the tobacco sales ban. The tobacco company has also confirmed independent research allegedly indicates that brands associated with Fita were at the for of the cigarette market amid the sales ban. Moloto said in contrast with Fita members Batsa had a reason to be unhappy about the sales ban.
“Our company has not shipped a single cigarette to South African retail or wholesale customers since the ban came into effect in March. This is why we, as the previously largest tobacco company in the country, are barely a footnote in the REEP reports now,” said Moloto.
He added that Batsa remains committed to cooperating with SARS to root out the rampancy of the illicit trade to ensure a speedy return to the legal and tax-compliant trade in tobacco. “We co-operate fully with SARS and have SARS officials in our facility in Heidelberg on a daily basis controlling and monitoring production and export shipments.”
Meanwhile Fita chair Sinenhlanhla Mnguni rubbished the presumption that its members have benefited in any way from the tobacco sales ban. “We are used to this, but it is nonsense. It is hot air really.”
Fita remains steadfast in their legal action against government and has lodged its application to appeal the decision by the Gauteng High Court in the Supreme Court of Appeal in Bloemfontein.