After 119 days of the covid-19 lockdown, the ban on the sale of tobacco products has now cost the country over R4 billion in taxes and resulted in substantial job losses in the industry, says tobacco juggernaut, British American Tobacco South Africa (Batsa).
Their conclusion come ahead of their impending court battle with government on 5 and 6 August. In a media release, Batsa also indicated that it supports recommendations from the Research Unit on the Economics of Excisable Products (Reep) report authors calling for the immediate lifting of the tobacco ban.
Meanwhile another devastating legal blow landed for the Fair-trade Independent Tobacco Association (Fita). On Friday morning an appeal lodged by Fita was yet again dismissed by the Pretoria High Court. The latest legal blunder follows a court challenge lodged by the tobacco lobby group in an attempt to overturn the ban and have the regulations imposed by the minister of CoGTA Nkosazana Dlamini Zuma declared unlawful and unconstitutional.
Government’s widely controversial decision to continue the ban on the sale of tobacco and alcohol products under alert levels four and three of the national lockdown has been met by continued opposition from many citizens, the tobacco industry and lobby groups.
In a new online study conducted by the University of Cape Town (UCT) the research suggests that more people are sharing cigarettes than before the lockdown as prices on the illicit trade of smokes continues to skyrocket.
According to Reep the percentage of smokers buying cigarettes during the national lockdown has increased since its first online survey in May. The research report suggests that there has been a 430% increase in the number of people also sharing cigarettes – a direct result on the hiked-up price of cigarettes.
The illicit tobacco trade is thriving at the expense of law-abiding, tax compliant manufacturers costing the country R35 million in taxes a day, says Batsa’s head of external affairs, Johnny Moloto. This due to the high prices on the sale of illicit products which average 250% more than the pre-lockdown price.
“At the moment, the tobacco market in South Africa is being run and dominated by illicit suppliers who, quite obviously, are breaking the law and making billions of rand in illicit profits,” Moloto says.
He adds that Batsa had contributed R13 billion in taxes every year for new resources to be allocated to the South African Revenue Service (SARS) to ensure that the market can be taken back from criminals in the aftermath of the ban.
“These illicit suppliers are not, suddenly, going to become compliant and start obeying the law and paying taxes when the ban is eventually, lifted. They evaded taxes prior to the lockdown. They’ve made billions tax-free during the ban and they will evade taxes after the ban.”
Moloto says, “A dramatic increase in excise taxes, as suggested by the UCT report’s authors as a substitute for the prohibition on sales, would be second only to the ban itself as an absolute gift to the criminal suppliers. It would prevent the legal and tax-compliant industry from taking some of the market back from the illegal suppliers and make South Africa the largest illicit tobacco market in the world.”
Moloto adds that SARS face “a massive battle” to return meaningful tax collection to the country’s tobacco market after the ban, and BATSA believes that the revenue service requires significant extra resources to impose a zero-tolerance approach to evasion when the ban is lifted.
“If the country is to capture any of the taxes it so desperately needs then SARS needs to be allocated the required resources to establish a nationwide task force. It is uneconomic to retail a pack of cigarettes at less than R25, if taxes are being paid. Anything selling below that number should be considered suspicious and investigated,” says Moloto.
“The UCT report suggests that there is significant round-tripping of cigarettes supposedly destined for the export market making their way back into South Africa at the moment.”
Batsa vows to support SARS
Batsa exports to BAT entities in 12 other countries and the volumes produced are consistent with export volumes before the lockdown. Moloto says that Batsa is working closely with SARS and have implemented SARS’s new processes and protocols for production and export.
“We have SARS officials at our factory who are controlling production volumes, auditing the export declarations, verifying the container loading and sealing the containers. This process also includes the checking of containers at the ports of exit by customs officials. Furthermore, we are obliged to send production and forecast reports on a weekly basis to SARS. Although some of these new processes have affected our production efficiency, we recognise the importance of these steps and are complying with them 100%.”