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Press Release

The illicit cigarette price war is sucking the life out of legitimate farmers and producers

The following statement is issued by the South Africa Tobacco Transformation Alliance (SATTA), which represents the legal tobacco value chain.

Illegal cigarette manufacturers are sucking the lifeblood out of South Africa’s legitimate tobacco farmers, processors and cigarette manufacturers on an increasingly large scale.

The extent of this destruction has been exposed in the latest independent research into illegal cigarette trading by IPSOS, which shows the daily gains that are being made by the criminal networks driving the illegal sector.

The research found that nearly half South Africa’s shops now stock illegal cigarettes, and five times as many petrol station outlets now sell illegal cigarettes compared to a survey conducted in February. What is particularly concerning is that some retail outlets are selling cigarettes for as little as R6 a pack, which is a fraction of the Minimum Collectible Tax (MCT) rate of R21.60.

The only way cigarettes can be sold so cheaply is by not paying tax and thereby committing a crime at the expense of SARS and the legal value chain.

Although SATTA welcomes recent action against some illicit tobacco traders, it is clear that much, much more needs to be done. The wave of illicit cigarettes now threatens to completely destroy the legal sector – putting thousands of farmers and farm workers, tobacco processors and cigarette company workers out of a job and affecting the livelihoods of tens of thousands more who depend on this law-abiding economic sector for their income.

Surely the South African Revenue Service should be more concerned, and more focused on action, than it currently is? The national fiscus needs every cent it can get, yet the illicit tobacco sector siphons millions of rands a day out of the system.

But either SARS doesn’t know how to win the battle, or it doesn’t want to.

How else do we explain the fact that the number of shops selling illegal cigarettes in the Eastern Cape has more than doubled in just four months, and has shot up by one-third in KwaZulu Natal? How else do we explain the predominance of illicit cigarettes at petrol station stores, and the fact that two out of three shops in Free State, Gauteng and Western Cape sell illegal cigarettes?

How does SARS justify this situation to the tobacco farmers – mainly black subsistence farmers – who pay their taxes and comply with the law, but are slowly going under? What does SARS say to the tobacco processors who see demand from the legal industry shrinking year by year? And what does SARS say to the cigarette factory workers who have lost their jobs, or may soon lose their jobs, because the illicit sector is pushing them out of the market?

It is a very, very distressing state of affairs, and it appears that no amount of legitimate objection makes a difference.

What particularly irks SATTA is the fact that identities of the illicit tobacco dealers are no mystery — you just have to look at the brands which are increasing their presence and selling below the MPL.

As the IPSOS research shows, the culprits are the brands owned by or licensed to Gold Leaf Tobacco Corporation (GLTC), with the number of its South African brands purchased below the MCT rising by 25%, and brands owned by or licensed to Carnilinx, a member of the Fair-Trade Independent Tobacco Association (FITA), whose sales below the MCT increased by a third.

There was also a threefold increase in brands owned by or licensed to FITA-member Protobac being sold below the MCT.

The time for talk is over. South Africa’s legal tobacco value chain demands answers.

We want to know what SARS is doing to enforce the use of production counters on all cigarette production lines. What is SARS doing about introducing a minimum sales price of R28 for a pack of 20? When is government going to sign the WHO Illicit Trade protocol to fight illicit trade? When is government going to institute a commission of inquiry into the illicit cigarette trade? And when is SARS going to introduce a comprehensive track-and-trace system?

So many questions, but still no answers.

The key question, of course, is this: What is government really going to do to prevent the legal cigarette industry from going out of business altogether, ruining thousands of lives and leaving millions of smokers with no choice but to become partners in crime with the criminal cigarette networks? Because that, sadly, is the only future we foresee.


Issued by: Zacharia Motsumi
Spokesperson for SATTA
Mobile: 083 216 8842