Thursday 21 January 2021 – TAX Justice SA (TJSA) today launches a five-point action plan to stop criminals in the illicit cigarette trade looting billions of rand needed to save lives and rebuild our nation.
Using undercover footage filmed at shops across the country, it shows that the sale of illicit, tax-evading cigarettes is open and endemic at mainstream outlets nationwide in the wake of the Covid-19 lockdown.
To combat what is now the world’s biggest cigarette black market, TJSA’s full report also demands the following urgent action:
- Arrest, prosecute and seize the assets of criminals heading the production and distribution of illicit cigarettes
- Enforce stricter controls at our borders, place a permanent SARS official at every cigarette factory and introduce track-and-trace technology
- Shut down any plant making cigarettes found being sold at prices below the Minimum Collectible Tax (MCT)
- Impose a minimum price for tobacco products at 30% above MCT, below which these products are identified as illegal and immediately seized
- Introduce an education programme for retailers, paid for by tobacco excise taxes, to help them identify which brands are illicit and cannot be sold
TJSA founder Yusuf Abramjee says: “Our investigation shows that the tax-looting illicit cigarette trade is rife and brazen nationwide.
“It is robbery on an industrial scale and a crackdown on the manufacture, supply and sale of these illicit goods is way overdue.
“Every day that we delay robs the country of R22 million in excise taxes that should be helping decent South Africans to survive, heal and prosper – not enriching the manufacturers of the illicit brands who are living like kings at our expense.
“We estimate that two in every three cigarettes sold in SA is now illicit. The annual R8 billion being lost in unpaid ‘sin’ taxes would pay to vaccinate half of all South Africans against Covid-19. Instead of turning a blind eye, authorities must act now to save lives.”
Abramjee says every manufacturer should comply with the recently introduced production counter regulation, under which SARS must ensure that they get oversight of each cigarette produced in South Africa.
“This is an important regulation as it allows revenue officials to match production volume against excise payment,” says Abramjee.
“TJSA has also urged the Government to ratify the World Health Organization’s Illicit Trade Protocol so that South Africa adheres to the same standards as the international market for the tobacco industry.”
TJSA has delivered a full confidential report of its investigation, featuring hours of undercover footage, to police, the South African Revenue Service (SARS) and the Departments of Health and Trade.
TJSA’s undercover team visited over 40 mainstream retail and wholesale outlets across Cape Town, Johannesburg, Pretoria and Durban to secretly film cigarettes being sold at a price actually below the minimum tax that must be paid on them by law.
TJSA considers all cigarettes sold at R25.00 a pack or below to be illicit, since such a price cannot possibly cover the cost of manufacture and distribution on top of the Minimum Collectible Tax (MCT) of R20.01 due on each pack (R17.40 excise plus R2.61 VAT). However, for the avoidance of doubt, a far lower threshold of R20.00 – below the actual MCT – was adopted for this study. These cigarettes are in our analysis illicit as they are being sold below the legal threshold.
Our researcher was able to simply walk in off the street as an unknown customer and purchase cigarettes at R20.00 or below in all but one of the outlets visited over the course of six days across all four cities, recording every buy on video.
Some cartons were being sold at barely a third of the price necessary to cover tax alone. Two retailers openly sold our researcher illegal cigarettes with nicotine levels above South Africa’s legal 1.2mg limit, with one filmed explaining that they had been smuggled from Mozambique and no tax had been paid.
Vendors are apparently so unafraid of action from police or SARS that many now openly display illicit cigarettes alongside legal brands in their stores and wholesale displays. Some were recorded on film laughing at the suggestion that they might be caught or face sanction for selling illicit cigarettes. When asked if he was worried about the authorities, one even scoffed: “Don’t worry about them. F*** the police.”
The investigation shows that the illicit brands being sold at a price below the tax that should have been paid on them can be traced to a small number of manufacturers. Between them, Gold Leaf Tobacco Corporation (GLTC) and members of the Fair-Trade Independent Tobacco Association (FITA) accounted for the vast majority of the brands being sold to our researchers and thus supplied to the market at below MCT.