New tobacco bill could cost SARS billions

South Africa does not have the enforcement capabilities to address the high level of counterfeit and illicit tobacco products in the country, a problem that will be made worse if the Tobacco Products and Electronic Systems Control Bill is put into law.

This is feedback from the founder and CEO of Strategos BIP, Brigadier General Juan Carlos Buitrago.

The objectives of the Tobacco Products and Electronic Systems Control Bill are, amongst others:

  • Regulate smoking
  • Regulate the sale and advertising of tobacco products and electronic delivery systems
  • Regulate the packaging and appearance of tobacco products and electronic delivery systems and make provision for the standardisation of their packaging
  • Provide standards with respect to the manufacturing and export of tobacco products and electronic delivery systems
  • Prohibit the sale of tobacco products and electronic delivery systems to children
  • Prohibit the free distribution of tobacco products and electronic delivery systems;
  • Prohibit the sale of tobacco products and electronic delivery systems by means of vending machines

However, Buitrago said the unintended consequences of the Bill will fuel illicit trade and is one of the biggest threats to South Africa’s stability and economic growth.

“While the regulatory framework in place in South Africa should allow control of the market and address consumer protection, the poor level of implementation will result in high levels of criminality, illicit trade, and presence in the market of low standard illicit products, all benefiting organised crime groups,” he said.

“In South Africa, tackling illicit trade must be prioritised by the government instead of introducing draft legislation which is prohibitive that further restricts the legal tobacco industry and in turn grows the illicit and counterfeit market.”

He explained that there are two main provisions in the Bill that are highly likely to increase illicit trade and counterfeit tobacco products. 

These provisions include the display ban, point of sale ban and the implementation of plain packaging, which are restrictive, prohibitive laws that will add to the burden of law enforcement agencies, he said.

These provisions create incentives for readily available illicit substitute and counterfeit products to enter the South African market and will further boost the illicit and counterfeit market.

“The risk of criminalising the retail sector increases significantly, making it easier for unscrupulous retailers to sell cheaper illicit products, as there will be no visibility whatsoever,” he said.

“Removing distinctive trademark features and restricting the labelling or packaging of products benefits illicit manufacturers, as the process of counterfeiting popular trademarks becomes easier to do and far more difficult and cumbersome to detect.” 

Counterfeit goods pose a significant threat to South African businesses and the broader economy and are estimated to cost the economy R100 billion a year

Through customs, the South African Revenue Service (SARS) is responsible for processing goods at South African ports.

However, currently, SARS can only check between 10% and 15% of all goods entering the country due to a lack of resources and a need to facilitate trade efficiently. 

Moreover, SARS is mandated to collect customs duties on the goods and tax where applicable – not fight counterfeit goods. 

South Africa has seen an uptick in illicit cigarette trade over the past few years.

Tax Justice South Africa revealed that South Africa’s illegal tobacco trade cost the country more than R20 billion in tax revenue last year.

Put another way, the organisation estimated that the illegal tobacco trade has cost the country R50 million per day in lost tax revenue.

The organisation said R20 billion would pay for solar systems to take 20 small towns off the Eskom grid forever. 

It is estimated that almost 15 million illegal cigarettes are smoked in South Africa every day, and 3 out of 4 informal retail shops sell illegal products.

According to the Economics of Tobacco Control Unit at the University of Cape Town, the illegal cigarette trade has increased by 1,000% in a little over a decade.

Buitrago said South Africa’s sharp increase in illicit trade in tobacco products has been the direct result of imposing restrictive, prohibitive regulations.

“In South Africa, like many countries around the world just like it, millions of adult smokers choose to buy cheap illegal cigarettes, as their purchasing power is on the decline due to a combination of excessive tax increases, high inflation, and economic instability that directly affect affordability, and price disparities of legitimate products across countries.”

He pointed to the tobacco ban the government put in place during the Covid-19 lockdown.

In 2020, the Covid-19 pandemic gave rise to government bans on the sale of cigarettes. However, the government did not ban the rest of the tobacco supply chain, like exporting and manufacturing, which saw the illicit cigarette trade boom.

This move cost SARS R5.8 billion in lost tax revenue, according to the Bhekisisa Centre for Health Journalism.

Buitrago said that while addressing the health consequences of tobacco is important, it is not the only concern. 

“It is recommended that the government avoid prohibition laws, extreme legislation and regulation that artificially reduce the supply of safer legal products,” he said.


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