Edward Kieswetter kisses R300 billion goodbye every year

South Africa’s surging illicit economy robs the country of around R200 billion to R300 billion in tax revenue every single year, which could nearly eliminate the government’s deficit. 

Worryingly, this number only appears to be growing, with the illicit economy showing faster growth than South Africa’s legitimate economy. 

The illicit economy has flourished in recent years on the back of the ban on legitimate sales of cigarettes and alcohol during the Covid-19 pandemic, as well as an underfunded South African Revenue Service (SARS). 

The revenue service is finding its feet once again after being hollowed out during the era of State Capture, but it needs greater assistance from other parts of the government, Commissioner Edward Kieswetter said. 

This call was made by Kieswetter in response to questions from Members of Parliament (MPs) regarding SARS’ efforts to increase tax compliance following the 2026 Budget. 

“We have had significant success in the last five years in responding to complex and syndicated crime,” Kieswetter told MPs. 

“I think that what the evidence shows is that in the last 15 to 20 years, the illicit economy has grown faster than the formal economy. It has gone from about 5% of our GDP to between 12% and 15%.”

In absolute terms, this means the illicit economy is worth between R800 billion and R1.2 trillion. With regard to tax collection, that is between R200 billion and R300 billion that goes uncollected. 

This is a substantial sum, which is almost equivalent to the government’s R324.3 billion deficit expected for the 2026/27 financial year. It is also more than the state’s entire budget for peace and security. 

The growth of the illicit economy is beginning to impact tax collections from legitimate businesses, which are being outcompeted by illegal traders. 

These traders can sell products, particularly cigarettes and alcoholic beverages, for well below the prices charged by legitimate sellers because they do not collect tax on those sales. 

For example, illicit traders are able to sell boxes of cigarettes for around R15 to R20, while the excise duty on a box of legal cigarettes results in a minimum price of R26. 

SARS clamping down 

While it looks easy on paper to close the tax gap and collect the additional R300 billion in taxes, it has proven extremely difficult.

This is partly due to the entrenched nature of the illicit economy following the ban on legitimate sales of cigarettes and alcohol during the pandemic.

However, it is also due to the government’s failure to ensure a coordinated response to the growth of the illicit economy. Often, SARS is found to be acting alone. 

“There is a strong business case to do better. I can share what we are doing, but I think it is not nearly enough,” Kieswetter said. 

“Our analysis supports the fact that our response is disintegrated. Each department is pursuing its own narrow mandate, often with perverse incentives.” 

Kieswetter noted that the government does not have a national dashboard that measures whether the country is making progress on dealing with crime, corruption, and the illicit economy.

This results in the overall system of tackling the illicit economy being fundamentally broken, with capital allocated to different departments that do different things.

“So, one will buy drones, the other will buy armoured vehicles or fix the fence. But, we are not addressing the problem systematically,” Kieswetter said. 

Kieswetter said that in the future, money should be allocated to a project rather than a department, with expertise sourced to complete it.

For example, he pointed to fixing the border fence between South Africa and Mozambique, where resources can be allocated and a project completed. 

Currently, money is given to various departments that do what they think is best to tackle the illicit economy, which often involves contradictory methods. 

Central to enforcement efforts is SARS’ recapacitation, which has a track record of successfully tackling the illicit economy in the mid-2000s. 

The revenue service, according to Kieswetter, remains underfunded and cannot execute as it would like regarding efforts to tackle the illicit economy. 

SARS is also simultaneously implementing an ambitious project to modernise its VAT collection system and enhance compliance more generally. 

A more important change for the revenue service is the imminent retirement of Kieswetter on 1 April 2026, with a successor yet to be appointed. 

He warned that should the wrong individual be chosen, the good work done in rebuilding SARS could be swiftly undone.