The illegal trade of alcohol and cigarettes has reduced the National Treasury’s revenue by R3.7 billion in the first six months of the 2024 financial year compared to the previous period.
This was revealed in a presentation by the National Treasury released after the Medium-Term Budget Policy Statement.
Revenue collected by the government in the first half of the current financial year was 2.4% greater than the same period last year but R56.8 billion lower than estimated by the Treasury.
Most of this decline is due to stronger-than-expected VAT refunds and a sharp decline in corporate income tax.
However, a substantial portion is also made up by a decline in excise tax collection, despite collections increasing since the Covid-19 pandemic.
“While collections in spirits excise duties have recovered well compared to levels in 2019/2020, collections over the first half of 2023/23 were 12.4% lower compared to the same period in 2022/23,” the National Treasury said.
This trend continues the poor collection of excise taxes from the sale of tobacco, with collections down nearly 47% since 2020.
“The downward revision largely reflects poor performance in cigarettes and pipe tobacco products collections. Compared to the first half of the 2022/23 fiscal year, collections are 20% lower,” the Treasury said.
The South African Revenue Service (SARS) has previously estimated that the illicit trade of alcohol and tobacco costs the economy R100 billion annually in lost activity and tax collection.
A report published by Business Unity South Africa (BUSA) said illicit trade is one of the biggest threats to stability and economic growth in South Africa.
It found South Africa faces challenges from illicit trade in alcohol, cigarettes, fishing, mining, counterfeit electronics, pharmaceuticals, food, and apparel.
SARS Commissioner Edward Kieswetter has previously highlighted that illicit trade costs South Africa R250 million daily.
Tax Justice South Africa’s Andy Mashaile said this is not a victimless crime. “Tax dodgers are robbing South Africans of schools, housing, healthcare, and basic safety,” he said.
“The criminals live in luxury using funds that should be used to create jobs and wealth. They do so by stealing the tax they owe to the state purse.”
Tax Justice South Africa said criminals have been allowed to thrive due to corruption and complacency.
Operations have begun to address the problems associated with illicit trade and bring the perpetrators to book.