Edward Kieswetter’s R18 billion fight 

Edward Kieswetter and SARS are engaged in a battle with the illicit cigarette trade that costs South Africa between R15 billion and R18 billion a year in tax while also presenting significant health risks to consumers. 

The SARS boss’ comments follow the tax authority’s interdiction from installing CCTV cameras in tobacco manufacturers’ warehouses. 

The revenue service has been in a running battle with illicit cigarette dealers since the early 2000s when the illicit trade was still below 10% of the total market. 

SARS appeared to be winning this battle, with dedicated enforcement units shutting down illegal manufacturers. 

However, Kieswetter said the revenue service had suffered several setbacks since then, with the era of state capture severely weakening SARS and smaller local producers breaking into the market. 

By 2017, illicit cigarette consumption surged to 30% of the total market in South Africa. The introduction of bans on the sale of cigarettes during the Covid-19 lockdowns boosted this. 

The illicit trade flourished under these bans, growing its market share to 60%. It has since moderated to 58% at the end of 2023. 

Kieswetter said many formerly unknown products and materials became embedded in the supply chain during the pandemic-era lockdowns. 

Most of the illicit cigarettes consumed in South Africa are produced locally but are sold without the collection of excise taxes, VAT, and other applicable duties. 

Thus, some may be legally produced but are ‘bootlegged’ and sold cheaply. Others are illegally produced and have fake labels or trademarks, violating intellectual property rights and not meeting health regulations. 

“Just the illicit tobacco trade, according to estimates from academics and SARS, place the loss to the fiscus of between R15 billion and R18 billion a year,” Kieswetter said. 

“Everyone who purchases these products is complicit in the crime, and these products are very unsafe and are cheap because they are not taxed properly.” 

Crackdown

SARS has tried to crack down on the burgeoning illicit cigarette trade, creating a dedicated team to investigate the sector and pursue the illegal profits generated by it. 

Kieswetter said this team is currently dealing with around 100 cases and has raised R20 billion in tax assessments, of which R4 billion has already been collected. 

He also noted that the players in this sector are often syndicated criminal organisations that operate across borders, requiring multiple law enforcement agencies to work together. 

This is still a major concern for SARS, and the recent court ruling against installing cameras in warehouses has handicapped its crack-down efforts. 

Large tobacco manufacturers like British American Tobacco and Gold Leaf Tobacco have had these cameras installed for years, but other manufacturers have failed to do so.

SARS wants to use these CCTV cameras to monitor the volume of cigarettes they produce and clamp down on illicit cigarettes entering the market.

However, Judge Linda Retief interdicted SARS from installing the cameras last month and said there was no evidence that the cigarette manufacturers SARS was targeting weren’t tax compliant.

She added that the interdict against installing CCTV cameras would not prevent SARS from collecting tax.

Kieswetter said the tax authority may turn to physical site inspections from its auditors to assess the volume of illicit cigarette sales and enforce compliance. 

South Africa’s tax boss said that SARS is disappointed in the ruling and is appealing it to a higher court. 

The surveillance of regulated production is an international practice and not unique to South Africa. In many countries, surveillance of production is often stipulated in the licencing requirements for alcohol and tobacco traders. 

“Why are these businesses resisting surveillance if they have nothing to hide?”