One crime cost South Africa R100 billion in 2024

South Africa is estimated to have lost R100 billion from illicit and counterfeit trading last year through lost business and tax revenue. 

The government’s plan to increase excise tax on alcohol and tobacco products is likely to make this problem worse as legitimate products will be further undercut by their illicit counterparts. 

This is feedback from the Consumer Goods Council of South Africa (CGCSA), which outlined the impact of the illicit trade on legitimate business in the country after the Finance Minister’s third Budget Speech. 

In the Budget, Finance Minister Enoch Godongwana outlined plans to capacitate SARS further to close the tax gap in South Africa and combat the rise in illicit trade. 

SARS was highly effective in tackling this issue before the era of state capture, where it was effectively hollowed out and lost much of its enforcement capabilities. 

This, coupled with a ban on the legitimate sale of alcohol and tobacco during the pandemic, resulted in the illicit trade flourishing. 

In the tobacco sector, data from BMJ Open shows that the illicit cigarette market comprised 5% of the market in 2009, peaked at 60% in 2021, and decreased to 58% in 2024.

It is estimated that this translates into a R18 billion knock to the fiscus from lost excise tax revenue and improperly levied VAT. The illicit trade in alcohol is estimated to cost the fiscus R11.3 billion a year. 

However, Tyikwe said the problem is much worse as it extends beyond tax to the impact on legitimate businesses and employment. 

CGCSA CEO Zinhle Tyikwe said the counterfeit and illicit trade is one of the biggest threats to economic order and growth and to the fiscus, as it thrives on counterfeit goods. 

Currently, this trade is estimated to account for as much as 10% of the SA economy and cost South Africa R100 billion in 2024 alone. 

This includes the impact on the fiscus and legitimate businesses who lose out on sales, cannot employ individuals, and may go out of business entirely. 

SARS gears up for battle

Godongwana’s final Budget allocated an additional R4 billion to SARS over the next three years, on top of the initial R3.5 billion allocation. 

This additional funding is expected to result in billions in extra revenue for the government, with South Africa’s tax gap sitting at an estimated R800 billion. 

While some of this will go to modernising SARS’ systems and improving ordinary taxpayers’ compliance, a portion is expected to be spent on tackling the growth of the illicit trade. 

The CGCSA welcomed the government’s plans to strengthen SARS to fight illicit trade in tobacco, alcohol, and other areas. 

However, it did warn that above-inflation increases to excise taxes on alcohol and tobacco are likely to fuel the growth of the illicit trade. 

As these tax increases push the price of these products higher, more South Africans will turn to the illicit sector for alcohol and tobacco as financial pressure on them mounts.

“Proposing to increase the so-called sin taxes is both anti-growth and counterproductive and will simply encourage the already entrenched illicit trade,” Tyikwe said.

“With such an entrenched illicit market, whose growth was fuelled by Covid-19 restrictions on liquor and tobacco sales, an increase in taxes will drive consumption to the illicit market where the selling prices are unaffected.” 

“Smokers and drinkers will switch to cheaper, illicit or counterfeit brands, denying National Treasury much-needed revenue to balance the budget,” Tyikwe said. 

Illicit cigarettes can be sold for as little as R5 per box of 20. Research shows that it is not commercially viable for a legal, tax-compliant supply chain to sell a box of 20 cigarettes to the end consumer for under R36.