Criminal syndicates helped by government officials to rob South Africa of R300 billion a year

The criminal syndicates operating in South Africa’s illicit economy are highly organised and sophisticated, with many getting help from government officials and professional enablers. 

These syndicates have been immensely successful in entrenching themselves in South Africa’s illicit economy and society. 

South African Revenue Service (SARS) Commissioner Edward Kieswetter estimates that the illicit economy is worth between R800 billion and R1.2 trillion. This results in around R200 billion to R300 billion in tax being uncollected. 

Kieswetter explained that it has proven extremely difficult for SARS to crack down effectively on the illicit economy because it is so deeply entrenched in South Africa. 

“The hard lockdowns for alcohol and cigarettes during Covid only entrenched these illicit operators in the value chain,” Kieswetter explained to BusinessDay TV. 

“When people get used to buying cigarettes at a fraction of the price, then it is hard to wean them off that and get them to buy legitimate goods.” 

Kieswetter explained that this made the issue one that the entire government and society must tackle, with individuals who buy illicit goods held responsible. 

Without the demand for illicit goods, Kieswetter argued, there would be no supply that negatively impacts the fiscus, economy, and society. 

Apart from the demand for illicit goods becoming entrenched in the economy, the syndicates behind the supply have proven difficult to prosecute due to their sophisticated nature. 

“These are not single operators. They are syndicates. They work across borders and are often enabled by professional enablers and people in government or politics,” Kieswetter said. 

“It needs a system to function and track the flow of money across many individuals and organisations. These are highly sophisticated, criminal syndicates.” 

Despite the taxman’s success in tackling the illicit economy over the past few years, it has continued to grow rapidly. 

SARS estimates that the illicit economy has grown at a faster rate than the formal economy and has gone from being worth the equivalent of 5% of South Africa’s GDP to between 12% and 15%.

The growth of the illicit trade is so strong that it is beginning to impact tax collections from legitimate businesses, which are being outcompeted by illegal traders.

SARS new plan to crack down

SARS has tried various plans to crack down on illicit trade in South Africa, but there is very little it can do on its own. 

As Kieswetter noted, it will require collaboration across the entire government to make a meaningful impact on the illicit economy. 

“The President announced a National Illicit Economy Disruption Programme, with SARS playing the leading role in this,” Kieswetter said. 

This programme is set to begin by looking closely at South Africa’s ports of entry to prevent illicit contraband from flowing into the country. 

“Your ports of entry are your weakest links, because it is often through these ports that the illicit flow of goods enters the country,” Kieswetter explained. 

Oftentimes, the illicit goods also come with illegal immigrants who facilitate illicit trade flows into South Africa. 

“It is like pouring water into a bowl with holes in it. The water keeps flowing out. You have to first close the holes before anything else,” Kieswetter said. 

He explained that the first focus for the programme is on South Africa’s border with Mozambique, which is where the most illicit contraband flows into the country. 

“Illicit crime and syndicated crime are a systematic problem, and it requires a systematic or strategic response,” Kieswetter said. 

“Up until now, we have been fragmented, and we have diluted our efforts by working within our narrow agency mandates.” 

This poor initial response from the government has created significant opportunities for criminal syndicates to flourish at the expense of legitimate businesses. 

The highest profile example of this impact was the announced shutdown of British American Tobacco’s (BAT) Heidelberg plant. 

In announcing that the facility will be shut down by the end of the year, BAT revealed that it has been operating at 35% of its capacity and with only 230 staff members due to the sharp rise in illicit cigarettes in South Africa.

The company said illegal cigarette sales now make up about 75% of the market, which has made its legitimate products uncompetitive. 

In 2014, local manufacturers declared about 22 billion cigarettes to SARS and generated R12.6 billion in excise tax revenue. 

A decade later, this had fallen to just 8.3 billion cigarettes, and excise tax collected by SARS declined to R8.3 billion despite the rate levied on tobacco products rising.